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Paper - 4: Taxation Section A: Income Tax
Paper - 4: Taxation Section A: Income Tax
The Suggested Answers for Paper 4A: Income-tax are based on the provisions of income-tax
law as amended by the Finance Act, 2019 and Finance (No.2) Act, 2019. The relevant
assessment year is A.Y.2020-21.
2
The phrase “repaying the loan” to be read as “paying the interest on loan”
Particulars `
(i) Agricultural Income from Sri Lanka 25,000
(ii) Long term capital gain on sale of property in Bombay but received 30,000
in Burma
(iii) Profit from business in Dubai controlled from India 2,50,000
(iv) Rent from house property in Thailand received in India 1,00,000
(v) Interest on Savings account from bank in India 8,000
(vi) Past untaxed foreign income brought into India during the year 1,00,000
(5 Marks)
(b) Determine residential status of Sundaram (HUF) which carries out its transactions in
Malaysia. Its affairs are partly controlled from India. The Karta of HUF, Mr. Sundaram who
is from Chennai visits India on 01.06.2019 and leaves to Malaysia on 10.02.2020. He has
not visited India for the past 11 years. (2 Marks)
Answer
(a) Computation of total income of Mr. Vinod for the A.Y. 2020-21
Particulars Resident Resident
and but not
ordinarily ordinarily
resident resident
(ROR) (RNOR)
` `
Agricultural income from Sri Lanka [Taxable in his 25,000 NIL
hands as ROR, since global income is taxable and
exemption under section 10(1) is not available in respect
of agricultural income arising outside India; however,
such income is not taxable in his hands as RNOR, since
the income accrues or arises outside India and it is not
stated that such income is received in India]
Long-term capital gain on sale of property in Bombay 30,000 30,000
but received in Burma [Taxable in his hands as ROR,
since global income is taxable in the hands of ROR. Also,
the income is taxable in his hands as RNOR, since
income arises on sale of property situated in India and it
is deemed to accrue/arise in India]
Profit from business in Dubai controlled from India 2,50,000 2,50,000
[Taxable in his hands as ROR, since global income is
taxable in the hands of ROR. Also, the income is taxable
(a) Housing Loan@ 5% p.a. provided by Surya Ltd., amount outstanding as on 01.04.2019 is
` 15 Lakhs. ` 25,000 is paid by Mr. Rohan every month towards principal. The lending
rate of SBI for similar loan as on 01.04.2019 was 8%.
(b) ` 20,000 incurred by the employer Surya Ltd. towards premium for health insurance
scheme approved by IRDA for Rohan.
(c) Received ` 15,000 as gift voucher on the occasion of his marriage anniversary from Surya Ltd.
(d) Surya Ltd. allotted 1000 sweat equity shares in August 2019. The shares were allotted at
` 415 per share and the fair market value on the date of exercising the option by Mr. Rohan
was ` 700 per share.
(e) He was provided with furniture during September 2015. The furniture is used at his
residence for personal purpose. The actual cost of the furniture was ` 2,10,000. On 31st
March, 2020, the company offered the furniture to him at free of cost. No amount was
recovered from him towards the furniture till date.
(f) Received ` 15,000 towards entertainment allowance.
(g) Basic salary is ` 75,000 per month. (7 Marks)
Answer
Computation of income under the head “Salaries” of Mr. Rohan for the A.Y.2020-21
Particulars ` `
Basic Salary [` 75,000 x 12 months] 9,00,000
Entertainment allowance 15,000
Interest on housing loan given at concessional rate, would be 40,125
perquisite, since the amount of loan exceeds ` 20,000, For
computation, the lending rate of SBI on 1.4.2019 @8% has to be
considered. Thus, perquisite value would be determined @ 3%
(8% - 5%) [See Working Note]
Health insurance premium paid by the employer [tax free NIL
perquisite]
Gift voucher on the occasion of his marriage anniversary [As per 15,000
Rule 3(7)(iv), the value of any gift or voucher or token in lieu of
gift received by the employee or by member of his household
exceeding ` 5,000 in aggregate during the previous year is fully
taxable] (See note below)
Allotment of sweat equity shares
Fair market value of 1000 sweat equity shares @ ` 700 each 7,00,000
Less: Amount recovered @ ` 415 each 4,15,000 2,85,000
Working Note:
Computation of perquisite value of loan given at concessional rate
For computation, the lending rate of SBI on 1.4.2019 @8% has to be considered. Thus,
perquisite value would be determined @ 3% (8% - 5%)
Month Maximum outstanding balance Perquisite value at
as on last date of month (`) 3% for the month (`)
April, 2019 14,75,000 3,687.50
May, 2019 14,50,000 3,625.00
June, 2019 14,25,000 3,562.50
July, 2019 14,00,000 3,500.00
August, 2019 13,75,000 3,437.50
September, 2019 13,50,000 3,375.00
October, 2019 13,25,000 3,312.50
November, 2019 13,00,000 3,250.00
December, 2019 12,75,000 3,187.50
January, 2020 12,50,000 3,125.00
February, 2020 12,25,000 3,062.50
March, 2020 12,00,000 3,000.00
Total value of this perquisite 40,125.00
Note: An alternate view possible is that only the sum in excess of ` 5,000 is taxable. In such
a case, the value of perquisite would be ` 10,000 and gross salary and net salary would be
` 13,97,125 and ` 13,47,125, respectively.
Question 4
The following information is furnished by Mr. Shankar for the financial year 2019-20:
Particulars `
Income from let out house property (computed) 3,50,000
Interest paid on housing loan for self-occupied property 2,00,000
Income from Textile business 5,75,000
Brought forward business loss of Assessment Year 2016-17 1,05,000
Short-term capital loss 70,000
Brought forward long-term loss from Assessment Year 2018-19 90,000
Long-term capital gain on sale of house 75,000
Interest on enhanced compensation from Government for acquisition of land 5,00,000
in 2015
Dividend received from ABC Ltd., Andhra Pradesh 15,000
Deposit made on 20.01.2020 in his Public Provident fund account 75,000
Loss from owning and maintaining race horse of Assessment Year 20,000
2018-19
Loss from Gambling 8,000
Mr. Shankar filed the return of income for assessment year 2016-17 after the expiry of due date
for filing the return. Compute the total income of Mr. Shankar for the assessment year 2020-21
under proper heads and also state the loss that can be carried f orward. (7 Marks)
Answer
Computation of total income of Mr. Shankar for A.Y.2020-21
Particulars ` `
Income from house property
Income from let out house property 3,50,000
Less: Set-off of loss from self-occupied house property by virtue
of section 70(1) [Whole of interest i.e., ` 2,00,000 allowable as
deduction, since it is within the permissible limit applicable to self-
occupied property; The said amount represents loss from self-
occupied property] (2,00,000) 1,50,000
Profits and gains of business or profession
Income from textile business 5,75,000
(b) Conditions when a person is required to furnish return of income on or before the
due date even if he is otherwise not required to furnish return under section 139(1)
Any person, other than a company or a firm, who is not required to furnish a return under
section 139(1), is required to file income-tax return in the prescribed form and manner on
or before the due date if, during the previous year, such person, inter alia,
3 It is assumed that the tax deductible has been duly deducted on lottery winnings.
(i) has deposited an amount or aggregate of the amounts exceeding ` 1 crore in one
or more current accounts maintained with a banking company or a co -operative
bank; or
(ii) has incurred expenditure of an amount or aggregate of the amounts exceeding
` 2 lakh for himself or any other person for travel to a foreign country ; or
(iii) has incurred expenditure of an amount or aggregate of the amounts exceeding
` 1 lakh towards consumption of electricity.
Answer
Computation of value of taxable supply
Particulars Amount
(`)
Donation received against publishing the name of a school in annual religious 5,00,000
publication of the Trust
[Being a non-charitable activity, the service provided by the Trust is not eligible
for exemption from GST.]
Receipts from sale of food in food court in the premises of the Trust 2,00,000
[Being a non-charitable activity, the service provided by the Trust is not eligible
for exemption from GST.]
Annual fees received from restaurants for use of brand name and logo of food 1,00,000
court2
[Being a non-charitable activity, the service provided by the Trust is not eligible
for exemption from GST. However, deposit being refundable in nature cannot
be construed as consideration.]
Donation received for pooja organized in Trust premises on occasion of Nil
'Shivratri'
[Services of conduct of a religious ceremony are exempt from GST.]
Receipts from skill development program for senior citizens (aged more than 4,00,000
65 years) residing in Kolkata
[Skill development program conducted by the Trust for persons over the age
of 65 years is not a charitable activity since such persons are not residing in
rural area, but in an urban area (Kolkata). Being a non-charitable activity, said
service provided by the Trust is not eligible for exemption from GST.]
Amount received for activities relating to preservation of Tigers in Sunderbans, Nil
West Bengal
[Being a charitable activity of preservation of wildlife, the service provided by
the Trust is eligible for exemption from GST.]
Letting out of precincts of religious place owned by the Trust in Kolkata 2,00,000
[Renting of precincts of a religious place meant for general public owned by a
charitable trust is exempt only when the rent is less than ` 10,000 per day.
Since the rent is ` 10,000 per day, the same is not eligible for exemption.]
Total value of taxable supply 14,00,000
2
It has been assumed that the refundable deposit of ` 2,00,000 has not affected, in any manner, the
consideration charged for use of brand name and logo of the food court.
Question 7
(a) Guru Enterprises (Delhi), a registered taxpayer, made a taxable supply to Y Ltd. (Delhi).
The value related details of the said supply are as follows :
Particulars Amount
(`)
Price of goods (Does not include any tax or discounts) 10,00,000
Tax levied by the Municipal Authority 10,000
Subsidy received from Jiva Enterprises Pvt Ltd. (The price above is 1,00,000
after consideration of such subsidy amounts)
Amount incurred by Y Ltd. for post delivery inspection. (Charges 5,000
incurred post receipt of goods by Y Ltd.)
In respect of the above supply, Guru enterprises had procured some raw material from X
Ltd., for which it owed ` 25,000.
The said amount was directly paid by Y Ltd. to X Ltd. and is not included in the price of
goods mentioned above.
The payment of consideration for the said supply was delayed by Y Ltd. and hence an
interest amount of ` 20,000 was also charged by Guru Enterprises.
The applicable tax rate on such supply is as follows CGST @ 6%, -SGST@6% and IGST@
12%.
You are required to determine the taxable value as well as the applicable tax liability for
the said transaction. (5 Marks)
(b) ABC Ltd., is a contractor executing works contract service, situated in Tamil Nadu. It
entered into an agreement with XYZ Ltd. (another registered person in Tamil Nadu) to
provide works contract services in various States in South India. The precise location
details were to be shared later. In this regard, ABC Ltd. received an advance of ` 1 Crore
(including GST).
You are to advise ABC Ltd. whether :
(A) ABC Ltd. is liable to pay GST on such advance amount.
(B) Whether the tax liability is to be paid as CGST + SGST or IGST
(C) What would be the tax rate at which such tax liability is to be paid? (4 Marks)
Answer
(a) Computation of taxable value and tax liability
Particulars Amount
(`)
Price of goods (exclusive of tax and discounts) 10,00,000
Add: Tax levied by Municipal Authority 10,000
[Tax other than GST, if charged separately, are includible in the value in
terms of section 15.]
Add: Subsidy received from Jiva Enterprises Pvt. Ltd. 1,00,000
[Subsidy provided by non-Government bodies and which is directly linked
to the price is includible in the value in terms of section 15.]
Add: Post-delivery inspection charges -
[As per section 15, anything done by the supplier in respect of the supply
of goods after the delivery of goods is not includible in value.]
Add: Amount directly paid by Y Ltd. to X Ltd. 25,000
[Liability of the supplier, in relation to the supply being valued, if
discharged by the recipient of supply and not included in the price, is
includible in the value in terms of section 15.]
Add: Interest 17,857
[Interest for delayed payment of consideration is includible in the value in
terms of section 15. It has been presumed that interest is inclusive of
GST ` 20,000 x 100/112 (rounded off).]
Value of taxable supply 11,52,857
CGST @ 6% 69,171
SGST @ 6% 69,171
(b) (A) Supply includes inter alia all forms of supply made or agreed to be made. Thus,
advance payment for a supply agreed to be made is liable to tax.
In case of services, the time of supply is issue of invoice or receipt of payment,
whichever is earlier.
Therefore, in the given case, ABC Ltd. will be required to pay tax on advance of
` 1 crore at the time of receipt of advance.
(B) Where at the time of receipt of advance, nature of supply is not determinable, the
same is treated as inter-State supply and thus, IGST is charged thereon.
(C) Where at the time of receipt of advance, rate of tax is not determinable, tax is paid at
the rate of 18%.
Question 8
(a) Seven Wonders Pvt Ltd., a registered supplier, is involved in manufacturing of taxable
goods. Following information has been provided by the company pertaining to GST paid
on purchases made/input services availed by it during the month of January, 2020.
Particulars Amount
(`)
Raw Material (To be received in February, 2020) 2,00,000
Capital Goods 5,00,000
(Invoice missing for one out of 5 items and GST paid on the same was
` 70,000)
GST paid on free samples distributed 6,000
Trucks used for transportation of raw materials 1,50,000
GST paid on health insurance policies (Not notified u/s 17(5)(b)(iii)(A) 80,000
of the CGST Act)
It may be assumed that all the other necessary conditions for availing input tax credit have
been complied with.
Determine the amount of input tax credit that can be availed by Seven Wonders Pvt. Ltd.,
in the month of January, 2020. (5 Marks)
(b) Conditions for availing the concessional rate of tax under Notification No. 2/2019 CT(R)
are primarily the same as the conditions for availing composition scheme under Central
Goods and Services Tax Act, 2017, with few exceptions. Briefly discuss the said
exceptions. (4 Marks)
Answer
(a)
Particulars (` )
Raw material -
[Since the raw material is not received in January, 2020, ITC in respect of
the same cannot be availed in January, 2020.]
Capital goods 4,30,000
ITC can be availed only on the basis of a valid document. Thus, ITC in
respect of the item for which the invoice is missing cannot be availed.3]
GST paid on free samples distributed -
3
It has been logically assumed that Seven Wonders Pvt Ltd. has not claimed depreciation under the Income-
tax Act, 1961 on the GST component of the capital goods.
supplier of notified
services.
4 Supplies are made by a Supplies are made Supplies are made by a
registered person who is not by a registered registered person who
engaged in making any supply person who is not is not engaged in
through an electronic engaged in making making any supply of
commerce operator who is any supply of goods goods or services
required to collect tax at source through an electronic through an electronic
under section 52. commerce operator commerce operator
who is required to who is required to
collect tax at source collect tax at source
under section 52. under section 52.
Question 9
(a) Examine eligibility of input tax credit in the following cases in accordance with GST laws:
(i) Repairs and maintenance of tempos used by XYZ Limited for transportation of
finished goods.
(ii) Company procuring health insurance services for benefit of its employees
(Procurement of health insurance is mandatory under Factories Act, 1948 ).
(iii) Supply of outdoor catering services at the Annual General Meeting of ABC Ltd.
(iv) Luxury motor vehicle (seating capacity of 5 persons) bought by XYZ Ltd. (engaged in
soap manufacturing business) for its directors.
(v) Motor Vehicle used by courier agency for transportation of courier consignments.
(5 Marks)
(b) (i) The aggregate turnover of X Ltd. in Delhi exceeds the applicable threshold limit for
registration on 1 st December. The application for registration is submitted on 20 th
December. Registration certificate is granted on January 1. Determine the effective
date of registration along with reasoning.
(ii) M/s Sonu is an agent undertaking supply of goods on behalf of another taxable person
i.e. Mr. Ghanshyam. The turnover of M/s Sonu does not exceed the applicable
threshold limit. Is M/s Sonu required to obtain registration under GST? Explain in
brief. (4 Marks)
Answer
(a) (i) ITC on motor vehicles used for transportation of goods is allowed. Further, ITC is
allowed on repair and maintenance services relating to motor vehicles, ITC on which is
allowed.
Therefore, repairs and maintenance of tempos used by XYZ Limited for transportation
of finished goods is eligible for ITC.
(ii) ITC on health insurance services is allowed only when such services are provided by
an employer to its employees under a statutory obligation.
Since in the given case, procurement of health insurance is mandatory under the
Factories Act, 1948, health insurance service procured by the company for benefit of
its employees is eligible for ITC.
(iii) ITC on catering services is allowed only when such services are
(i) used by a registered person for making outward catering supply or as an element
of a taxable composite or mixed supply, or
(ii) provided by an employer to its employees under a statutory obligation.
In view of the above, outdoor catering service supplied at the Annual General Meeting
of ABC Ltd. is not eligible for ITC.
(iv) ITC on motor vehicles for transportation of persons with seating capacity of up to 13
persons (including driver), can be availed only if the taxable person is in the business
of transportation of passengers or is providing the services of imparting training on
driving such motor vehicles or is in the business of supply of such motor vehicles.
In view of the above, luxury motor vehicle of seating capacity of 5 persons bought by
XYZ Ltd. for its directors is not eligible for ITC as XYZ Ltd. is engaged in
manufacturing business.
(v) ITC on motor vehicles is allowed when such motor vehicle is used for transportation
of goods.
Therefore, motor vehicle used by courier agency for transportation of courier
consignments is eligible for ITC.
(b) (i) Where a person submits the application for registration within 30 days of becoming
liable for registration, the effective date of registration is the date on which the person
becomes liable to registration; otherwise it is the date of grant of registration.
Since X Ltd. applied for registration within 30 days of becoming liable to registration,
the effective date of registration is 1 st December.
(ii) A person who makes taxable supply of goods on behalf of other taxable persons
whether as an agent or otherwise is mandatorily required to obtain registration
irrespective of the quantum of the aggregate turnover.
Therefore, in the given case, M/s Sonu is mandatorily required to obtain registration
irrespective of the fact that its turnover does not exceed the applicable threshold limit4.
Question 10
(a) Briefly discuss the following with reference to GST law:
(i) Revised Tax Invoice·
(ii) Bill of Supply
(iii) Receipt Voucher
(iv) Payment Voucher
(v) Refund Voucher (5 Marks)
(b) (i) Briefly discuss GSTR-5 return
(ii) Mention persons who are not required to file annual return under GST.
OR
Briefly discuss Final Return under GST. (4 Marks)
Answer
(a) (i) A registered person who has been granted registration with effect from a date earlier than
the date of issuance of certificate of registration to him may, issue a revised tax invoice
against the invoices already issued during said period, within 1 month from the date of
issuance of certificate of registration in prescribed manner.
(ii) A registered person supplying exempted goods and/or services or paying tax under
composition levy, shall issue in prescribed manner, a bill of supply instead of a tax
invoice, containing prescribed particulars.
(iii) A registered person shall, on receipt of advance payment with respect to any supply
of goods and/or services, issue a receipt voucher or any other document, containing
prescribed particulars, evidencing receipt of such payment.
(iv) A registered person who is liable to pay tax under reverse charge under section
9(3)/(4) of the CGST Act shall issue a payment voucher at the time of making payment
to the supplier.
(v) Where, on receipt of advance payment with respect to any supply of goods and/or
services the registered person issues a receipt voucher, but subsequently no supply
is made and no tax invoice is issued in pursuance thereof, the said registered person
may issue to the person who had made the payment, a refund voucher against such
payment.
4
It has been logically presumed that M/s Sonu is undertaking taxable supply of goods on behalf of
Mr. Ghanshyam.
(b) (i) A registered non-resident taxable person is required to file a simplified monthly tax return
in Form GSTR-5 for every calendar month or part thereof incorporating the details of its
outward supplies and inward supplies.
GSTR-5 should be furnished within 20 days after the end of the calendar month or
within 7 days after the last day of validity period of the registration, whichever is
earlier.
(ii) Following persons are not required to file the annual return:
(i) Casual taxable persons.
(ii) Non- resident taxable person
(iii) Input service distributors
(iv) Persons authorized to deduct/collect tax at source under section 51/52 of the
CGST Act and
(v) Person supplying OIDAR services from outside India to unregistered persons in
India
Every registered person who is required to furnish return u/s 39(1) and whose
registration has been surrendered or cancelled
is required to file a final return electronically in prescribed form within 3 months of
the:
(i) date of cancellation,
or,
(ii) date of order of cancellation,
whichever is later.