LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034

M.Com. DEGREE EXAMINATION – COMMERCE

TH 49

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)

 

1. Define the term ‘business’ under the head Profits and gains from business and profession.

 

2. State the deductions available under 80 L of the Income Tax Act.

 

3. What do you understand by ‘set-off of losses?

 

4. Define ‘block of assets’?

 

5. Give the provision under section 40(b) under assessment of firm.

 

6. What do you mean by ‘domestic company’?

 

7. List out the incomes of a political party, which are exempt from tax?

 

8. Mention the rate of tax in which the income of firm is taxed.

 

9. Mention the order in which the losses/expenditure are set off?

 

10. What do you mean by amortisation of preliminary expenditure?

 

 

SECTION – B

Answer any five questions :                                                                       (5 ´ 8 = 40)

 

11. 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 31^st 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.

 

12. The particulars of assets of M/s.Ram Prakash & Co. for the previous year from 1^st April, 2004 to 31^st March, 2005 are as under :

 

(i)   A motor car, costing Rs.40,000 was purchased on 10^th 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 1^st Apirl, 2004 Rs.3,75,000.  Two new machines were installed on 1^st 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.

 

13. 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.

 

14. Briefly explain the provision of depreciation of assets as per the Income Tax Act.

 

15. 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.

 

16. 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.

 

17. Discuss the provisions of Minimum Alternative Tax in case of company assessee.

 

18. 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)

 

19. Mr. Bhagwandas is a registered medical practitioner. He keeps his books on a cash basis and his summarized cash account for the year ended 31^st 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 :

1. 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%.

 

20. Prakash Traders Ltd. is a company in which the public are substantially interested. For the year ending 31^st March, 2005 it has derived the following incomes :
21. a) Profit from tile manufacturing unit at Lucknow Rs.1,50,000.
22. b) Profit from trading activities at Lucknow Rs.2,00,000.
23. c) Dividends from another company which is a domestic company Rs.25,000 (Gross).
24. d) Dividend from a foreign company Rs.10,000
25. e) Profits from hotel started in 2000 at a place of pilgrimage Rs.1,80,000.
26. 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.
27. g) Brought forward unabsorbed depreciation Rs.2,22,000 of tile unit.
28. 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.

 

21. 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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