LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034
M.Com. DEGREE EXAMINATION – COMMERCE
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THIRD SEMESTER – APRIL 2006
CO 3956 – INCOME TAX – II
Date & Time : 18-04-2006/AFTERNOON Dept. No. Max. : 100 Marks
SECTION – A
Answer ALL questions: (10 ´ 2 = 20)
- Define the term ‘business’ under the head Profits and gains from business and profession.
- State the deductions available under 80 L of the Income Tax Act.
- What do you understand by ‘set-off of losses?
- Define ‘block of assets’?
- Give the provision under section 40(b) under assessment of firm.
- What do you mean by ‘domestic company’?
- List out the incomes of a political party, which are exempt from tax?
- Mention the rate of tax in which the income of firm is taxed.
- Mention the order in which the losses/expenditure are set off?
- What do you mean by amortisation of preliminary expenditure?
SECTION – B
Answer any five questions : (5 ´ 8 = 40)
- A firm is engaged in the manufacture of basic drugs. It consists of three partners A, B and C sharing profits and losses in proportion of 3, 2 and 1 respectively.
The firm’s accounts for the year ended 31st March, 2005 disclosed a net profit of Rs.1,90,500 after debiting the following items :
(a) Salary of Rs.1,15,000 paid to partner C, who is a chemist and is incharge of the firm’s laboratory.
(b) Rent of Rs.9,100 paid to partner B for the portion of his building in which the firm’s office was situated.
(c) Rs.9,100 paid as interest to partner A on a loan advanced by him to the firm @ 13% p.a.
(d) Rs.65,000 paid for the purchase of patent right to manufacturing a drug for cancer.
Depreciation was debited to the P&L Account as permissible under the Act. The net profit of Rs.1,90,500 included Rs.6,000, being interest on fixed deposit with State Bank of India. New machine costing Rs.15,000 was purchased and installed in July 2004. Its cost has not been charged against the Profit and Loss Account.
Compute the total income of the firm giving briefly the reasons for inclusion and exclusion of each item.
- The particulars of assets of M/s.Ram Prakash & Co. for the previous year from 1st April, 2004 to 31st March, 2005 are as under :
(i) A motor car, costing Rs.40,000 was purchased on 10th January, 2005. It is used partly for private purposes also and 60% of use during the financial year 2004-05 related to business.
(ii) Plant and Machinery written-down value on 1st Apirl, 2004 Rs.3,75,000. Two new machines were installed on 1st November, 2004 costing Rs.1,00,000 and Rs.20,000 respectively. An old machine was sold during the previous year for Rs.3,00,000.
Calculate the amount of depreciation allowable for the Assessment Year 2005-06.
- From the following information compute the income of Mr.Shyam and Mrs.Shyam and explain who is liable to pay tax on such income?
| Rs. | |
| 1. From business | 90,000 |
| 2. Interest on debentures (gross) | 20,000 |
| Incomes of Mrs. Shyam | |
| 1. Salary income (computed) | 1,50,000 |
| 2. Interest on debentures (gross) transferred by Mr.Shyam without consideration | 10,000 |
| 3. Interest on loan from a firm | 4,000 |
The loan was given out of interest income.
- Briefly explain the provision of depreciation of assets as per the Income Tax Act.
- Shri Sanjay furnishes the following particulars of incomes and losses for the assessment year 2005-06 :
| Rs. | ||
| 1. | Taxable Income from salary | 50,000 |
| 2. | Income from house property (Net) | 16,000 |
| 3. | Profit from readymade garments business | 40,000 |
| 4. | Speculative profits | 10,000 |
| 5. | Long-term capital gains | 24,000 |
| 6. | Short-term capital gains | 8,000 |
| 7. | Share of profit from a partnership firm | 7,800 |
| 8. | Current year’s depreciation | 4,500 |
The following items are brought forward from the assessment year 2003-04:
| 1. | Unabsorbed depreciation | 5,000 |
| 2. | Speculative loss | 15,000 |
| 3. | Long-term capital loss | 15,000 |
| 4. | Short-term capital loss | 6,000 |
Compute gross total income of Mr.Sanjay for A.Y. 2005-06.
- A trust holding property wholly for charitable purposes in India earned Rs.2,00,000 during 2003-04 but received only Rs.1,50,000 out of such income. Out of Rs.1,50,000 it set apart Rs.30,000 to be used for charitable purposes in future and spent Rs.1,20,000. In 2004-05 the trust received Rs.50,000 (accrued income) and spent Rs.30,000 in 2004-05 and Rs.20,000 in 2005-06 for charitable purposes in India. Compute the income chargeable to tax, if any, for the years 2003-04, 2004-05 and 2005-06 assuming that the trust has applied for the option and obtained extension of time for utilizing the amount not received during the previous year, to utilize it in the year of receipt or in the following year.
- Discuss the provisions of Minimum Alternative Tax in case of company assessee.
- What are the important deductions allowed while computing income under ‘profits and gains from business or profession’?
SECTION – C
Answer any TWO questions: (2 ´ 20 = 40)
- Mr. Bhagwandas is a registered medical practitioner. He keeps his books on a cash basis and his summarized cash account for the year ended 31st March, 2005 is as under:
| To Balance b/d | 1,22,000 | By Cost of Medicines | 10,000 |
| To Loan from Bank for
Private Purpose |
3,000 | By Surgical Equipment | 8,000 |
| To Sale of Medicines | 25,250 | By Motor-Car | 1,20,000 |
| To Consultation Fees | 55,000 | By Car Expenses | 6,000 |
| To Visiting Fees | 24,000 | By Salaries | 4,600 |
| To Interest on Govt.Securities | 4,500 | By Rent of Dispensary | 1,600 |
| To Rent from property
(not subject to local taxes) |
3,600 | By General Expenses | 300 |
| By Personal Expenses | 11,800 | ||
| By Life Ins. Premium | 3,000 | ||
| By Int.on Loan from Bank | 300 | ||
| By Insurance of Property | 200 | ||
| By Balance c/d | 71,550 | ||
| Rs. | 2,37,350 | Rs. | 2,37,350 |
Compute his income from profession and house property for the previous year 2004-05 taking into account the following further information :
- a) One-third of motor-car expenses are in respect of his personal use.
b) Depreciation allowable on motor-car @ 20% and surgical equipments is @ 25%.
- Prakash Traders Ltd. is a company in which the public are substantially interested. For the year ending 31st March, 2005 it has derived the following incomes :
- a) Profit from tile manufacturing unit at Lucknow Rs.1,50,000.
- b) Profit from trading activities at Lucknow Rs.2,00,000.
- c) Dividends from another company which is a domestic company Rs.25,000 (Gross).
- d) Dividend from a foreign company Rs.10,000
- e) Profits from hotel started in 2000 at a place of pilgrimage Rs.1,80,000.
- f) The company passed a design to another company in Uganda and received royalty thereof in India Rs.2,25,000 in convertible foreign exchange.
- g) Brought forward unabsorbed depreciation Rs.2,22,000 of tile unit.
- h) The company has distributed dividend for the relevant previous year in October, 2004 Rs.1,50,000.
You are required to calculate total income and the tax liability of the company.
- A and B are partners in a firm. They share profit or loss in the ratio 5:3. From the following Profit and Loss Account compute the total income of the firm and the amount which will be included in the income of A and B. The firm fulfils the conditions of Sec.184.
| Rs. | Rs. | ||
| To Interest on Capital @ 20% | By Business Profits | 40,000 | |
| A | 14,000 | By Income from house property | 4,000 |
| B | 10,000 | By Long-term capital gains | 20,000 |
| To Remuneration to working | By Loss : A | 12,500 | |
| partners : A | 30,000 | B | 7,500 |
| B | 30,000 | ||
| 84,000 | 84,000 |
The remuneration and interest on capital are as per partnership deed.
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