rtp & amendments - may 2012 ipcc160312101358

CA. AJAY JAIN, 911167879, www.caajayjain.com 1 RTP May 2012 - IPCC Hello, dear friends,

In continuation of our efforts for your success, Revisionary test paper has been prepared. This contains complete paper alongwith solutions and the amendments made by the Finance Act 2011.

An Answered Prayer

I asked for prosperity, And God gave me brain,

And brawn* to work! *Physical

strength

I asked for love,And God gave me,

Troubled people to help!

I asked for favours,And God gave me,

Opportunities to grab!

I asked for strength,And God gave me diffi-

-culties to make me strong!

I asked for wisdom,And God gave me,

Problems to solve!

I asked for courage, And God gave me,

dangers to overcome!

I received nothing I wantedI got everything I needed

Friends you must be feeling very tense. This tension is created by the institute to develop more capabilities in you, so that you are prepared for the future challenges.

It is said that the maximum development of the world took place during two world wars. Because it is only during challenges that our mind becomes creative and our capabilities increase.

http://www.caajayjain.com/

CA. AJAY JAIN, 911167879, www.caajayjain.com 2 RTP May 2012 - IPCC Therefore take this tension as a challenge and just think that God has given you this opportunity to grow.

Before the examination day

1. Don’t waste any time on checking the paper of Cost & FM . Just think what next.

2. Keep in mind that the person who starts early always stays ahead. So don’t get relaxed. Don’t think you have two days and you will work slowly. Don’t unduly stick to one topic.

3. Allocate time for each and every topic before starting the revision and don’t at all exceed those limits. Following should be a tentative time plan for revision:- Service Tax & VAT 5 hours Assessment Procedure 2 hourStatus 1 hourSalary 4 hoursHouse Property 2 hourCapital Gain 4 hoursPGBP 5 hours Other Sources 1 hourClubbing & C/f 1 hourDeductions 3 hours Trust and Agricultural 1 hourMiscellaneous 1 hourTotal 30 hours

4. Don’t try to recall the things; just try to read the topic. Just keep on reading, don’t think whether you will be able to recall or not in the examination hall.

You will be definitely able to recall the topics provided you have gone through that topic before examination day.

5. Don’t at all compromise on your sleep. If you are fresh then you will solve even the most difficult questions and vice-versa.

And as per Dr. Bruta before sleeping take bath, it will give you good sleep.

So, please, take proper sleep and not only in this paper but in all the papers.

In the examination hall:-1. Don’t rush to attempt the question paper. First go through the entire question

paper and select your best and shortest possible question.

2. Even in the most difficult papers, there are always few questions which are very easy. If you once start doing easy questions, your confidence boosts up and you are able to do even the difficult ones. Therefore, instead getting demoralized from difficult questions, try to search for the easier ones.

3. Allocate time for each question and don’t exceed the limits.

4. Don’t leave numerical questions for the end, try to attempt them somewhere in the middle.

And finally friends, it is said that great battles are always won at the end. You still have lots of time. If you work with regularity and discipline then your success is definite. Relax and work hard.


CA. AJAY JAIN, 911167879, www.caajayjain.com 3 RTP May 2012 - IPCC

For successful people there is only one second of tension and all, all the remaining seconds of work

With Best Wishes Ajay Jain

Amendments for May 2012 exams

Service Tax

1. Applicable from 1-4-2011.

2. Definition : - “Point of taxation”:- means the time when a service shall be deemed to have been provided.

3. Determination of Point of taxation (service treated to be provided when)

(i) If Invoice is issued in 14 days from completion of service:-

Date of Payment or date of invoice whichever is earlier.

(ii) If invoice is not issued in 14 days of completion of service:-

Date of Payment or date of completion whichever is earlier.

Explanation:- If any advance is received, the date of receipt of each advance shall be point of

taxation.

The applicability of the rule will be clear from the illustrations in the following table:

S. No.

Date of completion of service

Date of invoice

Date on which payment recd.

Point of Taxation

Remarks

1. April 10, 2011 April 20, 2011

April 30, 2011 April 20, 2011

Invoice issued in 14 days and before receipt of payment

2. April 10, 2011 April 26, 2011

April 30, 2011 April 10, 2011

Invoice not issued within 14 days and payment received after completion of service

3. April 10, 2011 April 20, 2011

April 15, 2011 April 15, 2011 Invoice issued in 14 days but payment received before invoice

April 5, 2011 (part) and

April 5, 2011

and

Invoice not issued in 14 days. Part payment before completion,

Point of Taxation Rules, 2011


CA. AJAY JAIN, 911167879, www.caajayjain.com 4 RTP May 2012 - IPCC 4. April 10, 2011 April 26,

2011April 25, 2011

(remaining)

April 10, 2011 for respective amounts

remaining later

4. Change in effective rate of tax

(a) Service provided before change in rate :-

(i) After change invoice issued and payment received:-

Date of invoice or payment whichever is earlier.

(ii) Invoice before change but payment received after change:-

Date of invoice.

(iii) Payment received before change but invoice after change:-

Date of Payment.

(b) Service provided after change:-

(i) Invoice before change but payment received after change:-

Date of Payment.

(ii) Before change invoice issued and payment received:-

Date of invoice or payment whichever is earlier.

(iii) Payment received before change but invoice after change:-

Date of invoice.

5. New Service :- A service is taxed for the first time then:-

(a) Before becoming taxable invoice issued and payment received

No Tax payable.

(b) Payment received before tax and invoice issued in 14 days ( as per rule 4A of STR)

No Tax payable.


Cash or Accrual System


6. Continuous Supply of Service (service provided for more than 3 months or any service specified by CG.)

Same as in Rule 3.

If contract requires receiver to make payment to the provider on the completion of an event periodically, the date

of completion of each such event specified in the contract shall be deemed to be the date of completion

of service.

7. Specified persons :-

(a) Export of Service (when forex is not received, it is taxable)

(b) Reverse Charge* u/s 68(2)

(c) Individual or partnership firms providing service of :- (i) Architect (ii) Interior decorator

(iii) CA/CS/CWA (iv) Scientific & technical consultancy (v) Legal services & (vi) Engineer -added

after budget. (when receiver despite provider, becomes liable to pay service tax)

the date on which payment is made.

Change in Rate of Tax

Service Provided

Before Change

After ChangeAnything

after

(Invoice/Receipt)

Anything before (Invoice

/Receipt) Rate of after change

Rate of before change



8. Copyrights, patents, trademarks :- In such cases consideration arises by the use of such rights. The service shall be deemed to have been provided each time when payment is received or invoice is issued whichever is earlier.

1. Due Date for payment :-

The service tax shall be paid by the

(i) 5th of the, month following the calendar month in which the [service is deemed to be provided]. (6th if paid electronically)

(ii) In case of an individual or partnership firm, the service tax shall be paid by the 5 th of the month following the quarter in which [service is deemed to be provided].(6th if paid electronically)

But the service tax on [the service deemed to be provided] during March, or the quarter ending in March, shall be paid by the 31st March.

Provided that where

total service tax is of rupees ten lakhs or more including the amount used as CENVAT credit (taxes paid on services used), in the preceding financial year,

he shall deposit the service tax electronically, through internet banking.

2. Deposit of tax :-

The assessee shall deposit the service tax with the bank designated by CBEC in Form GAR - 7.

Date of deposit in case of cheque :-

Payment of service Tax , Rule 6 of

Other Services


CA. AJAY JAIN, 911167879, www.caajayjain.com 7 RTP May 2012 - IPCC If the assessee deposits the tax by cheque, the date of presentation of cheque* to the bank shall be deemed to be the date on which tax has been paid subject to realization** of that cheque.

(giving to Govt.),**(clearance0)

3. Payment of excess tax on his own :- (May 2011 4 marks)

Every person liable to pay service tax, may, on his own

pay service tax in advance to the credit of Central Government and

adjust the amount so paid against the service tax of subsequent period.

Assessee shall

(i) intimate the amount deposited to the Supdtt within 15 days from the date of

payment.

(ii) Indicate the details of advance payment and adjustment in the subsequent return.

4. Adjustment of tax paid but amount changed/refunded :-(i)Where an assessee has issued an invoice and

the amount of invoice is renegotiated and the assessee has issued a credit note

OR

(ii)Assessee has received any payment for service to be provided which is not provided wholly or partially for any reason and the assessee has refunded the payment

the assessee may take the credit of the excess service tax so paid.

[If the amount of invoice is renegotiated due to deficient provision or in any other way changed in terms of conditions of the contract (e.g. contingent on the happening or non-happening of a future event), the tax will be payable on the revised amount provided the excess amount is either refunded or a suitable credit note is

issued to the service receiver. However, concession is not available for bad debts. Circular by CBEC]

5. Adjustment of excess tax paid

Where an assessee

has paid any amount in excess of the amount required to be paid the assessee may adjust such excess against the service tax liability for the next

quarter/month.



Such adjustment shall be possible only if the following conditions are satisfied.

(i) excess amount paid by assessee having centralized registration, because of delayed receipt of details of payments can be adjusted without any limit.

(ii) for others the maximum amount that can be adjusted is ` [2,00,000] for a relevant month or quarter.

(iii) the details of such adjustment shall be intimated to Supdtt within 15 days from the date of such adjustment.

6. Provisional Assessment :- (Nov 2007 2 Marks)Where an assessee is, for any reason,

unable to correctly estimate the actual amount payable, he may request to the AC/DC giving reasons, for payment of service tax on

provisional* basis and (temporary/which is not fixed)

AC/DC, on receipt of such request, may allow payment of service tax on provisional basis, on such value as may be specified by him and

where an assessee requests for a provisional assessment he shall file a statement giving details of the difference between the service tax deposited and the service tax liable to be paid

in a memorandum in Form ST-3A accompanying the half yearly return.

7. Special provisions for calculation of tax :- (Special rates of tax)

(a) Air travel agent has option to pay tax @ [0.618%] of basic fare-domestic and @ [1.236%]- international bookings instead of 10.3% of value of taxable service.

(b) [If the whole premium is not towards risk cover in life then insurer has the option to pay

(i) tax @ 10.3% on the gross premium charged reduced by the amount of investment or savings on behalf of policyholder, if such amount is intimated to policy holder or

(ii) [1.545%] of gross premium as tax .]

(c) A foreign exchange broker, authorized dealer in foreign exchange or authorized money changer shall have the option to pay tax at following rate.

But such option shall not be available if commission is shown separately in the invoice.

Amount of currency exchanged Rate of service tax

1.

Upto ` 1,00,000 0.1%,minimum 25 `

2.

Exceeding ` 1,00,000 upto 10 Lakhs ` 100 + 0.05%


CA. AJAY JAIN, 911167879, www.caajayjain.com 9 RTP May 2012 - IPCC 3.

Exceeding `10 Lakhs ` 550 + 0.01%,Maximum 5,000 `

Note:- 3% cess shall be added in the final tax.

For a currency when exchanged from, or to Indian Rupees (INR)

For a currency, when exchanged from, or to , Indian Rupees (INR), the value shall be equal to the difference in the buying rate or the selling rate, as the case may be, and the Reserve Bank of India (RBI) reference rate for that currency at the time of exchange, multiplied by the total units of currency.

Example I:

US$ 1,000 are sold by a customer at the rate of `45 per US$. RBI reference rate for US$ is ` 45.50 for day. Value of taxable service = (RBI reference rate for $ - Selling rate for $) x Total Units.

= `(45.50 – 45) x 1,000

= ` 0.50 x 1,000

The taxable value shall be `500.

Example II:

INR 70,000 is changed into Great Britain Pound (GBP) and the exchange rate offered is ` 70, thereby giving GBP 1,000.RBI reference rate for that day for GBP is `69.

The taxable value shall be ` 1,000.

(d) The distributor or selling agent, liable to pay service tax for the taxable service of promotion, marketing or organising lottery, shall have the option to pay tax at the following rates:-

S.No.

Rate Condition

1 ` 6,180 on every ` 10 lakhs (or part thereof) of aggregate face value of lottery tickets printed by the organizing state for a draw

If lottery scheme is one where guaranteed prize payout is more than 80%.

2 ` 9,270 on every ` 10 lakhs (or part thereof) of aggregate face value of lottery tickets printed by the organizing state for a draw

If lottery scheme is one where guaranteed prize payout is less than 80%.

Face value : it is the amount mentioned on the lottery ticket.Aggregate Face Value : face value of lottery x the number of tickets printed


CA. AJAY JAIN, 911167879, www.caajayjain.com 10 RTP May 2012 - IPCC Guaranteed Prize Payout : the agreed aggregate prize money distributed to all

the winners

Provided further that the distributor or agent shall exercise such option within a period of one month of beginning of each F/Y and such option shall not be withdrawn during the remaining part of the F/Y.

(Nov 2011 4Marks)

If payment is made after due date, interest has to be paid u/s 75 on

Amount of tax liable to be paid

for the period for which such amount of tax or part thereof is delayed.

Govt. shall fix rate of interest not less than 10% p.a. but not more than 36% p.a. Presently rate of interest is [18% p.a.]

[But if the value of taxable services provided during the current year or in the preceding financial year does not exceed 60 lacs, rate of interest shall be reduced by 3%.]

Where an amount has been collected, in excess of the tax assessed or which is not required to be collected as service tax,

the person shall in addition to the amount, be liable to pay interest at the rate not below 10% and not exceeding 24%.

Presently govt. has fixed the rate @ [18% p.a.]

[But if the value of taxable services provided during the current year or in the preceding financial year does not exceed 60 lacs, rate of interest shall be reduced by 3%.]

Popularly it is also called STC. It is the unique number of every person under service tax. It contains 15 digits. First 10 digits are of permanent account number of income tax and remaining 5 relating to service tax.

Main objective of this alphanumerical number is to identify the assessee.

This number has to be mentioned in all the returns, challans and other dealings with the service tax department.

By this all the information of a person relating to income tax are connected with the service tax.

With the help of STC an officer can check what information a person has provided in income tax and what in service tax.

Interest on amount collected in excess,

Interest on late (delayed) payment,

Service Tax Code (STC)



1. Mandatory e-filling of service tax return:

As per NN 43/2011 following proviso has been deleted:

Provided that where an assessee has paid a total service tax of rupees ten lakh or more including the amount paid by utilization of CENVAT credit, in the preceding financial year, he shall file the return electronically.

Following has been inserted:

“Every assessee shall submit the half-yearly return electronically.”

2.Extension in date of filing Service tax return

CBEC has extended the date of submission of half yearly return for the period April 2011 to September 2011, from 25th October 2011 to 6th January 2012, from 6th January 2012 to 20th January 2012. But this has been done only for the Return of the period April to September 2011.

3. Procedure for e-filing of service tax returns and for electronic payment of service tax:

The DG (Systems) has issued comprehensive instructions outlining the procedure for electronic filing of the Service tax Return and electronic payment of taxes under ACES. The said instructions outline the registration process for the new assessees, non-assessees and the large tax payer units, steps for preparing and filing of return, use of XML Scheme for filing dealer’s return, procedure for obtaining acknowledgement of e-filed return, procedure for e-payment etc.

It is clarified that in Part –II : Service tax and VAT of Paper 4 : Taxation, students will be examined only in respect of the following taxable services:

1. Practicing Chartered Accountant’s services

2. Consulting engineer’s services

3. Commercial training or coaching services

4. Information technology software services

5. Scientific and technical consultancy services

6. Technical testing and analysis services

7. Mandap keeper services.

8. Business exhibition services.

Rule 7 of STR, 1994

Taxable Services , Section



Section 65(105) Taxable service: - means any service provided or to be provided to any person for cash or deferred payment or any other valuable consideration, by a ………….

1. “ Practicing chartered accountant ”–

Who is member of the ICAI and

is holding a certificate of practice granted under the provisions of the Chartered Accountants Act, 1949 (38 of 1949)

and includes any concern engaged in rendering services in the field of CA.

Note:- All persons whose names are entered in the register maintained under the provisions of the ICAI Act shall be known as members of the institute.

Hence services provided by CA in respect of

(a) Preparing and filing of returns (Income tax, service tax, VAT etc.)

(b) Providing opinions on any matter including taxation, preparation of project report

(c) Providing consultancy on any issue including taxation

(d) Conducting audit, certification etc.

(e) Appearing on behalf of client in any court etc.

are taxable.

2. “ Consulting engineer ”

Who is professionally qualified Includes any firm, body corporate advice, consultancy or technical assistance in one or more disciplines* of engineering (any branch)

including hardware and software engineering.

* “Engineer should be engaged in a profession of engineer holding any diploma or degree.”

Any cess paid by an engineer on transfer of technology can be deducted from the gross amount charged.

Notification No. 46/2011 ST: The deduction is allowable only if the R&D cess is paid within six months from date of invoice. Records of R&D cess should be kept to establish linkage between the taxable service and the R&D cess paid.

Illust The value of service provided by a consulting engineer is ` 10,00,000 (exclusive of

service tax). He has paid ` 50,000 as cess under Section 3 of the Research and Development Cess Act, 1986. What is the amount of Service tax payable by him?


CA. AJAY JAIN, 911167879, www.caajayjain.com 13 RTP May 2012 - IPCC Ans. Service tax of ` 10 lakhs is 1,00,000. R&D cess paid is ` 50,000, which is allowable as

deduction. Hence, net service tax payable is ` 50,000. Education cess @ 2% on the service tax is ` 1,000 and SAH education cess @ 1% of service tax is ` 500. Hence, total service tax payable is ` 51,500.

3. "Commercial training or coaching ”

Explain the term “Commercial training or coaching centre.” (May 2010, 2 Marks)

institute providing commercial training or coaching

imparting skill or knowledge or lessons

on any subject or field

With or without profit motive

Other than

sports,

preschool,

[any training leading to certificate or qualification recognised under any law],

Vocational training i.e. giving skills so that trainee can do any job or business after such training.

It means industrial training institute (ITI) or other approved organisation and

Recreational training relating to activities such as dance, singing, martial arts or hobbies.

Individuals providing services at the premises of the receiver are not taxable. (authorize, to be officially connected with a larger organization or group)

Clarification as to whether the service tax is leviable on the Flying Training schools and Aircraft Maintenance Engineering Institutes:

CBEC has clarified that the coaching provided by such academies will not come under the scope of aforesaid exemption. The course certificates by these academies cannot be held as “recognized in law” for the purposes of service tax exemption unless and until the course is specifically recognized by law which is not so in the current case. The term “recognized by law” has to construe a direct nexus between the degree/ certificate being awarded by the Coaching Centre and the Statute.

PQ Explain the term “Vocational Training Institute” under the provisions of Service Tax. (Nov 2009 2 Marks)

Ans. Vocational Training Institute is an institute which gives skills to help the trainee to get job or start his own business after such training.

But now exemption is not granted to all types of institutes. Exemption is granted only to industrial training institute (ITI) or recognized training centre.



Type of coaching Taxable/Not Taxable

1. Imparting Training in field of sports

2. Coaching/ Tutorial Classes

3. Running crèche/play homes

4. Institutes conferring certificates recognized in India

5. Coaching provided at service receiver premises (student)

individual sent by coaching or training centre

6. Coaching provided by an individual without opening any coaching centre or institute

Coaching - Whether ‘donation' is ‘consideration' Circular

* If donation is not specifically meant for a person, but is in general meant for the charitable cause. In such a situation, service tax is not leviable, since the donation or grant-in-aid is not linked to specific trainee or training.

4. ‘Information Technology Software Service’

Means any service provided:

In relation to information technology software

Whether or not used in the business or commerce

It includes –

Development of software.

Upgradation, implementation and other similar services in relation to IT

software.


CA. AJAY JAIN, 911167879, www.caajayjain.com 15 RTP May 2012 - IPCC Providing advice and assistance on the matters relating to IT software.

But does not include services provided

(a) to government or (b) to charitable institutions

The taxable service of providing the right to use the packed/canned software, pre-packed in retail packages intended for single use has been exempted from service tax under the information technology service if excise duty or custom duty has been paid on it.

“Information technology software” means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data processing machine or any other device or equipment.

5. “ Scientific or technical consultancy ”

by a scientist or a technocrat*, or any institution or organization [*technical expert]

to any person

in disciplines of science or technology.

Doctors are not covered, as in common parlance they are not known as scientists, technocrats etc.

6. “Technical testing & analysis”

physical, chemical, biological or other scientific testing or analysis

of goods or material or information technology software or any immovable

property

includes clinical testing of drugs and formulation.

But does not include

testing of humans beings or animals . service related to Water quality testing undertaken by Laboratories run by

Government. testing of newly developed drugs or vaccines by approved organisation. testing and analysis of seeds done by Central and State Seed Testing

Laboratories.

7. “ Mandap keeper ”-

Temporary occupation of

any immovable property includes any furniture, fixtures, light fitting and floor coverings for official, social or business function

Exempt at religious places.

- Abatement* of 40% shall be given if providing catering service also i.e. supply of food

(satisfying meal). (Discount; a deduction from the full amount of a tax)


CA. AJAY JAIN, 911167879, www.caajayjain.com 16 RTP May 2012 - IPCC Scope of taxable Service –

The definition of mandap is very wide. It covers all immovable property let out for

organizing social, official or business functions. It includes within its scope places like

marriage halls, banquet halls, conference halls etc. Hotels and restaurants providing

any such facility within their premises for organizing any social, official or business

function shall also be included in the coverage of service tax.

CQ.92 A Banquet Hall charged 5,00,000 ` for the hall and catering charges. Calculate service tax.

Ans. Gross Amount 5,00,000

Less: Abatement 2,00,000

(40/100 x 5,00,000)

Taxable Value 3,00,000

Service Tax 30,900

(10.3/100 x 3,00,000)

8. “ Business Exhibition”

means an exhibition

(a) to market; or(b) to promote; or(c) to advertise; or(d) to showcase

any product or service,

intended for the growth in business.

But it does not include any business exhibition held outside India.

Scope of taxable Services – Organizers of events such as trade fairs, road shows,

fashion shows, display show-cases kept in airports, railway stations, hotels etc. would be

covered under this new levy.

A display of consumer goods in shops or shopping centers for customers to select and

purchase would normally not attract any service tax, as normally no separate charges are

collected by the shop-keepers for displaying such goods. However, in case an amount is

collected for merely displaying an item, the same would be chargeable to service tax.



VAT

No amendments have been made in VAT section.

AMENDMENTS IN INCOME TAX

1. For full P/y 11-12 rate of interest shall be 9.5% on RPF.

2. Allowances allowed to transport employees : (a) 70% of such allowance or

(b) ` 6,000 10,000 p.m. whichever is less.

3. Notification No.33/2011: The CBDT has through this notification, amended the Notification No. S.O. 627(E) to include cash benefits to a member of the fund to meet the cost of annual medical tests or medical checkups of a member , his spouse and dependent children as one of the purposes of the fund.Thus, income received by any person on behalf of a fund established for the purpose of providing cash benefits to its employee-members to meet the cost of annual medical tests or medical checkups to qualify for benefit of exemption under Section 10(23AAA).

4. Notification No. 49/2011: The central government has notified the following allowances and perquisites for serving Chairman and members of UPSC, for the purpose of exemption u/s 10 (45):(i) The value of rent free official residence,(ii) The value of conveyance facilities including transport allowance,(iii) The sumptuary allowance and(iv) The value of leave travel concession.

In case of retired Chairman and retired members of UPSC, the following have been notified for exemption u/s 10(45):

(i) A sum of maximum `14,000 per month for defraying the service of an orderly and for meeting expenses incurred towards secretarial assistance on contract basis.

(ii) The value of a residential telephone free cost and the number of free calls to the extent of `1,500 pm (over and above free calls per month allowed by the telephone authorities)

This notification shall be effective retrospectively from 1st April,2008.

Salary

Exemptions



1. Notification No. 52/2011: Specification of bonds for interest exemption u/s 10(15)(iv)(h)Section 10(15) exempts interest payable by any public sector company in respect of such bonds or debentures specified by Central Government by notification in the Official Gazette.Accordingly, the central government has specified the issue of tax free, secured, redeemable, non-convertible bonds of NHAI, Indian Railways Finance Corporations Ltd.(IRFCL), Housing and Urban Development Corporations Ltd.(HUDCL) and Power Finance Corporation(PFC).The tenure of bonds shall be 10 to 15 years.

1. Scientific Research Expenditure, Section 35 Weighted deduction for Donations for research:(whether related to business or not)

Deduction shall be allowed of 125% of sum paid to

(i) any national laboratory or university or approved bodies to be used for social science or statistical research.

(ii) an approved Indian company, whose main object is scientific research and development.

[Deduction of 200% shall be allowed of sum paid to scientific research association or to a university or approved bodies to be used in scientific research for approved programme.

If donation to is not for approved programme then deduction shall be 175%.]

Profits and Gains from Business or Profession



2. Capital expenditure on capital business, Section 35AD Assessee shall be allowed 100% deduction of Capital Expenditure for the Specified business.

But no deduction shall be allowed for Land or goodwill.

Specified business shall mean

(i) Setting up and operating a Cold chain facilities* for storage. (it is a temperature

controlled supply chain)

(ii) Transportation and warehousing of agricultural produce, Dairy products and other

related items;

(iii)Developing and building a housing project under a scheme for Affordable

housing.

(iv) Building and operating, anywhere in India, a new Hotel of two star or above

category.

(v) Developing and building a housing project under a scheme for Slum rehabilitation*. (To restore to good condition or useful life as through education)

(vi) Laying and operating natural Gas/crude/petroleum oil pipeline network for

distribution

(vii)Production of fertilizer in India.

(viii) Building and operating, anywhere in India, a new Hospital with at least 100

beds for patients. [Added by FA 2011]

Any expenditure incurred before starting business shall be allowed deduction in the year of commencement. The amount should be capitalized in the books.

If deduction is claimed under this section then no deduction shall be allowed under any other provisions.

Specified business shall mean

Developing and building a housing project under a scheme for slum

rehabilitation.

Developing and building a housing project under a scheme for

affordable housing.

Production of fertilizer in India. [Inserted

by F.A. 2011]

3. Expenses allowed deductions u/s 36(1):

Employer’s contribution to recognised provident fund.



- Employer’s contribution towards the New Pension Scheme upto 10% of the salary of the employee. [Applicable retrospectively from 1-4-2010]

Refer same in Expenses allowed – Deduction u/s 40A.

1. CII (Cost Inflation Index) for A/Y 2012-13 = 785

2. Capital Gains:- Indexed Cost of Acquisition and Gifted house:

The Bombay High Court in the decision of Manjula J Shah has given judgment on the

year of indexation in case of an asset acquired under gift etc. This decision not only

applies to the capital asset acquired under a gift or a Will but also under

amalgamation, demerger, etc. Hence, while transferring an asset acquired as a gift,

Will, etc., indexation can be claimed for the year in which the asset was held by the

previous owner.

But as per Study Material and Suggested Answer of ICAI indexation is done from the

year in which the asset was held by the assessee.

1. As per section 80CCE

Total deduction under section 80C, 80CCC and 80CCD (except contribution by the employer towards Notified Pension Scheme) cannot exceed ` 1,00,000.

2. Notification No. 50/2011:

Following are the long term infrastructure bonds specified by Central Government

for the purpose of deduction under section 80CCF for the F.Y. 2011-12:

(i) The Industrial Finance Corporation of India(IFCI),

(ii) The Life Insurance Corporation of India(LIC),

(iii) The Infrastructure Development and Finance Company Ltd.(IDFCL),

(iv) The Infrastructure Finance Company Ltd. (IIFCL) and

(v) Non-Banking Finance Company as an Infrastructure Finance Company by

Reserve Bank of India.

Deductions

Capital Gains


CA. AJAY JAIN, 911167879, www.caajayjain.com 21 RTP May 2012 - IPCC The tenure of the bond shall be for a minimum period of ten years. The minimum

lock-in period for investors shall be 5 years. Further it shall be mandatory for the

subscribers to furnish their PAN to the issuer.

1. Rates of Income Tax for A/Y 2012-2013

(i) For woman: No change has been made in slab rates for women.(ii) For an Individual (man or woman), resident in India who is of the age of

65 60 years or more but less than eighty years at any time during the previous year.

Upto ` 2,50,000 Nil

` 2,50,001 to ` 5,00,000 10%` 5,00,001 to ` 8,00,000 20%Above ` 8,00,000 30%

Age of senior citizen:Senior citizen in the entire Act means a person who is resident in India and has

attained the age of 65 years or more at any time during the p/y.

Note: The age of 65 years has been reduced to 60 years only for tax

rates, for all other purposes it shall remain 65 years.

(iii)Individuals, [other than those mentioned in above] HUF.

Upto ` 1,80,000 Nil` 1,80,001 to ` 5,00,000 10%` 5,00,001 to ` 8,00,000 20%Above ` 8,00,000 30%

(iv) For an Individual (man or woman), resident in India who is of the age of

80 years or more at any time during the previous year. [Very senior

citizen].

Total Income

Charitable Trusts

` 5,00,000 NIL` 5,00,001 to ` 8,00,000 20%Above ` 8,00,000 30%


CA. AJAY JAIN, 911167879, www.caajayjain.com 22 RTP May 2012 - IPCC 1. Definition of charitable purpose Section 2(15)

The carrying on any activity in the nature of trade, commerce or business for ‘advancement of any other object of general public utility’ is to be considered as for ‘charitable purpose’ provided aggregate receipts from such activities are 10,00,000 25,00,000 ̀ or less in the relevant F/Y.

( Changed by F.A. 2011)(w.e.f. 1.04.2012)

Time Allowed - 3 hours Maximum marks - 100

Answers to question are to be given only in English except in the case of candidate who have opted for Hindi medium. If a candidate has not opted for Hindi medium, answer in Hindi Will not be valued.

Question No. 1 is compulsory.Attempt any five questions from the remaining Six questions.

Working notes should form part of the answer.Wherever necessary suitable assumptions may be made by the candidates.

1. (a) The basic salary of Mr. A (aged 65 years) is ` 45,000 p.m. He is entitled to dearness allowance, which is 40% of basic salary. 50% of dearness allowance forms part of pay for retirement benefits. Both Mr. A and his employer contribute 15% of basic salary to the pension scheme referred to in section 80CCD.

Mr. A has made the following investments/payments during the F.Y. 2011-12-

S.No. Particulars `

1.

2.

3.

4.

5.

Contribution to PPF

Payment of tuition fees to DPS for education of his

daughter studying in Class X

Repayment of housing loan taken from Corporation

Bank

Contribution to approved pension fund of LIC

Subscription to IDFC long-term infrastructure bonds

80,000

35,000

20,000

15,000

30,000

Compute the total income and tax thereon of Mr. A for A.Y. 2012-13.[Hints: Section 80C, section 80CCC, section 80CCD, section 80CCF of the Income-tax Act, 1961] (5

marks)

(b) Mr. X who transferred his land and building on 10.02.2012, furnishes the following information:

(i) Net consideration received ` 15 lakhs.

(ii) Value adopted by the stamp valuation authority, which was not contested by Mr.

X `20 lakhs.

(iii) Value ascertained by the Valuation Officer on reference by the Assessing Officer `

22 lakhs.


CA. AJAY JAIN, 911167879, www.caajayjain.com 23 RTP May 2012 - IPCC (iv) This land was distributed to Mr.X on the partial partition of his HUF on

1.4.1981.Fair Market value of the land as on 1.4.81 was ` 1,60,000.

(v) A residential building was constructed on the above land by Mr. X at a cost of

`3,50,000 (construction was completed on 1.12.2002) during the financial

year 2002-03.

(vi) Brought forward unabsorbed short term capital loss (incurred on sale of shares

during the financial year 2009 -10) ` 80,000.

What should be the maximum amount to be invested by Mr. X in NHAI/RECI bonds

so as to be exempt from the clutches of capital gain tax? Cost Inflation indices for

the financial years 1981-82, 2002-03 & 2011-12 are 100, 447 and 785, respectively.

(5 marks)

(c) Starlight Banquets is engaged in providing ‘mandap keeper services’. For the month of January, 2012, it provided the following information:-

S.No. Particulars Amount

(`)

I Banquet hall let out for marriage function:-

The gross amount charged for banquet hall including

catering charges (Catering charges have been separately

indicated in the invoice)

6,00,000

Amount received for rooms let out for stay of baraatis

attending marriage

40,000

II Amount collected for letting out the hall for All India Dance

Competition. No food was supplied along with it.

5,00,000

III Mandap for shooting of marriage sequence of a Daily Soap

Opera

2,40,000

Compute the amount of service tax payable by Starlight Banquets for the months of Jan, 2012.Notes:1. Point of taxation in all the aforesaid cases is January, 20122. All the amounts stated above are exclusive of service tax.3. Starlight Banquets is not eligible for small service providers’ exemption under

Notification No. 6/2005/ST dated 01.03.2005 for the financial year 2011-12.[Hints: Notification No. 1/2006 ST & Circular No. 96/7/2007 ST] (5Marks)

(d)Dev dealers furnished the following details for the financial year 2011-12:-

Inputs purchased within the State ` 1,00,000

Finished goods sold within the State ` 2,00,000

Goods sold in the course of inter-State trade ` 1,00,000

Capital goods procured during the month ` 1,00,000

VAT paid on capital goods (use consumption variant) 12.5%


CA. AJAY JAIN, 911167879, www.caajayjain.com 24 RTP May 2012 - IPCC Input VAT rate 12.5%

Output VAT rate 4%

Central sales tax rate 2%

Compute the total tax liability under the State VAT law and under the Central Sales Tax Act.Note: The capital goods are not the goods included in the negative list. (5 marks)

2.(a)(i) List any five transaction for which quoting of permanent account number is mandatory.

(4 marks) (ii) State with the reasons, whether the following statements are true or false,

with regard to the provisions of the income-tax Act, 1961:

(A) Where the karta of a HUF is absent from India, the return of income can be

signed by any male member of the family.

[Hints: Section 140 of the Income-tax Act, 1961]

(B) The Central Government is empowered to notify the class or classes of

persons who will be exempted from the requirement of filing of return of

income.

[Hints: Section 139 of the Income-tax Act, 1961]

(C) Mr. Yogesh, 80 years of age, carrying on retail trade business with turnover of

` 58 lakhs for previous year 2011-12, declares his business income from such

trade as ` 4,50,000 (which also represents his taxable income) in his return of

income. The due date of filing the return of income in the case of Mr. Yogesh

is 30th September, 2012.

[Hints: Section 44AA, section 44AB and section 139(1) of the Income-tax Act, 1961]

(4 marks)

(b) Discuss, in detail, the Optional Composition Scheme for payment of service tax in

case of foreign exchange broker.

(4 marks)

(c) What happens to VAT chain when a seller opts for composition scheme?

(4marks)

3.(a) From the following details, find out the salary chargeable to tax for the assessment year 2012-13-

Mr. A is a regular employee of Malpani Ltd. in Mumbai. He was appointed on 1.3.2011 in the scale of 25,000-2,500-35,000. He is paid dearness allowance (which forms part of salary for retirement benefits) @ 15% of basic pay and bonus equivalent to one and a half month’s basic pay as at the end of the year. He contributes 18% of his salary (basic pay plus dearness allowance) towards his recognized provident fund and the company contributes the same amount.He is provided fee housing facility which has been taken on rent by the company at ` 15,000 per month. He is also provided with following facilities:


CA. AJAY JAIN, 911167879, www.caajayjain.com 25 RTP May 2012 - IPCC (i) The company reimbursed the medical treatment bill of his daughter of `

40,000 who is dependent on him.

(ii) The monthly salary of ` 2,000 of a house keeper is reimbursed by the

company.

(iii) He is getting telephone allowance @` 1,000 per month.

(iv) A gift voucher of ` 2,100 on the occasion of his marriage anniversary.

(v) The company pays medical insurance premium to effect an insurance on the

health of Mr. A of ` 12,000.

(vi) Motor Car running and maintenance charges fully paid by employer of `

36,600.

(The motor car is owned and driven by Mr. A. the engine cubic capacity is

below 1.60 litres. The motor car is used for both official and personal purpose

by the employee.)

(vii) Value of free lunch provided during office hours is ` 1,000.

[Hints : Section 17 of the Income tax Act, 1961 and Rule 3 of the income-tax Rules, 1962] (8 marks)

(b) Examine the validity of the statement, “Cess paid by Consulting Engineer on transfer of technology is exempt unconditionally”.[Hint: Notification no. 46/2011 ST dated 19.09.2011] (4 marks)

(c) Under VAT, the allocation of resources is left to be decided by the free play of

market forces and completion. Discuss the validity of the statement. (4 marks)

4.(a) Mr. Raju owns one residential house in Delhi. The house is having two identical units. First unit of the house self-occupied by Mr. Raju and another unit is rented for ` 12,000 p.m. the rented unit was vacant for 3 months during the year. The particulars of the house for the previous year 2011-12 are as under:

Standard rent ` 2,20,000 p.a.Municipal valuation ` 2,44,000 p.a.Fair rent ` 2,35,000 p.a.Municipal tax (paid by Mr. Raju) 12% of municipal valuationLight and water charges ` 800 p.m.Interest on borrowed capital ` 2,000 p.m.Insurance charges ` 3,500 p.a.Repairs ` 16,000 p.a.Compute income from house property of Mr. Raju for the A.Y. 2012-13.[Hints : Section 22, section 23, section 24, section 26 of the income-tax Act, 1961]

(b) Write a note on service of a practicing chartered accountant. (4 marks)

(c) State with reasons in the brief whether the following statements are correct or incorrect with reference to the provision of value Added Tax & service tax.

(2x 2 = 4 marks)


CA. AJAY JAIN, 911167879, www.caajayjain.com 26 RTP May 2012 - IPCC (i) Consumption variant is convenient from the point of administrative expediency. Is

the proposition true? If yes, briefly explain any other benefits that consumption variant might accrue.

(ii) Wipro ltd. developed software for internal security of government. Service tax is not leviable on such services provided to government.

5.(a) Discuss whether disallowance under section 40(a)(ia) is attracted for not deducting tax at source or not depositing such tax within the prescribed time, as the case may be, in respect of each of the following payments during the P.Y. 2011-12:(i) ABC Ltd. paid ` 26,000 to Mr. Amit, a resident, towards fees for technical

services and ` 29,000 towards fees for professional services in August, 2011. No tax has been deducted at source. No other payment has been made to Mr. Amit during the year.

(ii) Mr. Ravi has been running a sole proprietary business whose accounts are audited under section 44AB of Income-tax Act, 1961. He pays a monthly rent of ` 12,000 for the office premises to Mr. Shiv, the owner of building and an individual. Besides, he also pays service charges of ` 8,000 per month to MR. Shiv towards the use of furniture and fixtures. No tax has been deducted on above payments.

(iii) State Bank of India pays ` 45,000 per month without deducting tax at source as rent to the Central Government for a building in which one of its branches is situated.

(iv) X, an individual whose total sales in business during the year ending 31.03.2011 was ` 57 lacs, paid ` 5 lacs by cheque on 25.02.2012 to a contractor (an individual) without deducting tax at source, for construction of his business premises, in full and final settlement. No amount was credited earlier to the account of the contractor in the books of X. the turnover of X for the P.Y. 2011-12 is estimated at ` 62 lacs.

(v) ` 52,000 paid to Mr. Rahul, a resident, towards fees for professional services in April, 2011. Tax deducted at source under section 194J was deposited on 2nd September, 2012.

(vi) A consultancy fees of ` 45,000 is paid by A Ltd. to the account of Mr. M on 31.03.2012 without tax deduction at source under section 194J. tax on the same was subsequently deducted on 07.04.2012 at the time of making the next payment to Mr. M. The same was deposited on 05.05.2012.

[Hints: Section 40(a)(ia), section 44AB, section 194C, section 194J, section 194-I, section 196 of the Income-tax Act, 1961]

(8 marks)

(b) Jain & Associates is a partnership firm of practicing Charted Accountants. It has provided a legal opinion on an issue of service tax to a client for an agreed sum of `2,50,000. The details are:

Date of completion of service

Date of issue of an invoice in respect of above service

Date of receipt of payment

04.12.2011

12.12.2011

14.02.2012

Determine the point of taxation for jain & Associates.[Hint: Rule 7(c) of point of Taxation Rules, 2011] (4 marks)

(c) What happens to VAT chain when a seller opts for composition scheme? (4 marks)



6.(a) Mr. Amit, who does not maintain books of account for the year ended 31.3.2012, request you to compute his total income and the tax payable thereon for the assessment year 2012-13 from the following information:(i) Basic Salary - ` 35,000 p.m.

CCA - ` 1,500 p.m.

HRA - ` 7,000 p.m.

(ii) Amit resides in Delhi, paying a rent of ` 8,000 per month.

(iii) Amit is paid an education allowance of ` 600 per month per child for all the

three of his children. Actual expenses (tuition fees only) amounts to ` 20,000,

` 14,000 and ` 10,000 respectively.

(iv) He bought a heavy goods vehicle on 25.8.2011 and has been letting it on hire

from the same date. He declares an income of ` 29,800 from the same.

(v) Interest from company deposits is ` 22,000 and bank interest is ` 8,000.

(vi) Interest is payable on bank loans availed for buying the truck and making

company deposits as follows:-

Purpose Date of loan Amount Interest rate

Truck purchase

Company deposit

1.4.2011

1.10.2011

6 lakhs

2 lakhs

12% p.a.

10% p.a.

(vii) Brought forward loss arising from speculating in shares during the preceding

previous year and eligible for set-off is ` 2,00,000.

(viii) Amit has invested ` 15,000 in notified equity linked saving scheme of UTI, `

64,000 in PPF, ` 12,000 as life insurance premium on his own life (sum

assured ` 50,000) and ` 18,000 towards pension fund of LIC.

(8 marks)

(b) Write a note in brief on amount collected from receiver as service tax to be deposited with Central Government.

(4 marks)

(c)“Invoices are crucial documents for administering VAT.” Discuss. (4 marks)

7. (a) Compute the tax liability of Mr. Vivek for the A.Y 12-13 from the following particulars (8 marks)

S.No. Particulars `

(i)

(ii)

Salary received as a partner from a partnership firm

Net house property income as computed under the

head “income from house property”

1,00,000

3,20,000


CA. AJAY JAIN, 911167879, www.caajayjain.com 28 RTP May 2012 - IPCC (iii)

(iv)

(v)

(vi)

(vii)

(viii)

(ix)

Income from own business before adjusting the

following

(a) Brought forward business loss

(b) Current depreciation

(c) Brought for ward unabsorbed depreciation

Short term capital gain – jewellery

Long term capital loss – listed equity shares (STT paid)

Long term capital gains – Debentures

Dividend on shares held as stock in trade

Dividend from a company carrying on agricultural

operation

Income from growing and manufacturing coffee (cured

and roasted)

1,20,000

1,85,000

36,000

1,60,000

1,90,000

55,000

2,20,000

12,000

15,000

1,20,000

During the previous year 2011-12, Mr. Vivek has donated ` 50,000 to an approved local authority for the promotion of family planning and purchased NSC VIII issue for ` 1,25,000.

(b) Mr. Ram who has entered into a roll over contract approached NDBC Bank for

selling US $ 35,000 at the rate of ` 49 per US $. RBI reference rate for US $ is `

49.50 at that time. However, rate of exchange declared by CBEC for the day is `

50.50 per US$.

Calculate the value of taxable service.

[Hint: Rule 2B of the Service Tax (Determination of Value) Rules, 2006] (4 marks)

(c) State the eligibility of purchases for input tax credit in the following cases:-

(i) Mohan purchases goods to use them in the execution of a works contract.

(ii) Singla & Co. purchased goods from Malhotra Enterprises, a registered dealer.

Malhotra Enterprises has opted for composition scheme under the provision

of the Act.

(iii) Sahil purchased goods from Ganesh. Ganesh has not shown the amount of

VAT paid by him separately in the invoice.

(4 marks)

SUGGESTED ANSWERS

1 (a) Computation of total income and tax payable by Mr. AParticulars ` `

Income from salary Basic SalaryDearness Allowance Employer’s Contribution to pension scheme

5,40,000

2,16,00


CA. AJAY JAIN, 911167879, www.caajayjain.com 29 RTP May 2012 - IPCC Gross Salary/ Gross Total Income Less: Deductions under chapter VI-A:

Section 80C- Contribution to PPF- Payment of tuition fees to DPS for education of his

daughter studying in Class X- Repayment of housing loanSection 80CCC- Contribution to approved pension fund of LICSection 80CCD (1)- Employee’s contribution to pension scheme

(See Note-2 below)

Maximum deduction restricted to [Section 80CCE]Section 80CCD (2) - Employer’s contribution to pension scheme

(See Note-3 below)Section 80CCF - Subscription to notified long-term infrastructure bonds

of IDFC, but restricted to ` 20,000 Total income Tax on total incomeAdd: Education cess @ 2% Add: Secondary and Higher Education cess @ 1% Total Tax LiabilityRounded off

80,00035,000

20,000

15,000

64,8002,14,80

0

0_81,0008,37,00

0

1,00,000

64,800

20,000

6,52,200

55,4401,109__554

57,10357,100

Notes: (1) Employer’s contribution to such pension scheme would be treated as salary since it is

specifically included in the definition of “salary” under section 17(1)(viii). Therefore, ` 81,000 being 15% of basic salary of ` 5,40,000, will be included in Mr. A’s salary.

(2) Mr. A’s contribution to pension scheme is allowable as deduction under section 80CCD(1). However, the deduction is restricted to 10% of salary. Salary, for this purpose, means basic pay plus dearness allowance, if it forms part of pay for retirement benefit.Therefore, salary for the purpose of deduction under section 80CCD, in this case, would be –

Particulars `Basic salary = 45,000 x 12 = Dearness allowance = 40% of ` 5,40,000 = ` 2,16,00050% of DA forms part of pay = 50% of ` 2,16,000Salary for the purpose of deduction under section 80CCDDeduction under section 80CCD(1) = 10% of ` 6,48,000(as against actual contribution of ` 81,000 being 15% of basic salary of ` 5,40,000)

5,40,000

1,08,0006,48,000

64,800

(3) Employer’s contribution to pension scheme would be allowable as deduction under section 80CCD(2), subject to a maximum of 10% of salary. Therefore, deduction under section 80CCD(2), would also be restricted to ` 64,800, even though the entire employer’s contribution of ` 81,000 is included in salary under section 17(1)(viii). However, this deduction of employer’s contribution of ` 64,800 to pension scheme would be outside the overall limit of ` 1 lakh section 80CCE i.e., this deduction would be over and above the other deductions which are subject to the limit of ` 1 lakh.


CA. AJAY JAIN, 911167879, www.caajayjain.com 30 RTP May 2012 - IPCC 1(b) Computation of capital gains of Mr. X for the A.Y. 2012-13:

Full Value consideration (deemed)[See note (1) & (2)] 20,00,000

Less: Indexed cost of acquisitionIndexed cost of land (1,60,000 X 785/100) [See note 3]

12,56,000Indexed cost of building(3,50,000 x 785/4470 6,14,653

(18,70,653)Long Term Capital Gain

1,29,347Less: Brought forward short-term capital loss set off [See Note 4]

(80,000) Amount to be invested in NHAI/RECI bonds to get full exemption

49,347As per Sec 54 EC , an assessee can claim exemption of amount invested in bonds issued by NHAI/RECI if such investment is made within a period of 6 months from the date of transfer of the asset. The exemption cannot exceed the amount of capital gain thus in the above case the amount of taxable capital gain of ` 49,347 shall be invested.

NOTES:1. Where the consideration received is less than the value adopted or assessed by the

Stamp Valuation Officer and the same is not contested by the assessee, such value adopted or assessed shall be deemed to be the full value of the consideration received (Section 50C). Thus full value consideration will be ` 20 lakhs.

2. It is further provided in Section 50C(3) that where the valuation is referred by the Assessing Officer to Valuation Officer and the value ascertained by such Valuation Officer exceeds the value adopted or assessed by the Stamp Valuation Authority, the value adopted by Stamp Valuation Officer shall be taken as the full value consideration received ,i.e ` 20 lakhs in the above case( Since value assessed by Valuation officer is `22 lakhs)

3. Cost of land is the cost to previous owner but as date and cost of acquisition to previous owner are not given, FMV on 1.4.81 is taken as cost of land and indexed.

4. Brought forward short term capital gain can be set off against both long term and short term capital gain thus the loss of ` 80,000 can be set off from the given long term capital gain.

1(c) Computation of the amount of service tax payable by Starlight Banquets for the month of January, 2012:-Particulars AmountMandap let out for marriage function (Note – 1)Less: Abatement @ 40% of gross amount (` 6,00,000 x 40%)Amount received for rooms for stay of baraatis (Note-2)Amount collected for letting out the hall for All India Dance Competition. No food was supplied alongwith it (Note-3)Mandap for shooting of a Daily Soap Opera (Note-4)Value of taxable service Service tax @ 10% = ` 9,00,000 x 10%Education cess @ 2% = ` 90,000 x 2%Secondary and higher education cess @ 1% = ` 90,000 x 1%Service tax payable

6,00,0002,40,000 3,60,000

40,0005,00,000

____Nil 9,00,000

90,0001,800__900

92,700

Notes:


CA. AJAY JAIN, 911167879, www.caajayjain.com 31 RTP May 2012 - IPCC 1. Mandap let out for a social function is liable to service tax. As per the definition

of mandap keeper, social function includes marriage. As per Notification No. 1/2006 dated 01.03.2006, an abatement of 40% of gross amount is allowed provided where the mandap keeper also provides catering services and the invoice indicates that it is inclusive of the charges for catering service on the following assumptions: No CENVAT credit on inputs/capital goods/input services has been taken; The service provider has not availed the benefit under the Notification No.

12/2003 ST, dated 20.06.2003.2. Mandap let out for stay of “Barratis” for a consideration would attract service

tax, as stay of baraatis is a part of marriage function [Departmental FAQs].3. Temporary occupation of a hall for the purpose of holding dance, drama or music

programme or competitions is liable to service tax [Circular No. 96/7/2007 ST dated 23.08.2007].

4. The activity of shooting films, TV serials cannot be considered as official/social/business function and hence, not taxable under the mandap keeper service [Departmental clarification in the book entitled “Service Tax through Questions and Answers”].

1(d) Computation of the tax liability for the financial year 2011-12:-`

Inputs purchased in the monthOutput sold in the month (with the State)Inter-state salesInput credit (including capital goods) (` 12,500 + ` 12,500)Output taxCST for Inter-State sale State VAT liability (` 8,000 – ` 25,000)Excess credit Central sales tax to be paid (` 2,000 – ` 17,000)Excess credit carried forward to subsequent period

1,00,0002,00,0001,00,000

25,0008,0002,000

Nil 17,000

Nil 15,000

2 (a) (i) Transactions for which quoting of PAN is mandatory(a) Sale or purchase of any immovable property valued at Rs.5 lakh or more;(b) Sale or purchase of mot e or other vehicle(other than two wheeled motor

vehicle)which requires registration under section 2(28) of the Motor vehicle Act, 1988;

(c) A time deposit exceeding Rs. 50,000 with a banking company;(d) A deposit exceeding Rs. 50,000 in any account with Post office Savings Bank;(e) A contract for sale or purchase of securities exceeding value of Rs. 1 lakh;

Note- For detailed list, refer to Chapter 10 of the Study Material. Any 5 of the transactions listed therein can be given in the answer.

(ii) A. False: Section 140(b) provided that where the karta of a HUF is absent from India, the return of income can be signed by any other adult member of the family; such member can be a male or female.

B. True: For reducing the compliance burden of small taxpayers, the Central Government has been empowered to notify the class or classes of persons who will be exempted from the requirement of filing of return of income, subject to satisfying the prescribed conditions. This has been provided for in clause (1C) of section 139.

C. False: Although Mr. Yogesh is showing his income lower than 8% of total turnover, his total income is not exceeding the basic exemption limit of ` 5,00,000 (since Mr. Yogesh is 80 years of age). Therefore, he is not required


CA. AJAY JAIN, 911167879, www.caajayjain.com 32 RTP May 2012 - IPCC to maintain books of account as per section 44AA and get his accounts audited under section 44AB, in which case the due date for filing return would be 31st July, 2012.

(b) A special mode of payment of service tax has been provided to a foreign exchange broker by sub-rule (7C) in rule 6 of the Service Tax Rules, 1994.

A foreign exchange broker, authorized dealer in foreign exchange or authorized money changer shall have the option to pay tax at following rate. But such option shall not be available if commission is shown separately in the invoice.

Amount of currency exchanged Rate of service tax

1. Upto Rs. 1,00,000 0.103%, minimum 25 Rs.

2. Exceeding Rs. 1,00,000 upto 10 Lakhs

Rs. 100 + 0.0515%

3. Exceeding Rs.10 Lakhs Rs. 550 + 0.0103%Maximum 5,150 Rs.

(c) If the composition scheme is availed by a seller then such seller cannot avail input tax credit in respect of input tax paid. Hence the seller will be losing the input tax credit on purchases made by him. He will not be able to pass on the benefit of input tax credit, which will add to the cost of the goods.

The purchases shall not get any tax credit for the purchases made by him from the seller operating under the composition scheme. Therefore, as soon as a seller opts for the composition scheme, the VAT chain will be broken, and the benefit of tax paid earlier will not be passed on to the subsequent buyers.

3(a) Computation of taxable salary of Mr. A for A.Y. 2012-13Particulars `

Basic pay [(25,000 x 11) + (27,500 x 1)] = 2,75,000 + 27,500Dearness allowance [ 15% of basic pay]BonusEmployer’s contribution to RPF in excess of 12% (18%-12% = 6% of ` 3,47,875)Taxable allowances Telephone allowanceTaxable perquisitesRent-free accommodation [See Note 1 below]Medical reimbursement (` 40,000 – ` 15,000) [See Note 2 below]Reimbursement of salary of housekeeperMotor car maintenance borne by employer [` 36,600 –` 21,600 (i.e., ` 1,800 x 12)]Salary income chargeable to tax

3,02,500

45,37541,25020,873

12,000

60,16925,00024,00015,000

5,46,167

Notes: 1. Where the accommodation is taken on lease or rent by the employer, the value

of rent-free accommodation provided to employee would be actual amount of lease rental paid or payable by the employer or 15% of salary, whichever is lower.For the purposes of valuation of rent free house, salary includes:(i) Basic salary i.e. ` 3,02,500(ii) Dearness allowance i.e. ` 45,375(iii) Bonus i.e. ` 41,250


CA. AJAY JAIN, 911167879, www.caajayjain.com 33 RTP May 2012 - IPCC (iv) Telephone allowance i.e. ` 12,000

Therefore, salary works out to 3,02,500 + 45,375 + 41,250 + 12,000 = 4,01,125.15% of salary = 4,01,125 x 15/100 = 60,169Value of rent-free house = Lower of rent paid by the employer (i.e. ` 1,80,000) or 15% of salary (i.e., ` 60,169).

2. Clause (v) of the proviso to section 17(2) exempts any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family to the extent of ` 15,000. Therefore, in this case, the balance of ` 25,000 (i.e., ` 40,000 – ` 15,000) is a taxable perquisite. Medical insurance premium paid by employer to effect an insurance on the health of Mr. A is exempt.

3. Gift voucher worth ` 21,00 given by the employer on the occasion of Mr. A’s marriage anniversary is exempt since the value is less than ` 5,000.

4. Value of free lunch provided during office hours is not a taxable perquisite, assuming that the value per lunch does not exceed ` 50.

3(b) The statement is not valid. Notification No. 18/2002 ST dated 16.12.2002 exempts the taxable services provided by a consulting engineer on transfer of technology from so much of the service tax leviable thereon, as is equivalent to the amount of cess paid on the said transfer of technology under the provisions of Section 3 of the Research and Development Cess Act, 1986.

Notification No. 46/2011 ST dated 19.09.2011 has amended the said notification to the effect that the said exemption is now available only if the Research & Development Cess is paid at the time of service or before payment for the service subject to maximum of six months period from the date of invoice or in case of associated enterprises, the date of credit in the books of account. Also, necessary records have to be maintained so as to establish a linkage between the invoice or the credit entry (as the case may be) and the cess payment challan.

3(c) Yes, the statement is absolutely valid. The greatest advantage of VAT system is that it does not interfere in the choice of decision for purchases. This is because the system has anti-cascading effect. How much value is added and at what stage it is added in the system of production/distribution is of no consequence. The system is neutral with regard to choice of production technique, as well as business organization. All other things remaining the same, the issue of tax liability does not vary the decision about the source of purchase. VAT facilitates precise identification and rebate of the tax on purchases and thus ensures that there is no cascading effect of tax. In short, the allocation of resources is left to be decided by the free play of market forces and competition.

4 (a) Computation of income from house property of Mr. Raju for A.Y. 2012-13

Particulars ` `(A) Rented unit (50% of total area) :

Step I – Computation of Annual letting ValueMunicipal valuation (` 2,44,000 x ½ )Fair rent (` 2,35,000 x ½ ).Standard rent (` 2,20,000 x ½ )Annual letting value is the higher of municipal valuation and fair rent, but restricted to standard rent Step II – Actual RentRent receivable for the whole year ` 1,44,000(` 12,000 x 12)Actual rent received owing to vacancy (` 1,44,000 – ` 36,000)Step III – Computation of Gross Annual Value

1,22,0001,17,5001,10,0001,10,000

1,08,000


CA. AJAY JAIN, 911167879, www.caajayjain.com 34 RTP May 2012 - IPCC Since, owing to vacancy, the actual rent received is lower than the annual letting value, the actual rent received is the Gross Annual valueGross Annual Value Less: Municipal taxes (12% of ` 1,22,000)Net Annual Value (NAV)Less: Deductions under section 24(a) 30% of NAV(b) Interest on borrowed capital (` 1,000 x 12)Taxable income from let out portion

(B) Self occupied unit (50% of total area)Annual value Less: Deduction under section 24 Interest on borrowed capital (` 1,000 x 12)

Income from house property

28,00812,000

Nil

12,000

1,08,000

14,64093,360

40,00853,352

(12,000)41,352

Notes: No deduction will be allowed separately for light and water charges, insurance charges and repairs.

(b) “Practicing chartered accountant”– Who is member of the ICAI and is holding a certificate of practice granted under the provisions of the Chartered

Accountants Act, 1949 (38 of 1949) and includes any concern engaged in rendering services in the field of CA.

Notification No. 59/98, granting exemption to CA/CS/CWA was withdrawn w.e.f. 1.3.06. Hence services provided by CA in respect of

(f) Preparing and filing of returns (Income tax, service tax, VAT etc.)(g) Providing opinions on any matter including taxation, preparation of project

report(h) Providing consultancy on any issue including taxation.(i) Conducting audit, certification etc.(j) services provided by CA in respect of proceedings under any law for

representation with any statutory authorityshall remain taxable.Note:- All persons whose names are entered in the register maintained under the

provisions of the ICAI Act shall be known as members of the institute.

(c)(i) Yes, the given proposition is correct. The consumption variant is convenient from the point of administrative expediency as it simplifies tax administration by obviating.

One hand and consumption goods on the other hand.Besides, it does not affect decisions regarding investment because the tax on capital goods is also set-off against the VAT liability. Hence, the system is tax neutral in respect of techniques of production (labour or capital-intensive).

In practice, therefore, most countries use the consumption variant. (ii) Correct: Information technology software services provided to government or

charitable institute are exempt u/s 65(105)

5 (a) Under the scheme of disallowance under section 40(a)(ia), the time limit for depositing tax deducted during the entire year has been extended up to the due


CA. AJAY JAIN, 911167879, www.caajayjain.com 35 RTP May 2012 - IPCC date of filing return of income to ensure compliance with the statutory requirements to avoid disallowance of expenditure under section 40(a)(ia).However, even under the new scheme, tax is required to be deducted during the relevant previous year, in cases where TDS provisions under Chapter XVII-B are attracted. The tax, so deducted, has to be deposited on or before the due date of filing of return to claim deduction of the expenditure in the relevant previous year to which it relates.

(i) The limit of ` 30,000 under section 194J is applicable separately for fees for professional services and fees for technical services. It implies that if the payment to a person towards each of the above is less than ` 30,000, no tax is required to be deducted at source, even though the aggregate payment or credit exceeds ` 30,000. Therefore, if ABC Ltd. makes a payment of ` 26,000 to Mr. Amit towards fees for technical services and another payment of ` 29,000 to him towards fees for professional services during the P.Y. 2011-12, TDS under section 194J would not get attracted, since the limit of ` 30,000 is applicable for fees for professional services and fees for technical services, separately. Therefore, disallowance under section 40(a)(ia() for non-deduction of tax at source is not attracted in this case.

(ii) Where the payer is an individual or HUF whose accounts are required to be audited as per the provisions of section 44AB for the immediately preceding financial year, he has to deduct tax at source. If the accounts of Mr. Ravi are subject to tax audit for the assessment year 2011-12 under section 44AB of the Income-tax Act, 1961, he is liable to deduct tax at source under section 194-I in respect of rental payments during the financial year 2011-12.Accordingly, Mr. Ravi is liable to deduct tax at source under section 194-I on the rental payments made. Section 194-I provides that rent includes any payment, by whatever name called, for the use of land or building together with furniture, fittings etc. Therefore, in the given case, apart from monthly rent of ` 12,000 p.m., service charge of ` 8,000 p.m. for use of furniture and fixtures would also attract TDS under section 194-I. since the aggregate rental payments to MR. Shiv during the financial year 2011-12 exceeds ` 1,80,000, Mr. Ravi is liable to deduct tax at source on the same. Therefore, disallowance under section 40(a)(ia) for non-deduction of tax at source will be attracted and ` 2,40,000 will be disallowed.

(iii) Section 194-I, which governs the deduction of tax source on payment of rent, exceeding ` 1,80,000 per annum is applicable to all taxable entities excepting individuals and HUFs. However, under section 196, exemption from application of provisions of tax deduction at source is provided in respect of payments made to Government. Therefore, disallowance under section 40(a)(ia) for non-deduction of tax source would not be attracted..

(iv) An individual who is liable for tax audit under section 44AB in the immediately preceding financial year (i.e. F.Y. 2010-11) is liable to deduct tax at source under section 194C for the financial year 2011-12 in respect of the payment made to during the financial year. Turnover of the individual X did not exceed ` 60 lacs in the financial year 2010-11. Therefore, X is not liable to get his accounts audited under section 44AB for that year. Hence there is no liability to deduct tax at source during the financial year 2011-12. Further, the estimated turnover of P.Y. 2011-12 is not relevant to assess the liability to deduct tax at source during the same financial year. Therefore, disallowance under section 40(a)(ia) for non-deduction of tax at source is not attracted in this case.


CA. AJAY JAIN, 911167879, www.caajayjain.com 36 RTP May 2012 - IPCC (v) Since tax deducted under section 194J during the P.Y. 2011-12 has been

deposited before the due date of filing of return i.e., before 30th September, 2012, the payment of ` 52,000 towards fees for professional services would be allowed as deduction while computing income under the head “Profits and gains of business or professions” for A.Y. 2012-13. Disallowance under section 40(a)(ia) is not attracted in this case.

(vi) Since tax deductible under section 194J on consultancy fees of ` 45,000 is not deducted during the previous year 2011-12, disallowance under section 40(a)(ia) for non-deduction of tax at source would be attracted and ` 45,000 will be disallowed while computing income of the P.Y. 2011-12.

(b) In accordance with rule 7(c) of the Point of Taxation Rules, 2011, in case of

Practicing Chartered Accountant’s services, the point of taxation will be the date of receipt of payment. Hence, the point of taxation in the given case would be 14.02.2012. Date of completion of service as well as date of issue of the invoice is irrelevant in the present case.

(c) If the composition scheme is availed by a seller then such seller cannot avail input tax credit in respect of input tax paid. Hence the seller will be losing the input tax credit on purchases made by him. He will not be able to pass on the benefit of input tax credit, which will add to the cost of the goods.

The purchases shall not get any tax credit for the purchases made by him from the seller operating under the composition scheme. Therefore, as soon as a seller opts for the composition scheme, the VAT chain will be broken, and the benefit of tax paid earlier will not be passed on to the subsequent buyers.

6 (a) Computation of total income of Mr. Amit for the Assessment Year 2012-13

Particulars ` `Income from SalaryBasic Salary (` 35,000 x 12)CCA (` 1,500 x 12)HRA (` 7,000 x 12)Less: Exempt under section 10(13A)[See Note 1 below]

Education Allowance (600x12x3)Less: Exempt under section 10(14) (100x12x2)Income from Salary Profits and gains from business or professionIncome from the business of letting on hire, a heavy vehicle under section 44AE (5,000x8) [See Note 2 below]Income from Other SourcesInterest from company depositsBank interest

Less: Deduction under section 57` 2,00,000 @ 10% for 6 months - towards loan interest

Gross Total IncomeLess: Deduction under Chapter VI-A Under section 80C [See Note 4 below]

84,00054,000

21,6002,400

22,000

8,00030,000

10,000

1,23,000

4,20,00018,000

30,000

19,2004,87,200

40,000

20,0005,47,200


CA. AJAY JAIN, 911167879, www.caajayjain.com 37 RTP May 2012 - IPCC Under section 80CCC

Restricted to Total Income

18,0001,41,000

1,00,0004,47,200

Computation of tax payable for the A.Y. 2011-12Particulars `

Tax on ` 4,47,200Add: Education cess@2% and SHEC @1%Tax Payable

26,720__802

27,522

Notes :

(1) HRA is exempt to the extent of the least of the following under section 10(13A)

(1) 50% of salary (as the city is Delhi) i.e. 50% of ` 4,20,000 = ` 2,10,000

(2) Excess of rent paid over 10% of salary = ` 96,000 – ` 42,000 = ` 54,000

(3) Actual HRA received = 7,000 x 12 = ` 84,000

Least of the above i.e. ` 54,000 is exempt under section 10(13A)

(2) In the case of a person owning not more than 10 vehicles at any time during the previous year, estimated income from each heavy vehicle will be deemed to be ` 5,000/- for every month or part of the month during which the heavy vehicle is owned by the assesee during the previous year [Section 44AE].

Presumptive income = ` 5,000 x 8 = 40,000

If, however, the asessee declares a higher amount, such amount will be considered as income. In the instant case, since the assessee declares a lower amount, it cannot be considered, since no books of account are maintained. Also, interest is not deductible, since under section 44AE, all deductions under sections 30 to 38 are deemed to have been allowed.

(3) Brought forward loss from speculation business can be set off only against income from speculation business and not against other business income.

(4) Deduction under section 80C:Investment in notified equity linked saving scheme of UTI

15,000Investment in PPF

64,000Life insurance premium on own life restricted to 20% of sum assured

10,000Tuition fees paid for two of his children (Most favourable to Ram)

34,000 1,23,000

(5) Contribution to pension fund of LIC ` 18,000 deductible under section 80CCC.

(6) Total deduction under sections 80C, 80CCC and 80CCD(1) is limited to ` 1,00,000 as per section 80CCE.


CA. AJAY JAIN, 911167879, www.caajayjain.com 38 RTP May 2012 - IPCC (b) As per Section 73A

Every person who has collected any amount from receiver as service tax, in excess

of actual tax, must pay the amount immediately to the Central Government.

If the amount is not so paid, the officer may serve on such person a notice requiring

to show cause why the said amount should not be paid by him.

Officer shall, after considering the reasons given by such person, determine amount

payable.

Such excess amount shall either be credited to the consumer welfare fund or

refunded to the person who has borne the incidence of such amount.

(c) Invoices are crucial documents for administering VAT as in the absence of invoices, VAT paid by the dealer earlier cannot be claimed as set off. Invoices should be preserved with full care. In case any original invoice is lost or misplaced, a duplicate authenticated copy must be obtained from the issuing dealer.A VAT invoice:(i) Helps in determining the input tax credit;

(ii) Prevents cascading effect of taxes;

(iii) Facilitates multi-point taxation on the value addition;

(iv) Assists in performing audit and investigation activities effectively;

(v) Checks evasion of tax.

Ans. 7(a) Computation of taxable income of Mr. Vivek for the A.Y 2012-13

Particulars ` `I. Net income from house propertyII. Income from business

Salary received as a partner from a partnership firm is taxable under the head “Profit and gains of business and profession” (assuming that the same was allowed as deduction in the hands of the firm).Income from own business Income from coffee (cured and roasted) (40% is business income as per Rule 7B)

Less: Current year depreciation [Section 32(1)]

Less: Brought forward business lossIII. Capital gains

Long term capital gain – debentures Short term capital gain – Jewellery

IV. Income from other sources Dividend on shares (including shares in company carrying on agricultural operations) – exempt under section 10(34)

Less: Brought forward unabsorbed deprecation Gross total income

1,00,000

1,20,000

48,0002,68,00

036,000

2,32,000

1,85,000

2,20,000

1,90,000

3,20,000

47,000

4,10,000

____Nil 7,77,0001,60,0006,17,000


CA. AJAY JAIN, 911167879, www.caajayjain.com 39 RTP May 2012 - IPCC Less: Chapter VI-A deductions

Section 80C: NSC VIII issue purchase (deduction restricted to ` 1,00,000)Section 80G: Donation to a local authority for family planning. Amount donated ` 50,000 donation is to be restricted to 10% of gross total income as adjusted below: Gross total income 6,17,000Less: Long term capital gain 2,20,000 Deduction under section 80C 1,00,000 2,97,000Deduction limited to 10% of gross total income i.e. ` 29,700

Total income

1,00,000

29,700

1,29,7004,87,300

Computation of tax liability after aggregation of agricultural income with non-

Agricultural income

Particulars ` `

Agricultural income + non agricultural income = total income

= 72,000 + 4,87,300

Tax on LTCG of ` 2,20,000 @ 20%

Tax on the remaining income at slab rate

Less: Tax on agricultural income plus basis exemption limit

(i.e. ` 72,000 + ` 1,80,000) Tax on ` 2,52,000

Tax liability

Add: Education cess and Secondary and higher education cess @

3%

Total tax liability

Total tax liability (rounded off)

5,59,30

0

44,000

15,930

59,930

7,200

52,730

1,582

54,312

54,310

Note: Loss from an exempt source cannot be set-off against gains from a taxable

source. Therefore, long-term capital loss on sale of listed equity shares cannot be

set-off against long-term capital gains on sale of debentures.

(b) With effect from 01.04.2011, new rule 2B of the Service Tax (Determination of

Value) Rules, 2006 provides the manner of determination of the value of taxable

service for the banking and other financial services so far as it pertains to purchase

or sale of foreign currency, including money changing. The value of service for a

currency, when exchanged from, or to, Indian Rupees (INR), shall be equal to the

difference in the buying rate or the selling rate, as the case may be, and the


CA. AJAY JAIN, 911167879, www.caajayjain.com 40 RTP May 2012 - IPCC Reserve Bank of India (RBI) reference rate for that currency at that time, multiplied

by the total units of currency.

Hence, the value of taxable service = (RBI reference rate for $- Selling rate for $) x

Total units

= ` (49.50 – 49) x 35,000

= ` 0.50 x 35,000

The taxable value shall be ` 17,500.

(c) (a) Mohan can claim the input tax credit as the purchase of goods for being used in

the execution of a works contract are eligible for claiming input tax credit.

(b) Purchases made by Singla & Co. from Malhotra Enterprises are not eligible for

input tax credit as purchases from registered dealer who opts for composition

scheme under the provision of the Act are not eligible for input tax credit.

(c) Purchases made by Sahil are not eligible for input tax credit as the purchases

where invoice does not show the amount of tax separately are not eligible for

input tax credit.


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