Objective Questions and Answers on Direct Tax for June 2011

P.K.SIKDAR’S P.K.SIKDAR’S ADVANCE LEARNING 23 C, EKDALIA PLACE KOLKATA – 700019 M: 98301 65501 Web: www.pksal.com www.pksal.com

Applied Direct Taxation Objective Questions and Answers 1. Multiple Choice Questions (A) The following is capital receipt: (a) Dividend from investment; (b) Bonus shares; (c) Sale of technological know- how; (d) Compensation received for compulsory evacuation of place of business. Ans. (d) Compensation received for compulsory evacuation of place of business. (B) Following is not a capital receipt: (a) Dividend on investment; (b) Bonus shares; (c) Sale of know-how; (d) Compensation received for vacating business place. Ans. (a) Dividend on investment (C) An individual is said to be resident in India in a previous year (in which the February month has 29 days) if he is in India in that year for a period period or periods amounting in all to 182 days or more, [(a) 182, (b) 183, (c) 60, (d) 150] Ans. 182 days (D) The assessee is charged to income-tax in the assessment ye ar following the previous previous year: (a) A non-resident business firm which shipped goods on 1.5.210 at Visakhapatnam Port in Andhra Pradesh (b) An employee left India to USA on 1.8.2010 with no intention of returning (c) ABC firm which discontinued its business on 1.9.2010 (d)An employee-assessee employee-assessee of a University who worked during 1.4.09 to 30.03.2010 Ans. (d) An employee-assessee of a University who worked during 1.4.09 to 30.03.2010. (E) Income received in India in previous year is taxable in the hands of: (a) Resident; (b) Not-resident; (c) Non ordinarily resident; (d) All above. Ans. (d) All above. (F) Expenditure incurred by an employer on medical treatment and stay abroad of the employee shall not be taxed in the case of ___________. (a) an employee whose gross total income before including the said expenditure does not exceed Rs. 2 lakhs. (b) an employee whose income under the head "Salaries" exclusive exclusive of all monetary perquisites does not exceed Rs. 2 lakhs, (c) an employee employee whose income under the head "Salaries" "Salaries" exclusive exclusive of all nonnon-mo mone neta tary ry perquisites does not exceed Rs. 2 lakhs, (d) all employees irrespective of their amount of gross total income/the amount of income under the head "Salaries". Ans. (a) an employee whose gross total income before including the said expenditure does not exceed Rs. 2 lakhs. 2. Expa Expand nd - Expand abbreviations abbre viations — CCIT, CBDT. CBDT . Ans. CCIT - Chief Commissioner of Income Tax CBDT - Central Board of Direct Tax 3. Fill in the Blanks (A)The basic exemption limit in case of a non-resident individual being a senior senior citizen citizen of Rs. Rs. 1.60,000. Income-tax rates rat es are not prescribed pr escribed by the Income-tax Act, but by the Finance Act of each year. year. (B) The Th e term business would include profession professi on and accordingly accordi ngly the term busine business ss used used in in Section 9(1)(i) would also include a professional connection. (C)Compensation received from an insurer on account of damage to the crops is an agricultural income. (D) Receipts from TV serial shooting in farm house is non agricultural income. 4. True and False/Correct and Incorrect A. 'Gross 'Gross Total Total Income' Income' means means aggregat aggregate e of income income compute computed d under under variou various s heads heads and after after allowing deduction under Chapter Vl-A. False. 'Gross 'Gross Total Income' means aggregate aggregate of income income computed computed under various various heads Ans. False. before allowing deduction under Chapter Vl-A. Income after allowing allowing deduction deduction under Chapter Chapter Vl-A Vl-A is known as Total Income. B. If a person person is resident resident and ordinari ordinarily ly resident resident of India, India, his income income earn earned ed outsi outside de India India is taxable in the country in which he earned that income. Ans. False. His income shall be taxable in India, subject to relief available u/s 90, 90A and 91. C. Where a person does basic operations in lands and later sells the saplings grown by him in a nursery owned by him, the same will be agricultural income. If the basic operations are not done

P.K.SIKDAR’S ADVANCE LEARNING 23 C, EKDALIA PLACE KOLKATA – 700019 M: 98301 65501 Web: www.pksal.com

-2-

by the assessee and the saplings are sold in his nursery, the same will still be regarded as agricultural income. Ans. True. Any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income. D. Vivitha, a Cost Accountant, is employed in Hema Plastics Ltd. The company pays the annual Cost accountant membership fee. The fee so paid by the company is not to be treated as a perquisite in the hands of Vivitha. Ans. False. As payment of annual Cost accountant membership fee is obligation of Vivitha. Since, obligation of the employee is paid by the employer, hence such payment shall be considered as taxable perquisite u/s 17(2)(iv). E. X is employed in Complex Ltd. as a Chartered Accountant. The annual membership fee of X paid by Complex Ltd. is not a perquisite and hence not chargeable to tax. Ans. False. Payment of annual membership is an obligation of X which is borne by the employer, hence the same shall be treated as perquisite u/s17(2). F. Rental income from residential property owned by a company carrying on business of property rentals is taxable under the head "Income from House Property". Ans. True. Rental income from residential property of an assessee is taxable under the head 'Income from House Property', irrespective of the fact that assessee is engaged in the business of letting of the property. 5. Multiple Choice Questions (A) If an employer transfers second hand motor car to the employee, the perquisite is valued at (a) Actual cost less depreciation @ 30% for every completed year under straight line method (b) Actual cost less depreciation @ 20% for every completed year under WDV method (c) Actual cost less depreciation @ 30% for every completed year under WDV method (d)Actual cost less depreciation @ 20% for every completed year under SLM method. Ans. (b) Actual cost less depreciation @ 20% for every completed year under WDV method. (B)The following is exempt income :— (a) Travel concession to employee (b) Remuneration received for valuation of answer scripts (c) Encashment of leave salary whilst in service (d) Perquisites in India Ans. (a) Travel concession to employee. (C) The following is not taxable as income under the head "Salaries":(a) Commission received by a full-time director; (b) Remuneration received by a partner; (c) Allowances received by an employee; (d) Free accommodation given to an employee. Ans. (b) Remuneration received by a partner. 6. Fill in the Blanks A. Expenditure on free meals to employee in excess of Rs. 50 per meal will be treated as perquisite of employee. B. Gift to employee upto Rs. 5,000 per annum will not be treated as perquisite taxable in the hands of employee. C. Death-cum-retirement gratuity received by an employee of Central Government is wholly exempt (wholly exempt/exempt up to Rs. 3,50,000/exempt up to 10,00,000) D. If loan granted by employer to employee does not exceeds Rs. 20,000 (10,000, 20,000, 50,000, 1,00,000), it is not treated as perquisite to employee for purpose of income tax. E. Where an employer gifts a second hand motor car to an employee, the perquisite value is actual cost less depreciation at 20 % for every completed year under reducing balance method of computing depreciation. F. Any commission due or received by a partner of a firm from the firm shall not be regarded as salary income under section 15; G. Advance salary is taxable, while advance against salary is not taxable.

7. Distinguish between foregoing of salary and surrender of salary. Ans. Once salary has been earned by an employee, its subsequent waiver does not make it exempt from tax liability. Such waiver shall be treated as application of the income. Hence, salary foregone is taxable. However, where an employee opts to surrender his salary to the Central Government u/s 2 of Voluntary Surrender of Salaries (Exemption from Taxation) Act, 1961, the salary so surrendered shall not be taxable. 8. Multiple Choice Questions If an assessee earns rent from a sub-tenant in respect to tenanted property let out as a residence, the said rent is: (a) Exempt under Section 10. (b) Taxable under the head income from house property. (c) Taxable as business income, as the letting out is a commercial activity. (d) Taxable as income from other sources, unless the assessee is in the business of subletting properties on a regular basis. Ans. (d) Taxable as income from other sources, unless the assessee is in the business of subletting properties on a regular basis.


-3-

9. Fill in the Blanks A. Interest on capital borrowed for acquisition or construction of property is deductible subject to limit of Rs. 1,50,000 per year, if capital is borrowed on or after 1-04-1999. This is allowable if acquisition or construction is completed within 3 years from end of financial year in which loan was taken. B. For a self-occupied house property occupied on 1.7.2010, for which housing loan was availed, if the interest up to 31.3.2010 is Rs. 90,000 and thereafter the interest payable is Rs. 3,000 per month, the deduction available under section 24 in respect of interest for the year ended 31.3.2011 is Rs. 54,000. C. An assessee, after sale of house property, receiving arrears of rent is (is\is not) chargeable to tax; the same computed in the stipulated manner, is chargeable to tax as income from house property (income from other source/income from house property). D. The basis of chargeability under the head 'income from house property' is Annual Value. E. Arrear rent is taxable after deducting 30% as per Section 25B of the Income-tax Act, 1961. 10. Multiple Choice Questions: (A)X Ltd. has failed to remit the tax deducted at source from annual rent of Rs. 6,60,000 paid to Mr. A for its office building. Said rent is — (a)fully allowable as a business expenditure; (b)not allowable in view of Section 40(a)(i);(c)allowable to the extent of 50%; (d)none of the above. Ans. (b) not allowable in view of Section 40(a)(i). (B) A partnership firm's profit as per the profit and loss account is Rs. 10,00,000. Its total income determined according to the provisions of the Income- tax Act, 1961 is Rs. 9,00,000. A partner who has 20% share in the firm can claim exemption of amount of Rs.__________under Section 10(2A). (a) 2,00,000,(b)1,80,000, (c) 20,000 (d) None of the above Ans. (a) 2,00,000 (C) Expenditure incurred in carrying out illegal business is— (a) Not allowed as deduction in any case. (b) Allowable as deduction, if gross total income is less than Rs. 5 lakhs. (c) Allowable as deduction in all cases. (d) Allowable as deduction, if income from illegal business is offered to tax. Ans. (d) Allowable as deduction, if income from illegal business is offered to tax. (D) if any expenditure is incurred by an Indian company wholly and exclusively for purpose of amalgamation or demerger, the said expenditure is — (a) not allowable as a deduction as a deduction in computing "Profits and gains from business or profession" (b) Fully deductible as revenue expenditure in the year in which it is incurred. (c) allowable as a deduction, spread over eight successive previous years beginning if the previous year in which the amalgamation or demerger taken place. (d) allowable as a deduction, spread over five successive years beginning with the previous year in which the amalgamation or demerger taken place. Ans. (d) allowable as a deduction, spread over five successive years beginning with the previous year in which the amalgamation or demerger taken place. 11. Multiple Choice Questions: (A)If any expenditure is incurred by an Indian company wholly and exclusively for the purpose of amalgamation or demerger, the said expenditure is — (a) Not allowable as a deduction in computing profits and gains of business or profession. (b) Fully deductible as revenue expenditure in the year in which it is incurred. (c) Not deductible but is eligible to be treated as an intangible asset in respect of which depreciation can be claimed. (d) Allowed as a deduction spread over five successive previous year beginning with the previous year in which the amalgamation or demerger takes place. Ans. (d) Allowed as a deduction spread over five successive previous year beginning with the previous year in which the amalgamation or demerger takes place. (B) Deduction for bad debts is allowed to an assessee carrying on business — (a) In the year in which the debt is written off as bad. (b) In the year in which the debt first arose. (c) In the year in which provisions was made in respect of the bad debt. (d) In the year in which the debt becomes irrecoverable by operation of law. Ans. (a) In the year in which the debt is written off as bad. (C) Under Section 41(4) of the Income-tax Act, 1961, where a bad debt allowed as a deduction under Section 36(1)(vii) in an earlier year is subsequently recovered — (a) It is taxable to the extent of 50% of recovery, in the year of receipt, as business income. (b) It is taxable as business income in the year of recovery. (c) It is added back to the income of the year when it was written off and taxed as business income. (d)It is taxable as income from other sources in the year of receipt. Ans. (b) It is taxable as business income in the year of recovery. (D) Payment of interest to partners of partnership firm assessed as firm is allowable as deduction under Section 40(b) of the Income Tax Act, 1961. (a) If the rate of interest does not exceed 8% p.a. (b) If the interest is paid on the minimum balance of capital account between 10 th and the end of


-4-

every month. (c) If it is calculated on quarterly balance. (d) If it is authorized by and in accordance with the partnership deed, pertains to a period after the deed and does not exceed 12 percent simple interest per annum. Ans. (d) If it is authorized by and in accordance with the partnership deed, pertains to a period after the deed and does not exceed 12 percent simple interest per annum. (E) The following is not 'plant' u/s 43(3) of the Income-Tax Act, 1961 — (a) Books (b) Know-how (c) Road in the factory building (d) Electrical fittings Ans. (c) Road in the factory building. (F) Mr. L S ingh used it in his business. This is the only asset in the block. 20% of the usage is for personal purposes. The WDV of the block as on 31.3.2011 is — (a) Rs. 2,70,000; (b) Rs. 2,55,000; (c) Rs. 2,10,000; (d) None of the above. Ans. (d) None of the above. 12. Fill in the Blanks A. In case of an existing industrial undertaking, to be eligible for additional depreciation, increase in installed capacity as compared to the installed capacity as on 31.3.2002 is 10per cent. [Note: As criteria of increment in installed capacity for allowing additional depreciation is now omitted] B. The due date for filling return of net wealth by an individual who is a non-working partner in a firm whose accounts are audited under Section 44AB of the Income-tax Act. 1961 is 31 st July. C. A person owns 4 heavy goods vehicles. His estimated annual income U/S. 44AE is 2,40,000. (16,800, 1,51,000, 1,92v000, 2,40,000). D. According to Section 44AB, every person, carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds Rs. 60 lakh in any previous year, inter alia, get his accounts of such previous year audited by a Chartered Accountant. E. Additional depreciation of 20% of the actual cost of any new machinery or plant which has been acquired or installed 31.03.2005 is available to an assessee engaged in the business of manufacture or production of an article of things. F. According to Section 40A(3), where the assessee incurs any expenditure in respect of which payment is made in a sum exceeding Rs. 20,000 otherwise than by a crossed cheque or crossed bank draft. 100 percent of such expenditure shall not be allowed as a deduction. G. The additional or accelerated depreciation, for an eligible assessee, for machinery installed and used after 31.03.2005 is 20% of actual cost of the machinery. H. Where an Indian company incurs any expenditure in connection with amalgamation or demerger, the same is allowable as deduction, spread over 5 successive previous years beginning with the in which amalgamation or demerger taken place. I. 44BBB(i) of the Income-tax Act, 1961, the presumptive income is taken as 10% of the eligible receipts in the hands of eligible assessee. J. The deduction for amortization of preliminary expenses under section 35D is allowable at 20% of the qualifying expenditure in each of the 5 successive years beginning with the year in which business commences. K. Capital Expenses is a non-recurring expenditure whereas revenue expenses is normally a recurring one. L. Sec 28 defines various income which are chargeable to tax under the head "Profits and gains of business or profession". M. Expenditure incurred towards demerger is deductible in 5 equal annual installments under Section 35DD of the Income-tax Act, 1961. 13. True and False/Correct And Incorrect A. Business expenses are allowed to be deducted from" business income even if they are in the nature of personal expenditure of the assessee, as long as they are reasonable. Ans. False. No personal expenses shall be allowed u/s 37(1). B.Where business is carried on, on behalf of the assessee's minor child (whose income is clubbed in assessee's hands), by the assessee, which is besides assessee's own business , the gross receipts of both should be reckoned for judging the applicability of section 44AB of the Income-tax Act, 1961. Ans. False. For the purpose of Sec.44AB, gross receipt or turnover from business of assesseeindividual shall be considered. C. No disallowance under Section 40A(3) of the Income-tax Act, 1961 arises where an assessee makes a cash payment exceedings Rs. 20,000 towards purchase of a capital asset. Ans. True. Sec.40A(3) deals with expenditure covered u/s 30 to 37. Hence, any cash payment made for capital expenditure, subject to depreciation, is not covered by Sec.40A(3). D. Depreciation is allowed when it is claimed. Ans. False. According to explanation 5 to Sec.32, depreciation is allowed even if it is not claimed by the assessee. E. In the case of a dealer in shares, Income by way of dividend is taxable under the heads "Profits and gains of business or profession".


-5-

Ans. False. Dividend on shares is specifically covered under the head 'Income from Other Sources'. F. An assessee owns 11 trucks. One truck is always kept as a spare vehicle and is never plied on the road. Since only 10 vehicles are plied on the road at any given point of time, the provisions of section 44AE of the Income Tax Act, 1961, can be availed by the assessee. Ans. False. The benefit u/s 44AE is available only if the assessee does not own more than 10 trucks. However, in the instant case, assessee is owning more than 10 trucks, hence Sec.44AE is not applicable. G. Municipal tax in respect of staff quarters is deductible only if it is paid, in computing business income. Ans. True. As per Sec. 43B, while computing business income, deduction in respect of any tax, duty, cess, etc. is allowable on payment basis. H. Advertisement in any souvenir, brochure, pamphlet or the like published by a political party is not deductible under Section 37(2B) of the Income-tax Act, 1961. Ans. True. Expenditure incurred by an assessee on advertisement in any souvenir, brochure, trade, pamphlet or like, published by a political party is disallowed u/s 37(2B).

14.Multiple Choice Questions A. Long-term capital gains arising on compulsory acquisition of agricultural land held by a domestic company within specified urban limits is — (a) not exempt under Section 10(37); (b) exempt under Section 10(37) in full; (c) 50% of the receipt is exempt under Section 10(37); (d) 25% of the receipt is exempt under Section 10(37). Ans. (a) not exempt under Section 10(37). B. In case of an investor in shares, in respect of shares sold, securities transactions tax paid (at the time of purchase of the said shares earlier), is — (a) to be added to the cost of acquisition; (b) to be deducted as an expenditure connected with transfer; (c) not deductible at all while computing capital gains; (d) none of the above. Ans. (c) not deductible at all while computing capital gains. C. In respect of listed shares held for 10 months sold on 12.8.2010, the rate of tax in respect of capital gains is — (a) 10%; (b) 20%; (c) 15%; (d) not determinable, as the capital gains will form part of the total income whose other components are not known. Ans. (c) 15% D. Capital gains arising to an individual/HUF is exempt from tax under section 10(37) if the land was being used for agriculture purposes by such HUF or individual or parent of his during a period of or more immediately preceding the date of transfer. (a) 2 years,(c) 12 months, (b) 36 months,(d) 6 months Ans. (a) 2 years E. Long term capital gain arising to an assessee on the sale of a capital asset is exempt under Section 54EC of the Income-tax Act, 1961 — (a) To the extent of investment in specified bonds up to a limit of X 100 lakhs. (b) To the extent of 50% of investment in certain bonds up to a limit of Rs. 50 lakhs. (c) To the extent of investment of capital gain in specified bonds not exceeding Rs. 50 lakhs. (d) Proportionate to the extent of investment of net sale proceeds in specified bonds, not exceeding Rs. 50 lakhs. Ans. (c) To the extent of investment of capital gain in specified bonds not exceeding Rs. 50 lakhs. 15. Fill in the Blanks A. 2010 - The cost of acquisition of 10 0 bonus shares, where the original shares (100 nos.) were acquired for Rs.30,000 is Nil. 16. True and False/Correct and Incorrect A. Long-term capital gains arising from units of debt-oriented equity funds for which securities transactions tax has been paid in a recognized stock exchange is exempt. Ans. False. Long-term capital gains arising from units of equity-oriented equity funds for which securities transactions tax has been paid in a recognized stock exchange is exempt u/s 10(38). B. For computation of capital gains, full value of consideration arising from the transfer of a capital asset, being land or building or both, shall be the value adopted by the "Stamp Valuation Authority" for payment of stamp duty or the consideration accruing or received from the transfer, whichever is less. Ans. False. As per Sec.50C, in case of transfer of immovable capital asset being land or building or both, sale consideration shall be higher of the following: 1. Actual consideration received or accrued on such transfer; or 2. The value adopted or assessed or assessable by any authority of a State Government (i.e. Stamp Valuation Authority) for the purpose of payment of stamp duty.


-6-

C. Surplus on sale of motor car on which depreciation has been allowed for all year by proprietor of a business will be taxed as long term capital gain. Ans. False. Surplus on sale of motor car on which depreciation has been allowed for all year by proprietor of a business will be taxed as short term capital gain. D. Short-term capital gains arising from sale of listed shares through a recognized stock exchange, for which security transaction tax has been paid, will be charged to tax at a concessional rate of 10%. Ans. False. Short-term capital gains arising from sale of listed shares through a recognized stock exchange, for which security transaction tax has been paid, will be charged to tax at a concessional rate of 15%. Multiple Choice Questions 17. (A)Gift received from one or more unrelated person(s) during the previous year shall form part of an individual's income, if the aggregate of gifts exceeds — (a) Rs. 50,000 (b) Rs. 1,00,000 (c) Rs. 1,35,000 (d) Rs. 1,65,000 Ans. (a) Rs. 50,000 B. Cash gift received under Section 56(2)(vii) from non relatives are not taxable upto — (a) Rs. 1,00,000; (b) 175,000; (c) Rs. 50,000; (d) Rs. 25,000 Ans. (c) Rs. 50,000. C. Mr. X gifts Rs.60,000 to the HUF of which he is member; said amount will be treated as income of — (a) Mr. X; (b) The HUF; (c) None, as it is exempt; (d) None of the above. Ans. (b) The HUF. 18. Fill in the Blanks A. Interest on refund on Income-tax paid in excess is a Taxable receipt. B. Amount received towards permission for putting up hoa rding at the top of the building is taxable under the head Income from Other Sources. 19. True and False/Correct and Incorrect A. Mr. A has received gift of Rs. 1,50,000 on 12 th December, 2010 from his close friend who is assessed to income-tax. The same is taxable at the hands of Mr. A. Ans. True. Said gift is taxable u/s 56(2)(vii). B. Gift received from assesssee's grandfather in excess of Rs. 50,000 will be taxed as income from other sources. Ans. False. Gift from related person is not taxable. C. Gift of a diamond necklace worth I 2,00,000 received from a friend by an individual assessee is not taxable as income from other sources. Ans. False. Such gift is taxable u/s 56(2)(vii). D. Mr. Janak has received as gift, gold buillion bars worth Rs. 70,000 from his friend on his birthday on 15.3.2011. The same is not to be treated as income from other sources. Ans. False. Gift of bullions is covered under Sec.56(2)(vii), hence, it is taxable under the head 'Income from Other Sources'. E. Mr. Saravanan follows mercantile system of accounting. On 13.3.2011, he has received from the State Government, in respect of lands acquired, interest on enhanced compensation of Rs.1,50,000 which includes a sum of 120,000 relatable to this year. The amount assessable is Rs. 20,000. Ans. False. As per amended provision of Sec. 145A(2), interest on enhanced compensation is assessable as income from other source in the year of receipts. Hence, entire Rs.1,50,000 shall be assessable in the A.Y. 2011-12 subject to standard deduction available u/s 56(2)(viii). G. Mr. A has three minor children deriving interest from bank deposits to of the tune of Rs.2,000, Rs.1,300 and Rs.1,600 respectively. Exemption available under Section 10(32) of the Income-tax Act, 1961 is(a) Rs. 4,900;(c)Rs. 4,500; (b) Rs. 4,300;(d)None of above (c) Ans. (b) Rs. 4,300 H. Miss Femina, aged 1 7, is married to Mr. Masculine. Her mother alone is alive. Income by way of interest on loans, of Miss Femina will be (a) Assessed to tax in the hands of Mr. Masculine; (b) Assessed to tax in the hands of her mother; (c) Taxable in own hands; (d) None of the above. Ans. (b) Assessed to tax in the hands of her mother.

20.Fill in the Blanks


-7-

A. Exemption u/s. 10(32) of IT Act 1961 in respect of income of minor child included in the hands of assesses under Section 64(1A) is restricted to Rs. 1,500 per child. B. Assets held by minor married daughter will not (will/will no t) be clubbed in the hands of the individual. C. For the applicability of clubbing provisions of the Wealth Tax Act, 1957, the expression 'child' includes step child and adopted child. 21. Fill in the Blanks Accumulated losses of amalgamating company shall be allowed to be set off or carried forward by amalgamates company, if the amalgamated company holds continuously for a minimum period of 5 years from date of amalgamation at least three-fourths of the book value of assets of the amalgamating company. 22. True and False/Correct and Incorrect 1. Benefit of carry forward and set off of accumulated losses and unabsorbed depreciation is not available in case of amalgamation of a company owning hotel, with another company. Ans. False. Benefit of carry forward and set off of accumulated losses and unabsorbed depreciation is available in case of amalgamation of a company owning hotel, with another company u/s 72A. 2. Business loss can be set off against salary income. Ans. False;. As per Sec.71 (2A), business loss cannot be set off against salary income. 3. Section 73 does not permit carry forward of losses from speculation business for more than four assessment years immediately succeeding the assessment year for which the loss was first computed. Ans. True. As per Sec.73, losses from speculation business cannot be carried forward for more than four assessment years immediately succeeding the assessment year for which the loss was first computed. 23.Multiple Choice Questions A. Government's contribution to the new pension scheme referred to in Section 80CCD is (a) an exempt income; (b) income chargeable to tax as "Salaries" in full; (c) 50% thereof is income chargeable to tax as "Salaries"; (d) Income chargeable to tax as "Income from other sources" in full. Ans. (b) income chargeable to tax as "Salaries" in full. B. In case of a hospital built in specified area after 31.3.2008 fulfilling the required conditions laid down in Section 80IB-(11C), the profits and gains derived from running the hospital are (a) deductible in full; (b) deductible to the extent of 50%; (c) deductible to the extent of 75%; (d) taxable in full. Ans. (a) deductible in full. 24. Fill in the Blanks A. For a person suffering from server physical disability, deduction available under Section 80U is Rs. 1,00,000. B. The tax rebate available under Section 80E to a Hindu Undivided Family resident in India is Rs. Nil. C. The maximum amount of permissible deduction under Section 80C, subject to overall ceiling of Rs. 1,00,000, for repayment of principal part of eligible housing loan in Rs. any amount subject to max of Rs.100000 and that of interest is Rs. Nil. D. From out of his agricultural income, X has paid interest of Rs.10,000 on education loan taken from nationalized bank last year. Deduction available u/s 80E of the Income Tax Act, 1961 is Rs. NIL E. Medical insurance premium paid otherwise than in cash is eligible for deduction under Section 80D of the Income-tax Act, 1961. 25.True and False/Correct And Incorrect A. Every assessee carrying on a business or profession is entitled to deduction under section 80JJAA equal to 30% of additional wages paid to new regular workmen employed by the assessee. Ans. False. Deduction u/s 80JJAA is available to Indian company only. B. In the case of an individual resident in India, who is an author, maximum deduction available from gross total income in respect of eligible royalty income is Rs. 5,00,000, Ans. False. In the case of an individual resident in India, who is an author, maximum deduction available from gross total income in respect of eligible royalty income is Rs. 3,00,000. C. Market value of donation given in kind is also eligible for deduction under Section 80G of the Income-tax Act, 1961. Ans. False. Donation in kind is not eligible for deduction u/s 80G. 26. Multiple Choice Questions A. The registration of a charitable trust can be cancelled under Section 12AA of the Income-tax Act, 1961 by —' (a) Assessing Office; (b) Commissioner of Income-tax; (c) Chief Commissioner of Income-tax;


-8-

(d) Central Board of Direct Taxes. Ans. (b) Commissioner of Income-tax.

27. Fill in the Blanks Where a charitable trust is created on 01-04-2010, the application for registration u/s 12A of the Income-tax Act, 1961 should be submitted within one year from 1-4-2010 (date of creation of trust). [Note Now, a trust is required to apply for registration in Form 10A with the Co mmissioner of Income tax. It is to be noted that exemption will be available from the assessment year relevant to the financial year in which such application is made.] 28.True and False /Correct And Incorrect A. Under Section 12A of the Income-tax Act, 1961, application for registration of charitable trust can be made within one year form the date of creation of the trust. Ans. False. A trust is required to apply for registration in Form 10A with the Commissioner of Income tax. It is to be noted that exemption will be available from the assessment year relevant to the financial year in which such application is made. B. In case of an artificial judicial person, no surcharge is payable where the total income exceeds Rs.10,00,000. Ans. True. Surcharge is applicable only in case of corporate assessee. C. Political parties governed by Section 13A of the Income-tax Act, 1961 have to file their returns of income within the time limit prescribed under Section 139(1) even if there is no income chargeable to tax under the Act. Ans. False. As per Sec.139(4B), the chief executive officer (whether such chief executive officer is known as Secretary or by any other designation) of any political party is required to furnish a return in respect of income of such political party, if the amount of gross total income before allowing exemption u/s 13A exceeds the maximum amount not chargeable to tax. 29.Multiple Choice Questions A. The income of any university or other educational institution existing solely for educational purposes and not for the purposes of profit is exempt under clause (iiiad) of Section 10(23C) if the aggregate annual receipts'of such university or educational institution do not exceed Rs. (a) Rs.100crores,(c) Rs. 10crores, (b) Rs.1 crore,(d) Rs. 10 lakhs Ans. (b) Rs. 1 crore B. Any income chargeable under the based "Salaries" is exempt from tax under Section 10(6) (viii), if it is received by any non resident individual as remuneration for services rendered in connection with his employment in a foreign ship where his total stay in India does not exceed a period days in that previous year. (a) 90 (b) 182 (c) 60 (d) 120 Ans. (a) 90 days C. The following is not a venture capital undertaking for the purposes of Sec.10(23F), if engaged in business of(a) Generation of power (b) Telecommunications (c) Providing infrastructural facility (d) Dairy farming whose shares are not listed in a recognized stock exchange Ans. (d) Dairy farming whose shares are not listed in a recognized stock exchange. 30. Fill in the Blanks A. To claim the benefit under Section 10A, SEZ undertaking having a turnover of rupees two crores, should file the return of income on or before 31st Oct 2011. B. Exemption under Section 10B of the Income-tax Act, 1961 is available till assessment year A.Y. 2012-13. 31. True and False /Correct and Incorrect A. Amount received under Keyman insurance policy is not exempt under Section 10(10D) of the Income-tax Act, 1961. Ans. True. Amount received under Keyman insurance policy is specifically excluded from exemption u/s 10(10D). B. Amount received under Reverse Mortgage Scheme is taxable as income under the head 'income form other sources'. Ans. False. Amount received under Reverse Mortgage Scheme is exempted u/s 10(43). C. In case of assesses other than companies, the following is advance tax rate to be payable on or before of 15lh September: (a) 15 per cent(c) 45 per cent (b) 30 per cent(d) 60 per cent Ans. (b) 30 per cent. 32. Fill in the Blanks While effecting the tax deduction at source, education cess and special higher education cess totalling 3% need not (should/need not) be also deducted from the amount due or payable to the


-9-

deductee. 33.True and False/Correct and Incorrect A. As per Section 194-C of the Income-tax Act, 1961, all Association of Persons and Body of Individuals are liable to deduct tax at source from specified payments made to resident contractors. Ans. False. An association of persons or a body of individuals, whose books of account are required to audited u/s 44AB (due to turnover or gross receipt criteria) during the financial year immediately preceding the financial year is liable to deduct tax at source. B. The rate of TDS applicable for payment made on 28.2.2011 to non-individual sub-contractor, as per section 194C, is 2%. Ans. True. As per Sec. 194C, where payee is a other than individual and HUF, tax shall be deducted @ 2%. C. Only in the TDS certificate furnished by the deductor, quoting the PAN of deductor is compulsory and not in the other correspondences between the deductor and the deductee. Ans. False. As per Sec. 206AA, PAN of deductor is required to be quoted on TDS Statement and other correspondence. 34. Multiple Choice Questions A. In case of companies deriving loss for any assessment year, filling of return of income within the due date laid down in Section 139(1) is compulsory (a) only where the Department issues notice to the assessee-company; (b) for domestic companies only; (c) for foreign companies only; (d) for all companies. Ans. (d) for all companies. B. Where assessment has not been completed, belated income-tax return for assessment year 2011-12 can be filed upto (a) 31-03-2013 (b) 31-12-2012 (c) 31-03-2012 (d) 31-12-2013 Ans. (a) 31-03-2013 C. The due date for filing return of net wealth of an individual, who is a partner in a firm, whose turnover for the year ended 31-03-2011 exceeds Rs. 60 lacs, is (a) 30th June, 2011 (b) 31st July, 2011 (c) 31st October, 2011 (d) None of the above Ans. (d) None of the above. D. Where the karta is not available, the return of wealth of a HUF can be signed by: (a) Any adult member of the family; (b) Any adult coparcener of the family: (c) The male member who is next in seniority to the karta; (d) None of the above. Ans. (a) Any adult member of the family. E. Following Form Number is to be used for filing the return of income by an individual having business income: (a) Form No. 1; (b) Form No. 2; (c) Form No. 4; (d) Form No. 4A. Ans. (c) Form No. 4. 35. Fill in the Blanks: A. Belated return of income for the assessment year 2011-12 can be filed on or before 31 st March. 2013. where no assessment has been made. B. The due date for filling wealth-tax return by a closely held company, whose turnover is below Rs. 40 lakhs, is 30 th September. C. Electronic fur nishing of i ncome-tax return in approved computer readable media can be furnished under sub-section (1B ) of section 139 of the Income-tax Act, 1961. D. 2009 - Time limit for filling revised return when assessment has not been completed is one year from the end of the relevant assessment year. E. Sec. 139(1) ap plies to all perso ns whether th ey are resident or non-resident. 36.True and False/Correct And Incorrect Partnership firm deriving loss need not file return of income. Ans. False. A firm is required to furnish return of income mandatorily. 37. Multiple Choice Questions A. Surcharge of 2.5% is payable in the case of companies, by (a) domestic companies only; (b) companies other than domestic companies; (c) all companies;


- 10 -

(d) None of the above. Ans. (d) None of the above.

[Note; Surcharge of 2.5% is payable by non-domestic company if total income exceeds Rs.1 crore.] B. Expand - MAT. Ans. Minimum Alternate Tax 38.Fill in the Blanks A. For the assessment year 2011-12, tax on distributed profits (dividend distribution tax) is payable at 15% plus surcharge of 7.5% (+ Education Cess & SHEC 3%). B. The rate of Minimum Alternate Tax has been increased from 15% to 18% of book profits with effect from assessment year 2011 -12. C. Long term capital gain which are exempt u/s. 10(38) credited to profit and loss account are s u b j e c t t o ( subject to/not subject to) Minimum Alternate Tax, from assessment year 2011-12. D. A foreign company means a Company which is not a domestic company. E. The rate of tax in case of Minimum Alternate Tax has been increased to 18% % with effect from Assessment year 2011 -12. 39. True and False/Correct and Incorrect A. For the purposes of computing minimum alternate tax (MAT) under Section 115JB(2) of the Incometax Act, 1961 the book profit need not to be increased, by inter alia, the amount of deferred tax debited to the profit and loss account. Ans. False. For the purposes of computing minimum alternate tax (MAT) under Section 115JB(2) of the Income-tax Act, 1961 the book profit required to be increased, by inter alia, the amount of deferred tax debited to the profit and loss account. B. The period for setting off the MAT credit under Section 115JB is seven years. 40. Multiple Choice Questions A. Which one of the following is an "asset" as per Section 2(ea) of the Wealth-tax Act? (a) Any residential property forming part of stock-in-trade (b) Any residential house that has been let out for a minimum period of 180 days during the previous year (c) Commercial complex (d) House occupied for the purpose of assessee's business. Ans. (b) Any residential house that has been let out for a minimum period of 180 days during the previous year. B. Under the Wealth Tax Act, 1957 the time limit for completion of regular assessment is months from the end of relevant assessment year. (a) 21 (b) 12 (c) 24 (d) None of the above. Ans. (a) 21 C. In valuation of immovable property in Bangalore, the specified area means of the aggregate area, for wealth-tax purpose. (a) 60% (b) 65% (c) 70% (d) 75% Ans. (b) 65% D.The following is not an asset as envisaged by Sec.2(ea) of the Wealth-tax Act. (a) Bullion (b) Urban Land (c) Jeep used in business of manufacture of medicines (d) Motor boats of fishing business Ans. (d) Motor boats of fishing business. 41. Fill in the Blanks A. A plot of land not exceeding 500 sq. meters of area, belonging to an individual is exempt from wealth tax. B. Partial partition of HUF is not recognized (recognized/not recognized) for purpose of Wealthtax Act, 1957. C. Where L whose cash and bank balance on 14.01.2011 is Rs. 50,000 gifts Rs. 2,50,000 to M, without any actual delivery of the money, Rs. 2,00,000 will be clubbed in the hands of L for wealth-tax purposes. D. Under the Wealth-tax Act, 'assessment year' means the period of 12 months commencing on 1 st day of April every year, falling immediately after the valuation date. E. The term 'net wealth' is defined in Section 2(m) of the Wealth Tax Act. F. As per Section 2(ea)(i) Wealth-tax Act, 1957,"asset" means, inter alia, farm house situated within 25 Kilometers of any municipality. G. Deemed individual is not liable to (liable to tax/not liable to tax) under Section 2(22)(e) of the Income-tax Act, 1961. H. The term "asset" is defined in clause (ea) of Section 2 of the Wealth-Tax Act, 1957. I. In the case of an individual or a HUF, a plot of land not exceeding 500 sq. metres in area is


J.

- 11 -

exempt under Section 5(vi) of the Wealth-tax Act, 1957. In computing the net wealth of an individual, the value of assets, which on the valuation date, are held by a minor child who is a married daughter of such individual, shall not (shall/shall not) be included.

42.True and False/Correct and Incorrect A. Property held by an assessee under trust for any private purposes of charitable nature in India is not an exempt asset under Section 5 of the Wealth-tax Act. Ans. True. Property held by an assessee under trust for any private purposes of charitable nature in India is not an exempt asset under Section 5 of the Wealth-tax Act. B. A charitable trust whose income is not exempt under any clause of Section 10 of the Incometax Act, 1960 will be chargeable to wealth-tax in all cases, where the trust forfeits exemption. Ans. False. A trust forfeits exemption only in circumstances given in Section 21A of the Wealth-tax Act. C. The term 'individual', as a defied in the Wealth-tax, 1957 means only a single human being. D. The term 'Individual' as defined in Wealth tax Act, 1957 means only a single human being. Ans. False. As per various court decisions, individual includes group of individuals forming one unit. E. Under the Wealth Act, 1957 a person who is once treated as a citizen of India, continues to be treated as a citizen of India for ever. Ans. False. If a person voluntarily acquired citizenship of another country, he would cease to be a citizen of India. F. Is it correct to state that every member of AOP is an assessee for the purpose of wealth tax? Ans. Correct. As per Sec. 2(c) read with Sec. 21AA of the Wealth-tax Act, assessee includes every member of the AOP. G. A political party is exempt from paying wealth tax. Ans. True. As per Sec. 45, a political party is exempt from paying wealth tax. H. The maximum amount of penalty leviable under Section 18(1)(c) of the Wealth-tax Act, 1957 for concealing the particulars of any asset chargeable-tax is five times the amount of tax sought to be evaded. Ans. True. The maximum amount of penalty leviable u/s 18(1)(c) of the Wealth-Tax Act, 1957 for concealing the particulars of any asset chargeable-tax is five times the amount of tax sought to be evaded. I. An individual himself has to sign the return of wealth and whatever be the contingency, cannot authorize another persons to sign on his behalf. Ans. False. As per Sec.15A, where for any reason, if an individual is not in a position to sign his return, he can authorize another person. J. A company owns a plot of urban land comprising of area of 500 square metres. Exemption is not available in respect of this asset under the provision to Section 5(vi) of the Wealth Tax Act, 1957. Ans. False. Exemption u/s 5(vi) is not available to a company-assessee. K. Vacant side held as stock-in-trade is not liable for wealth tax for 12 years from the end of the year in which it was acquired. Ans. False. Vacant side held as stock-in-trade is not liable for wealth tax for 10 years from the end of the year in which it was acquired.

Objective Questions and Answers on Direct Tax for June 2011

Recommend Documents