Income Tax – Residential Status

1. X, an Indian citizen wants to determine his residential status. He give

the following details of his stay in India.

Previous year Days of stay

2005-2006 190
2004-2005 57
2003-2004 73
2002-2003 131
2001-2002 69
2000-2001 145
1999-2000 65
1998-1999 200
1997-1998 300
1996-1997 365
Out of the 190 days in the previous year 2005-2006, 10 days spent by X on a
private ship stationed in the territorial waters of India. You are required to
determine his residential status, quoting the provisions of Sections 6(1) and
6(6) of the Income Tax Act, 1961.

2. Mr. Paolo and Mrs. Paolo are Spanish citizens. They have come to India
on November 21, 2005 for 250 days. In the earlier previous years their
stay in India were as follows.

Previous year Mr. Paolo Mrs. Paolo

2004-2005 245 days 300 days
2003-2004 25 days 180days
2002-2003 40 days 10 days
2001-2002 130 days 50 days
You are required to find the residential status of Mr. And Mrs. Paolo for
the assessment year 2006-2007.

3. Jules is a foreign citizen (not being a person of Indian origin). Since

1981, he visits India every year in the month of May for 101 days.
Determine the residential status of Jules for the assessment year 2006-
2007.
4. Pankaj, an Indian IT professional secured a job in Germany and left India
for the first time on September 25, 2004, for joining his job. During the
previous year 2005-2006 he came to India on an assignment for 165
days. Determine the residential status of Pankaj for the assessment years
2005-2006 and 2006-2007.

5 Shri Rohit Kapoor anticipates the following income during the previous
year relevant to the assessment year 2006-2007.
RS.
1. Salary received in India 40,000
2. Payment received in France for the services rendered 69,000
in India
3. Income from land cultivation, situated in Burma 45,000
remitted to India in previous year
4 4. Income from house property situated in Canada 52,000
5. Income earned from business in Srilanka, being
21,000 controlled from India
6. Dividends paid by a foreign company being controlled
20,000 from India but received in branch office at Germany

Compute The Total Income for Assessment year 2006-2007, if he is

i. Resident and ordinarily resident in India
ii. Resident and not ordinarily resident in India
iii. Non- resident in India.
Income from Salaries

10. Mr. Anand, a private sector employee retires on 31/10/2005 after 26

years of service and received Rs.1,20,000 as leave salary at the time of
his retirement. His employer allows him 1½ month of leave for every 1
year of service. He has already encashed leave for 15 months. His salary
for 2004-2005 was Rs.4,150 p.m. and from 1.4.2005 it was raised to
5,000 p.m. Compute the taxable amount of leave encashment.

11. Mr. X retires from private service on 30th April, 2005 and his pension has
been fixed at Rs.1,700 p.m. He gets ½ of his pension commuted on
January 1st, 2006 and receives Rs 60,000. He also receives gratuity.
Pension becomes payable on the 1st day of each month. Calculate his total
taxable pension for the assessment year 2006-2007.

12. X a resident of Coimbatore, draws a monthly basic salary of Rs.4,000 for

the previous year 2005-2006. During the year 2005-2006 he gets
Rs.7,200 as dearness allowance forming part of basic salary, 3%
commission on sales made by him (sales made by X during the relevant
previous year are Rs.77,500) and Rs.7,500 as house rent allowance.
House rent paid by him is Rs.6,200. Determine the house rent allowance
that is chargeable to tax.

13. X, an employee of ABC Ltd. furnishes the following information for the
previous year 2005-2006.
Rs.

Basic Salary From 1.4.05– 30.9.05 4,500 p.m.

From 1.10.05 onwards 5,750 p.m.
Advance salary of 3 months received 17,250
Dearness allowance (62% is taken for 7,530
calculation of retirement benefits)
Bonus 6,500
Employers contribution to provident 7,844
Fund account of the employee
Children educational allowance 4,350
(for 2 children)
The company provides him with a rent-free unfurnished house at
Hyderabad. The fair rent of the house is Rs.39,700 p.a. Determine the
taxable value of the perquisite.
14. Mr ‘S’ who works in PQR Ltd., Cochin, furnishes the following
particulars of income. Compute the salary income for the previous year
2005-2006.
• Salary – Rs.2,500 p.m.
• Bonus equal to 3 months salary
• Dearness allowance (forming part of salary) – Rs.375 p.m.
• Employee contributes 12.5% of salary towards recognized provident
fund. Employer also contributes the same amount.
• Interest credited in the recognized provident fund @ 12.5% is
Rs.18,000.
• House rent allowance – Rs.750 p.m.
• Rent paid by employee – Rs.900 p.m.
• Employee is provided with a 12 hp car which he utilize for official as
well as private purposes. Expenses are met by the employer.
• Two children of Mr. S are studying in the institution run by the
employer for which no fees are paid. Normal expenditure per student
in such institution is Rs.85 p.m.
• Reimbursement of medical expenses incurred on the mother of Mrs. S
in a hospital approved by the Chief Commissioner – Rs.3,200.
• Reimbursement of ordinary medical expenses paid to a private
nursing home – Rs.15,700.
• Mr. S pays Rs.9,000 as LIC premium on the policy of Rs.80,000. His
wife is also insured for Rs.60,000 and he pays a premium of Rs.7,500
p.a.
Contribution to 10-year CTD scheme amounts to Rs.475 p.m.

15.X is employed with PQR Limited on a monthly salary of Rs.6000. He has

been provided a free residential telephone. Besides, he gets free lunch in
office. Discuss whether these perquisites are chargeable to tax.

16. X is a managing director of a company since 1976. On October 30, 2005

he sends his resignation to the chairman. On November 15, 2005 the
company makes a request to him not to compel them for acceptance of
the resignation and in consideration offers to pay him Rs.2,00,000. He
accepts the company’s offer but due to ill-health he is forced to work for
reduced number of hours and on reduced salary. According to X,
 Rs.2,00,000 received by him is not taxable as it cannot be considered as a
salary or a perquisite.

17.Mrs. Dahlia Mukherjee, who joined Spiritex International Ltd., Calcutta

on April 01,1978, was nominated as a whole time director with effect
from April 01, 1995. Mrs. Mukherjee received the following emoluments
during the previous year ending March 31, 2005.

Particulars Amount (Rs)

Basic salary 1,120,000
City Compensatory allowance 12,000
House rent allowance 30% of basic
Leave encashment 3,500
Entertainment allowance 6,000
Spiritex International Ltd. also provides her

• Free gas and water for domestic use (cost: Rs.6,000).

• A domestic servant (not being sweeper, gardener or watchman) whose
salary is Rs. 5,000 and who is engaged by the company.
• Free education for her two daughters in a school maintained by it (cost
of education: Rs. 12,000).
• Free lunch in office (cost: Rs.7,200).
• Free holiday home facility in Puri (cost: Rs.10,000) and in Darjeeling
(cost: Rs.15,000).

Out of a pool of 5 Maruti Zen cars (horsepower rating more than 16) owned
by Spiritex, Mrs.Mukherjee is entitled to use any one (or More) of them for
official as well as private purposes. Though the service of company’s
chauffeur is always available, she utilizes them only on few occasions.
Spiritex International does not maintain any logbook.
Mrs. Mukherjee contributes Rs.14,000 towards recognized provident fund,
pays Rs. 16,000 as insurance premium for a policy of Rs.1,80,000 taken on
her major son’s life and pays Rs.42,000 as house rent. Income of Mrs.
Mukherjee from other sources is Rs.30,000.
You are required to determine the taxable income and tax liability of Mrs.
Dahlia Mukherjee for the assessment year 2005-2006.

18. Naresh retires from Symbiotic Ltd. on October 31, 2005. He receives
Rs.2,000 per month as pension. On November 01, 2005 he gets 72% of
 pension commuted for Rs.36,000. Determine his taxable pension for the
assessment year 2006-2007. He does not get gratuity.
19.Following details relate to the income of Mr.Krishna Mohan Swami
serving in Mangalore during the previous year 2004-2005.

Basic salary : Rs.15,000 per month

Dearness allowance : Rs.3,000 per month
Advance salary was taken for 3 months on March 31, 2005
Furnished rent-free house is provided by the employer to Mr. Krishna
Mohan. Rent payable by the employer is Rs.3,000 per month and
furniture costing Rs.15,000 is bought by the employer.
Bonus : Rs.5,000
Pension : Rs.500 per month (from previous
Employer)
Education allowance for
two children : Rs.50 per month per child
Helper kept for performing
duties : Rs.1,500 per month
Mr. Krishna Mohan uses his own car for official purposes.
You are required to compute the taxable salary income of Mr. Krishna
Mohan Swami for assessment year 2005-2006.

20. Mrs. Manisha Agarwal, a director-employee of Supreme Software Ltd.

submits the following information relevant for the assessment year 2005-
2006:
Basic salary Rs.56,000
Dearness allowance (45% from part of salary) 25% of basic
Commission 5% on turnover achieved by her
(Turnover achieved by her in the
previous year is Rs.5,00,000)
Bonus Rs.11,000
Education allowance for 3 children Rs.3,600
Medical expenses reimbursed by the employer Rs.5,000
Leave travel concession Rs.5,000
Payment of electricity bills by the employer Rs.1,000
Reimbursement of gas bills Rs.1,000
Free refreshment during the office hours Rs.2,000
The employer provides a furnished bungalow to Manisha in Calcutta at a
concessional rent of Rs.11,200. The fair rent of the house is Rs.40,800.
Furniture costing Rs.20,000 owned by the employer and an air-
conditioner at a monthly rent of Rs.250 was provided for 5 months to
Manisha. The cost of maintenance of the garden adjacent to the bungalow
(including the salary of gardener) is Rs.2,000, the salary of 2 watchmen
is Rs.1,000 and the salary of the cook is Rs.1,000, all of which are paid
by the employer.
A Fiat car (H.P. less than 16) owned by the employer was provided to
Manisha along with a driver for both official and personal purpose. The
employer does not maintain any logbook.
Manisha receives an interest of Rs.26,000 from Bombay Dyeing Bonds.
The following contributions are made by Manisha during the previous
year 2004-2005:
• Insurance premium for a policy on the life of her husband : Rs.8,000
• Insurance premium for a policy on the life of her father: Rs.4,000
• Deposit in 10-year account under the Post Office Savings Bank:
Rs.2,000
You are required to compute the total taxable income and income tax
liability of Manisha for the assessment year 2003-2004.
 Income from House Property

21. ‘X’ is the owner of a house property in Bombay. Municipal Valuation of the property
– Rs.45,000, Fair rent – Rs.47,500, Standard rent – Rs.50,000. The property
consisting of 2 units is occupied by 2 tenants who pay a rent of Rs.21,500 each.
Construction of the property was commenced on March 1, 1989 and was completed
on October 1, 1991. The property was let out from November 1, 1991. Municipal Tax
imposed on the property by the Municipal Corporation was Rs.15,600. 75% of
Municipal taxes are borne by the owner and 25% by the tenants. Amount paid by X
during the previous year 2004-2005 is Rs.6,700. Determine the net adjusted annual
value of the property for the assessment year 2005-2006.

22. ‘X’ owns a house at Chennai (Municipal Value Rs.28,000, Fair Rental Value –
Rs.26,500, Standard Rent – Rs.27,000). During the previous year the house was let
out from 1.4.2004 to 31.8.2004 and from 1.11.2004 onwards on a monthly rent of
Rs.2,500. (It was unoccupied from 1.9.2004 to 31.10.2004).

Expenses incurred are as follows:

a. Municipal Taxes 12% of Municipal Rental Value

b. Repairs Rs.1,200
c. Collection Charges Rs.1,000
d. Fire Insurance Rs.2,500
e. Land Revenue Rs.4,150
f. Interest on borrowed capital (Rs.60,000 is borrowed on August 1st , 1997 @ 16% p.a.,
construction of house is completed on May 31st, 1999) for the year 2004-05: Rs.9,600
(Loan is still unpaid).

Calculate the Income Chargeable to Tax

25. From the particulars given below compute income from house property.

Municipal Rental Value Rs.45,000

Fair Rental Value Rs.42,000
Self-Occupied portion 1/5
Let Out portion (1.4.2004 to 30.9.2004 @ 4,750 4/5
p.m. and self-occupied from 1.10.2004 onwards
Municipal Taxes paid Rs.2,575 p.a.
Fire Insurance Premium paid Rs.3,000 p.a.
Ground Rent paid Rs.4,020 p.a.
Interest on loan taken for construction Rs.6,400
Date of completion of construction 1.8.2000
 26. ‘X’ owns a house (construction of the house completed on January 31, 1993)
which is partly self-occupied and partly let out. 40 % of the floor area is let out
for residential purpose on a rent of Rs.2,750 p.m. (However, this portion remains
vacant for 2 months from February 1, 2005 to March 31, 2005, when it was used
by X). Of the remaining 60%, 25% of the floor area is used by X for purpose of
his profession while the remaining 35% is utilized for purpose of his residence.
Other particulars:
Municipal Valuation Rs.65,000
Standard Rent Rs.70,000
Municipal Taxes paid Rs.12,000
Interest on Capital borrowed for renewal of Rs.17,500
property
Ground Rent Rs.4,500
Annual Charge created under the bill in favor Rs.15,000
of Mrs. X
Fire Insurance Premium paid Rs.7,500
Income of X from profession is Rs.64,500 (with debiting house rent and other
incidental expenditure including admissible depreciation on portion of house used
for profession – 2,000).
He has contributed Rs.2,000 towards home loan account of National Housing
Bank.

Compute the Total Income.

27. For the assessment year 2005-2006, X submits the following information.
Income from business Rs.27,000
Interest on non-government securities Rs.4,000
Property Income House 1 House 11
Municipal Valuation 20,000 25,000
Rent Received 25,000 36,000
Municipal Taxes Paid 2,400 2,700
Repairs 400 1,600
Collection Charges 500 600
Land Revenue Paid 1,400 2,250
Insurance Premium 1,700 3,275
Unrealized Rent of 2004-05 1,400 1,500
Date of Completion of Construction January 31, 1992 December 31, 1991

Determine the taxable income and tax liability of X for the assessment year 2005-
2006 (Both the houses are let out for residential purpose). He also contributes
Rs.2,000 towards home loan account of National Housing Bank.
28. Mr. X has occupied 3 houses for his residential purposes, particulars of which are as
follows:
House
1 11 111
Rs. Rs. Rs.
Standard rent under Rent Control Act17,500 20,000 22,500
Municipal valuation 14,000 21,750 24,000
Fair rent 15,000 25,000 23,000
Municipal taxes paid 1,500 1,700 600 (paid by
Tenant)
Repairs Nil 400 600
Insurance premium paid during - 400 600
2004-05
Due but outstanding on March 650 - -
31, 2005
Ground rent due 1,700 1,800 2,050
House 1 remained vacant for 2 months from February 1, 2005 to March 31, 2005. X
borrows Rs.15,000 @ 18% p.a. for construction of House 11 (date of borrowing: April 1,
1993, date of repayment of loan: May 1, 1995). Construction of all the houses is
completed on April 1, 1999. Determine taxable income and tax liability for assessment
year 2005-2006.

29. X occupies two houses for his residential purposes. Details are given below:
House 1 House 11
Municipal valuation 85,000 44,000
Standard rent under Rent Control Act 62,000 -
Municipal taxes 10% 10%
Fair rent 60,000 55,000
Fire insurance 6,000 5,500
Interest on capital borrowed for construction of 16,600 -
house
Repairs 1,200 400

Date of commencement and completion of construction of House 1 is April 1, 1992 and

October 31, 1992 and House II is March 14, 1990 and April 12, 1991 respectively.
Determine the income from house property for the assessment year 2005-06.
30. Nisha owns a house property (date of completion: May 03, 1970) consisting of two
similar residential units (Unit A on the ground floor and Unit B on the first floor).
While Unit A is fully self-occupied throught the previous year 2004-2005, Unit B is
let out for residential purposes (rent being Rs.4,000 per month) from April 01, 2004
to January 31, 2005 and self-occupied for the remaining part of the year.
The following information is also available.
Particulars Amount
(Rs.)
Fair rent of the property 80,000
Municipal valuation 90,000
Municipal taxes (paid) 4,000
Interest on borrowed capital (which is used for the 18,000
purchase of the property)
Ground rent 500
Dividend from Reliance India Ltd. (RIL) 15,000
Interest from units of UTI 5,000
Income as part time Lecture and Examiner 30,000

You are required to find out the net income of Nisha for the assessment year 2005-
2006.

31. Parag owns a house at Bombay, the details of which are provided below:
Municipal value Rs.24,000
Fair rent Rs.22,000
The house is let out for residential purposes on monthly rent of Rs.2,500 from April
01, 2004 to May 31, 2004 and January 01, 2005 to March 31, 2005. The house is self-
occupied by Parag for the remaining part of the previous year 2004-2005.
Parag incurs the following expenses with respect to the house property in the year
2003-2004:
Particulars Amount (Rs.)
Municipal taxes 4,000
Repairs 1,000
Fire insurance premium 2,500
Land revenue 4,600
Parag borrowed Rs.1,20,000 (which is still unpaid) on April 01, 1999 @ 20% p.a.
Interest on borrowed capital for the year 2004-2005 is Rs.24,000. Construction of the
house is completed on April 01, 2000.
Income of Parag from other sources is Rs.96,000.
You are required to determine the taxable income of Parag for the assessment year
2005-2006.
 Profits and Gains of Business or Profession
35. From the following Profit and Loss a/c of M/s. X Ltd. determine the
taxable income for the assessment year 2001-2002.
General expenses 4,200 Gross profit 1,90,700
Salary to staff 60,000 Interest on bank deposit 4,000
Fire insurance 2,000 Short-term capital gains 16,700
Sales tax 5,000 Dividends received 9,800
from a foreign company
Advance income tax paid 1,000
Reserve for future losses 20,000
Rent and Repairs of 3,000
building
Loss of cash by an 6,050
employee through
embezzlement
Legal expenses 21,500
Net profit 98,450
2,21,200 2,21,200
• General Expenses include Rs.1,050 paid as compensation to an old
employee whose services were terminated in the interest of business
and Rs.600 by way of help to a poor student.
• Salary to staff includes payment of Rs.4,500 out of India on which tax
has not been deducted at source.
• Legal expenses include payment of Rs.8,000 to an advocate for giving
advice on income tax matters.
• During the previous year 2000-2001, the company purpose a plot of
land for Rs.90,000 in order to construct a laboratory building for
research. Construction of the building has not yet commenced. Cost of
construction is expected to be Rs.1,10,000.

36. X furnishes the following information for the assessment year 2001-
2002.
Profit and Loss Account for the year ending March 31, 2001.
Rs. Rs.
Office expenses 7,800 Gross profit 1,25,700
Salary to staff 21,600 Interest on Govt. securities 4,000
(Gross)
Expenditure on occasion of 8,200 Interest on post office 2,500
Diwali savings
Cost of extension to building 11,200 Bad debts recovered (earlier 300
allowed as deduction)
Depreciation 3,700
Entertainment expenses 12,506
Contribution to:
Unapproved Gratuity Fund 6,000 Sundry receipts 2,000
Unrecognized provident fund 4,500
Reserve for bad debts 700
Net profit 58,294
1,34,500 1,34,500
• Office expenses include a sum of Rs.2,500 paid in cash.
• Salary to staff includes a payment of a sum of Rs.4,075 to a relative
which is reasonable.
• Depreciation according to income tax provisions works out to
Rs.2,400.
• X had gone on a business trip to Bombay. Expenditure incurred on
traveling was Rs.1,931.25 per day for 6 days. This has not been
recovered in the books.
• Commission of Rs.4,000 paid for securing a business order has not
been recorded in the books.
Find out the taxable income for the assessment year 2001-2002.

37. X furnishes the following particulars for the assessment year 2001-2002.
P & L a/c for the year ending March 31, 2001
Rs. Rs.
Salary to staff 12,750 Gross profit 1,57,000
Advertisement 8,000 Rent of house property 24,900
received
Wealth tax 2,500 Short-term capital gains 7,000
Income tax penalty 1,750 Bad debts recovered 5,600
(disallowed earlier)
Travelling expenses 7,000 Gift received 4,000
Bonus to staff 8,500 Winning from lottery 6,000
Contribution to 6,200
Unrecognized Provident
fund
Car expenses 7,500
Depreciation 12,000
Repairs of house property 6,000
Municipal taxes of house 4,500
property
Interest on capital 8,000
borrowed for construction
of house property
Net Profit 1,19,800
2,04,500 2,04,500
a. Salary includes payment of Rs.1,700 to a relative which is
unreasonable.
b. Advertisement includes cost of 5 articles being Rs.1,500 each.
c. Travelling expenses includes an expenditure of Rs.1,750 per day for 4
days. (Being a business trip to Delhi.)
d. Bonus is outstanding on March 31, 2001. 1/3 is paid on December 1,
2001. (Due date of furnishing return of income – August 31, 2001.)
e. ¼ of Car expenses relate to personal use.
f. Depreciation as per income tax provisions is Rs.9,500.
g. X owns a house property. 25% is used for residential purpose. 50% of
carpet area is let out and 25% is used for the purpose of his business.
The rent of let out portion is Rs.2,075 p.m. Construction of the house
is completed in the year 1987. He deposits Rs.27,000 on April 30,
2001 in the home loan account scheme of National Housing Bank.
Determine the taxable income of X for assessment year 2001-2002.

38. From the Profit and Loss account of X for the year ending March 31,
2000 ascertain his taxable income for the assessment year 2000-01.
Rs. Rs.
Salary to staff 27,000 Gross profit 3,65,000
Household 14,000 Dividends from a 16,000
expenses foreign company
Bad debts 600 Profit on sale of 45,000
import license
Provision for bad 4,200 Bad debts 4,000
debts recovered (earlier
allowed as
deduction)
Expenditure on 12,500 Gift from son 9,500
acquisition of
patent right
Provision for 9,750 Commission and 97,500
outstanding sales Discount
tax and excise
duty
Advertisement 25,000
Lump sum 45,000
consideration for
acquiring know-
how
Sundry expenses 10,500
Depreciation 20,000
Gift tax 2,500
Net profit 3,66,000
5,37,050 5,37,050
1. Salary to staff includes salary to a relative which is unreasonable to
the extent of Rs.6,700.
2. Out of outstanding sales tax, Rs.4,000 is paid on May 14, 2001 and
the balance on August 30, 2001. Date of filing of return of income –
August 31, 2001.
3. Advertisement expenses includes Rs.8,000 being cost of 2 articles.
4. Sundry expenses include expenditure of Rs.6,750 on maintenance of
guest house in Delhi.
5. Depreciated value of Plant & Machinery (A & B) on April 1, 2000 –
Rs.1,60,000.
• Plant C whose cost is Rs.40,000 (eligible for 25% depreciation) is
purchased on November 1, 2000.
• Plant A (Depreciated value – Rs.26,750) is sold for Rs.15,000 on
September 15, 2000.
• Plant B and Plant C are sold for Rs.40,000 on January 30, 2001.
6. During the previous year 2000-2001, X makes payment of Rs.18,600
to an approved institute for the purpose of carrying on scientific
research in natural science. The research is not related to the business
of the assessee.
Determine Net Income and tax liability of X for the assessment year
2001-02 assuming that he annually deposits Rs.4,500 to a public provident
fund.
39. X is owner of a departmental store at Hyderabad. From the information
furnished by him, calculate his total income for assessment year 2001-
2002.
Profit and Loss account for year ending March 31, 2001
Rs. Rs.
Opening stock 1,40,000 Sales 40,00,000
Purchases 37,50,000 Closing stock 3,60,000
Salaries and Wages 1,40,000
Rent and Rates 36,000
Commission 21,500
Income tax for 2000-01 25,000
Advertisement 4,200
Interest on own-capital 46,000
Reserve for future losses 4,500
Depreciation on furniture 16,000
Postage and telegrams 3,000
Net profit 1,73,800
43,60,000 43,60,000
Other particulars:
1. Amount of sales includes the value of goods worth Rs.51,000 which
were drawn by X for personal use. Cost price of goods was Rs.45,000
and their market price was valued at Rs.56,000.
2. Stock of goods has been valued at 20% below cost.
3. Depreciation as per income tax provisions Rs.14,700.
4. Income of X from other sources Rs.80,000.
5. Salary and wages includes payment to a relative which is
unreasonable to an extent of Rs.4,000.

40. XYZ Ltd., an Indian Company, furnishes the following particulars for
the assessment year 2001-02.
P & L a/c for year ending March 31, 2002
Rs. Rs.
Expenses on 4,500 Sundry receipts 6,200
promotion of
family planning
among
employees
Sales tax 2,500 Interest on bank 16,500
deposits
Reserve for 21,000 Capital gains on 4,000
future losses sale of short-term
investments
Bad debts 3,000
Reserve for 12,750
payment of
advance income
tax
Car expenses 8,900
Depreciation:
Machinery 14,000
Car 2,500
Furniture 4,500
Building 3,080
Rent of building 4,600
Sundry expenses 14,500
Expenses on 15,000
issue of shares
for setting up an
industrial
undertaking
Cost of project:
Rs.20 lakh
Net profit 1,55,870
4,46,700 4,46,700
Other Information:
1. Expenditure on family planning includes capital expenditure of
Rs.3,700.
2. ¼ of car expenses relate to personal use.
3. Depreciation on machinery as per income tax provisions works out to
Rs.12,000.
4. Sundry expenses include Rs.4,500 being payment of printing bill to
relative of Managing Director.
5. Salary includes payment of Rs.25,000 by way of a bearer cheque to an
employee.
6. Contribution to National Laboratory for carrying out approved
scientific research Rs.30,000. This contribution is qualified for
weighted deduction under Section 35 (2AA).
41. The profit and loss account for the year ended 31st March, 2001 of M/s A
& Sons, a proprietory concern is as follows:
P & L a/c for year ending 31st March, 2001
Rs. Rs.
Opening stock 60,000 Sales 16,00,000
Purchases 9,00,000 Closing stock 20,000
Wages 1,20,000
Salaries 48,000
Interest 46,000
Customs duty 9,800
General expenses 48,000
Depreciation 20,000
Income tax 45,000
Net profit 3,23,200
16,20,000 16,20,000
The following particulars are available:
1. Both the opening and closing stocks are valued at 15% below cost.
2. Interest includes a sum of Rs.16,000 being interest paid on
debentures.
3. Wages include Rs.4,000 paid to the proprietor’s domestic servants.
4. Depreciation as per income tax provisions works out to RS.15,500.
Calculate the taxable income for the assessment year 2001-2002 from the
above data.

42. X an advocate who maintains books of account on cash basis furnishes

the following particulars of his income for the previous year ending
March31, 2001.
Receipts and payments a/c for year ending March 31, 2001
Rs. Rs.
Balance b/d 2,500 Purchase of computers 8,000
Fees from clients: Car expenses 4,900
1998-1999 10,000 Office expenses 8,600
1999-2000 38,000 Interest on Loan 1,200
2000-2001 2,500 Income tax penalty 2,500
Presents from clients 6,000 Salary to staff 14,400
Loan from client 7,500 Contribution to public 1,500
provident fund
Balance c/d 25,400
66,500 66,500
 1. 35% of car expenses are attributable towards use of car for personal
purposes. Depreciation @ 20%.
2. Written down value of the car on 1/4/2000 is Rs.12,500.
3. Fees due but outstanding – Rs.1,600.
4. Income of X from other sources Rs.20,000.
5. He purchased a typewriter for Rs.20,000 on April 10, 2001. Rate of
depreciation 25%.
Determine the taxable income of X for the assessment year 2001-2002.

43. X is a chartered accountant in practice. He is a resident and ordinarily

resident in India. His Profit and Loss account for year ended March 31,
2001 reads as follows:
P & L a/c for year ending 31st March, 2001
Rs. Rs.
Salaries paid to staff 3,75,000 Fees earned Audit 2,40,000
Stipend to articled clerks 11,000 Taxation services 1,85,000
Rent 28,800 Consultancy services 2,75,000
Printing & Stationery 4,800 Income from UTI units 4,500
Interest on Loan 31,000 Profit on sale of shares 16,000
Books & periodicals 14,750 Honorarium from various 5,700
institutes for valuation of
answer papers
Postage 32,000
Repairs, maintenance 15,000
and Petrol for car
Depreciation:
Car 6,000
Computer 5,000
Typewriter 3,500
Furniture 2,000
Municipal tax paid in 1,500
respect of House
Property
Net Profit 1,95,350
7,26,200 7,26,200
1. He has incurred an expenditure of Rs.4,000 for entertaining various
clients in hotels and clubs.
2. ¼ of car expenses is attributable to personal use.
3. 40% of loan was used for construction of house property and 60% was
used for purchasing office computer.
 4. R follows accrual basis of accounting. Printing and stationery include
Rs.1,500 being the cost of some stationery items purchased in
accounting year 1996-97 which was not provided for in that year due
to oversight.
5. Written down values of various assets as on April 1, 2000 are as
follows:
Car (acquired on April 1, 1996) 81,000
Computer (acquired on April 2, 2000 at cost of Nil
Rs.1,00,000)
Typewriter (acquired on April 1, 1998) 20,000
Furniture (acquired on April 1, 1998) 25,000
Shares sold were held for 24 months before sale.

44. Discuss with reasons the admissibility of the following expenditure by

an assessee under the provisions of the Income Tax Act, 1961.
a. A sum of Rs.10,000 is payable by the assessee as an employer by way
of contribution to a recognized provident fund for welfare of
employees.
b. A sum of Rs.4,500 is payable by the assessee as interest on term loan
taken from a scheduled bank.
c. Interest paid on borrowed capital for the construction of property till
the date of letting out.

45. X Limited incurs capital expenditure of Rs.45,000 for acquisition of

license to operate telecommunication services on April 1, 1998. The
license comes to an end on April 1, 2007. In April, 2001 the Company
transfers the license for an amount of Rs.48,000. Discuss the taxability
under Section 35ABB.

46. X Co. Limited, a manufacturing concern, debited to its interest account a

sum of Rs.25,000 being the interest on a loan taken to finance its
expansion program. The machinery and plant purchased by using the
proceeds of the loan was not put to use during the previous year as it was
still in transit at the end of the year. a sum of Rs.7,500 was paid to a
broker who had arranged the loan. Discuss the admissibility of the
interest on loan and brokerage paid in the company assessment as
deduction in computing business profits.

47.A firm of 4 partners is dissolved. It held stocks valued at Rs.5,00,000 on

the date of dissolution, the basis of valuation being cost. For settlement of
 accounts between the partners on dissolution, they have adopted
Rs.5,00,000 as the value of stocks. Discuss.

48. The net profit as per the profit an loss account of Mr. Ram is Rs.8,97,000
for the financial year ending 31st March, 2000. The following information
is obtained from the books of accounts.
a. The following payments made to or for the benefit of employees are
debited to profit and loss account:
i. Salary to 25 employees @ Rs.1,500 p.m. – Rs.4,50,000.
ii. Employees contribution to recognized provident fund is Rs.60,000 out
of which Rs.45,000 is credited to the relevant fund before the due date.
th
iii. Bonus paid to employees on 15 November, 2000 – Rs.75,000.
th
iv. Incentive to workers paid on 15 December, 2000 – Rs.40,000.
v. Amount paid outside India on which tax is not deducted at source –
Rs.65,000.
vi. Expenditure incurred for promoting family planning among employees
is Rs.35,000 out of which capital expenditure incurred for promoting
family planning expenditure among employees is Rs.20,000.
b. Advertisement expenditure debited to profit and loss account includes
the following:
i. Rs.8,900 being capital expenditure incurred on advertisement.
ii. Rs.40,000 on advertisement in a brochure published by a political
party.
iii. Rs.27,000 is paid in cash.
iv. Rs.15,000 paid to a concern in which Mr. Ram has substantial
interest (Amount paid is excessive to the extent of Rs.6,700).
c. Rs.17,000 is debited to profit and loss account as interest on capital
borrowed for payments of income tax.
d. Rs.40,000 is payment made to an approved institution for use in
research for social science which is totally unrelated to the assessee’s
business.
e. Entertainment expenditure debited to profit and loss account –
Rs.25,000.
f. Ram has also incurred expenditure of Rs.45,000 for acquiring know-
how for the purpose of his business. This entry is not reflected in the
profit and loss account.
g. Ram owns a car which he uses for both private and official purposes.
The car is used 35% for personal purposes and 65% for business
purposes. Car expenses incurred for the financial year 1999-2000 are
Rs.17,800. The written down value of the car on 31.3.1997 without
 providing for depreciation for assessment year 1997-98 is Rs.60,000.
Mr.Ram has not made any entry relating to the car in his books.
h. Ram has also debited the profit and loss account for Rs.13,350 being
travelling expenses incurred by an employee in respect of an official
visit to Bangalore for 6 days (per day expenditure: Rs.2,225).
i. Interest on bank deposits credited to the profit and loss account –
Rs.25,000
You are required to compute the net income of Mr.Ram for the
assessment year 2000-2001.

49. Following are the details of Profit and Loss account of Hotline Ltd.
which shows a profit of Rs.10,50,000 after debiting the following:
i. Fee paid to a chartered engineer for valuation of company’s fixed
assets – Rs.15,000.
ii. Income tax paid in foreign countries – Rs.82,000.
iii. Expenses incurred to eliminate a drain under statutory obligation –
Rs.21,000.
iv. Loss caused by depreciation of investment in securities – Rs.12,710.
v. Payment in respect of income tax proceedings – Rs.12,000.
vi. Salary of Rs.6,10,000 includes salary paid to an employee, amounting
to Rs.81,000, for dealing with income tax matters.
vii. Legal expenses incurred in connection with issue of capital –
Rs.14,000.
viii. Expenses incurred for registration of a trade mark – Rs.10,000.
ix. Provision for anticipated future loss in business – Rs.1,20,780.
x. Payment as salary to a foreign technician – Rs.1,07,000.
xi. Travelling expenses of a director in connection with business related
foreign collaboration – Rs.91,000.
Determine the taxable income of Hotline Ltd. for the assessment year
2000-2001.
58. On September, 1995, X & Y each purchases 600 fully convertible
debentures of A Ltd. @ Rs. 275 per debenture (Brokerage 1%). As per
terms of these debentures, A Ltd. will give an option to the debenture
holders on October 31, 1997 to get conversion of 1 debenture into 3
equity shares in the company irrespective of the market value of the
debentures or shares. While X gets his debentures converted into shares,
Y does not exercise his option. Market value of shares and debentures of
A Ltd. on October 31, 1997 is Rs. 80 and Rs. 250 respectively (taken
from the stock exchange daily official quotations). X sells 1800 equity
shares in A Ltd. on November 1, 2000 @ Rs. 145 per share (Brokerage
0.5%) and Y sells 600 debentures of A Ltd. on October 10, 2002 @ Rs.
450 per debenture (Brokerage 1.75%). Find out capital gains chargeable
to tax for assessment year 2003 – 2004 in the hands of X & Y. cost
Inflation index for the relevant years are follows:
1995-1996 - 281
1997-1998 - 331
1998-1999 - 351
2002-2003 - 447

59. X purchases a house property for Rs. 2,14,000 on September 30, 1981.
Fair Market Value of the property on April 1, 1982 is Rs. 1,70,000. He
incurs the following expenses:
(a) Construction of room on the ground floor during 1981-1982- Rs. 35,000.
(b) Renewals in 1994-1995 –Rs. 68,000.
The property is transferred on March 1, 2003 for Rs. 6,15,000. (Expenses
incurred on transfer – Rs. 40,000).
Cost Inflation Index for the relevant years are as follows:
1982.83 109
1994.95 259
1998.99 351
 2002.3 447
Find out the amount of Long-term Capital Gains for assessment year 2003-
2004.

60. ‘X’ sells a commercial building on May 15, 2002 for Rs. 10,50,000.
From the data given below, find out income under the head Capital Gains
for the assessment year 2003-2004.
Cost of plot of land (acquired in 1986-87) 65,000
Cost of construction (incurred in 1988-89) 1,45,600
Cost of additional construction (incurred in 1992-93) 25,000
Expenditure on transfer 4,000
Cost inflation index for the relevant years are as follows:
1986.87 140
1988.89 161
1992.93 223
2002.3 447

69. Mr. Arvind bought a house in 1978 for Rs. 1,50,000. He constructed first
floor of the house in 1980-81 for Rs. 2,00,000. He again constructed
second floor of the house in 1978-88 for Rs. 3,00,000. He gifted the
house to his wife on October 10, 1990.
Mrs. Arvind sold the house on January 01, 2003 for Rs. 28,50,000. She
paid brokerage of Rs. 40,000 on the sale of house. The fair market value
of the house on April 01, 1981 was Rs. 5,00,000. She made a contribution
of Rs. 50,000 to Public Provident Fund.
You are required to compute Mrs. Arvind’s capital gain and tax liability
arising thereon for the assessment year 2001-2002.
(Cost of Inflation Index : 1987-88=150; 1990-91=182; 2002-03=447.)

71. Pretty Zeta Jones owns a house property and an agricultural land. She
bought the house in 1989 for Rs. 1,54,000 and the house is self occupied.
Her father has been using the land (150 acres) for cultivation since the
last 15 years. Its fair market value as on April 01, 1981 was Rs. 5,00,000.
She sells the following in the year 1999-2000:
(a) House for Rs. 5,00,000 and purchases another house within 3 months for
Rs. 2,00,000 for self-occupation.
(b) Agricultural land for Rs. 22,00,000 in December 2001. Within 2 months
she buys another piece of agricultural land for Rs. 5,00,000 to be used for
cultivation.
(c) Gold jewelry for Rs. 1,20,000, Rs. 25,000 being the fair market price as
on April 01, 1981. She purchases new jewelry for Rs. 56,000 within six
months of sale of old jewelry.
You are required to compute the taxable capital gains of Pretty Zeta Jones
for assessment year 2001-2002.
[Cost inflation index – 1989-90: 172; 2000-2001: 406].

72. Sushmita subscribed 1000 shares of Dollar Dreams Ltd. an

entertainment company, on April 01, 1993 at Rs. 10 per share when
Dollar Dreams Ltd. came with an IPO. On April 01, 1995 Dollar Dreams
came with a right issue at the ratio of 2:1 (2 shares for every existing
share held) at a price of Rs. 50 per share ( Rs. 10 par value with a
premium of Rs. 40 per share). Sushmita subscribed to 1000 right shares
and renounced 1000 shares in favor of Aishwarya by transferring the
right entitlement for a consideration of Rs. 10,000. On April 01, 2000
Dollar came out with a bonus issue at the ratio of 2:1 (2 shares for every
share held). On March 31, 2003 both Sushmita and Aishwarya sold their
holdings @ Rs. 500 per share. The transaction costs involved were 0.50%
of the sale consideration.
You are required to compute the capital gains arising in the hands of
Sushmita and Aishwarya for the assessment year 2003-2004 clearly
indicating the short-term and long-term capital gains.
[Cost of Inflation Index: 1993-94:244, 1995-96:281, and 2002-03:447].

88. X, a resident individual, furnishes the following information of his

income/expenditure relevant for the previous year ending March 31,
2001.

Rs.
Business income 60,700
Long-term Capital gain 25,000
Winning from card games 9,500
Payment of Mediclaim Insurance premium on own life 6,000
Dividend from Indian Companies 6,500
Donation to a poor boy for higher education 8,000
Donation of clothes to an approved institution 7,000
Donation to Indira Gandhi Memorial Trust 4,000
Donation to Rajiv Gandhi Foundation 2,000
Donation to Government for promoting family planning 1,500
Donation to Prime Minister’s relief fund 2,500
Determine his net income for assessment year 2001-2002 assuming that his
income from short-term capital gains is Rs. 1,250.

89. X, a salaried employee gets Rs. 64,000 as basic salary and Rs. 4,500 as
dearness allowance forming part of salary. His employer provides an
unfurnished house at concessional rent in Amritsar (Fair Rent: Rs.
20,000; Rent Paid by X: Rs. 3,000) Income of X from other sources is
Rs. 12,500. He pays medical insurance premium of Rs. 2,500. Determine
net income of X for assessment year 2001-2002.
90. X Ltd. is engaged in manufacturing and/or processing of heavy chemical
for export. For the year ending March 31, 2003 the summarised profit
and loss account in as follows:

Expenses (other 60,10,000 Total turnover (of goods 80,90,000

than given below) exported)
Fright and insurance 58,900 Export incentive u/s 3,10,000
attributable to 28(iiia) (iiib) (iiic)
transport of goods
beyond customs
station in India
Brokerage, commission 25,000
rent, interest
Net Profit 24,22,100 Profit of foreign branch 66,000
84,91,000 84,91,000

Other Information:
1. Out of total expenses of Rs. 60,10,000, debited to the profit and loss
account, Rs. 2,15,000 is not deductible by virtue of Section 40 and
40A. the balance amount is however deductible.
2. On January 13, 2003, Rs. 78,000 is paid on account of customs duty
of the previous year 2001-2002. Since this amount pertains to the
previous year 2001-2002, it has not been debited to the aforesaid
profit and loss account.
3. The company has received Rs. 78,30,000 in convertible foreign
exchange till September 30, 2003 ( out of which Rs. 35,000) is
freight and insurance attributable beyond customs station in India).
The company has not applied for obtaining extension of time under
Section 80HHC.
4. During the previous year 2002-2003, the income of the company
from other sources is Rs. 85,000.
5. Out of export incentive of Rs. 3,10,000, Rs. 45,000 is profit on sale
of license acquired from others.
Compute the net income of the company for assessment year 2003-2004.

91. The business of X Ltd., wholly consists of export of goods manufactured

by others. The Profit and Loss account of X limited for the previous year
2002-2003 is as follows:
opening stock 1,35,000 Total turnover 14,45,000
Cost of goods 2,10,000 (consisting of only
purchased during the export of goods
year manufactured by others
but not including freight
and insurance for
transport beyond
customs station in India)
Brokerage 35,000 Export incentives as per 2,15,000
Commission paid for Section 28(iiia)(iiib)(iiic)
purchase
Other Direct Costs 12,000 Brokerage, Interest 1,12,000
Indirect cost (i.e. 86,000 Profit of foreign branch 95,000
office expenses,
travelling expenses,
interest, etc.)
Income tax 45,000 Closing stock 1,60,000
Salary (including 1,25,000
provident fund
contribution) to
employees
Net profit 13,79,500
20,27,500 20,27,500
Other Information:
1. Payment of Rs. 35,000 is made to a supporting manufacturer by
bearer cheque.
2. Rs. 12,000 (being provident fund contribution) is included in salary
payment. The Provident fund is recognised. The payment is however
made after the due date of making payment.
3. Amount brought into India in convertible foreign exchange within
the specified time limit is Rs. 10,25,000.
4. For the previous year 2002-2003, short-term capital loss is Rs.
12,000.
5. Out of the export incentive of Rs. 2,15,500, Rs. 85,000 is profit on
sale of license acquired from others.
Determine taxable income for assessment year 2003-2004 if the
assessee company is an export house (being the holder of export
house certificate) and it has issued 4 disclaimer certificates in Form
10CCAB to 4 supporting manufacturers for total turn over of Rs.
1,10,000.
92. From the following information of X, determine his net income for
assessment year 2001-2002.

Rs.
Business income 30,000
Dividend from a co-operative society 800
Dividend from a foreign company 12,000
Dividend from a private company registered in India 2,000
Interest on deposit with a company 600
Interest on deposit with a co-operative bank 1,200
Interest on deposit with a co-operative society 500
Interest on unit of Unit Trust of India 1,200
Interest on funds borrowed for the purpose of investment 1,250
in shares of the foreign company

93. Suraj, a Development Officer with the LIC, after taking a housing loan
purchased a house and took possession in January, 1983. However, as the
house was not fit for human habitation, he took a further loan from LIC
of Rs. 79,700 in August, 1988 for carrying out additions and alterations.
In the previous year relevant to the assessment year 2000-2001 and 2001-
2002, he made repayment of the said loan of Rs. 79,700 to the extent of
Rs. 6,000 and Rs. 7,800 and claimed these amounts as eligible for grant
under Section 88. Decide

94. Mr. ‘X’ left India for the first time on April 15, 1997 and returned
during the year 2000-2001 on October 18, 2000. His income details for
the previous year 2000-2001 is given below:
a. Income from business (controlled from India) in Nepal Rs. 15,000
and the income is later remitted to India.
b. Income earned from bank interest in Sri Lanka and received their
amounts to Rs. 7,000.
c. Share of income from a HUF as member thereof – Rs. 5,000.
d. House Property Income from Nepal – Rs. 7,500.
e. Profits earned abroad and received in India – Rs. 6,000.
f. Salary from an Indian Company received in Germany (1/3 is paid for
rendering service in India) – Rs. 25,000.
g. Royalty received in India from a resident in respect of technology
used by such person outside India – Rs. 20,500.
 Find out the Gross Total Income of X for the previous year 2000-2001.

95. Profit and Loss account of X, an individual, shows a net profit of Rs.
4,80,000 for the year ending March 31, 2001.
1. Salary to staff includes basic salary to 15 employees 2,70,000
@ 1,500 p.m.
Employee contribution to recognized provident fund 27,000
Entertainment allowance to employees (including 2 15,000
Directors)
Salary to X’s brother (X’s brother may not get salary
Of more than 1,200 p.m. in any other concern) 20,000
Mediclaim insurance premium of 15 employees 22,500
3,54,500

2. Depreciated value of plants owned by X, on April 1, 2000 2,10,000

Plant (25% depreciation) purchased on December 1, 1999 20,000
Plant B (25%depreciation) sold during the previous year
2000.2001 40,000
Amount claimed as depreciation 60,000

3. X makes payment of a bill of Rs. 25,000 by way of a bearer cheque.

This amount is debited to the Profit and Loss account.
4. Donation debited to Profit and Loss account include a donation of Rs.
40,000 for the National Urban Poverty eradication fund.
5. Rs. 12,000 is debited to Profit and Loss account – Deposit made under
own your telephone scheme.
6. Rs. 15,000 debited to profit and loss account being expenses of
shifting business premises from original site to present site which is
advantageously situated.
7. Interest on loan/capital (debited to the profit and loss account)
includes the following:
Interest on own capital of X – Rs. 25,000.
Interest on loan taken from a public financial institution paid on
March 5, 2000 (1/3 of the loan is utilized for payment of income tax)
– Rs. 20,000.
Compute the taxable income of X for the assessment year 2001-2002.

96. ‘X’ owns a house at Madras (Municipal Value – Rs. 28,000. Fair Rental
Value – Rs. 26,500, Standard Rent – Rs. 27,000). During the previous
year the house was let out from 1.4.99 to 31.8.00 and from 1.11.99
 onwards on a monthly rent of Rs. 2,500. (It was unoccupied from 1.9.99
to 31.10.99). Out of rent received, the owner provides lift facility for
which the charges amount to Rs. 6,500 p.a. Other expenses incurred are
as follows:
i. municipal Taxes – 12% of Municipal Rental Value.
ii. Repairs – 1,200.
iii. Collection charges – Rs. 1,000.
iv. Fire insurance – Rs. 2,500.
v. Land Revenue – Rs. 4,150.
st
vi. Interest on borrowed capital (Rs. 60,000 is borrowed on August 1 ,
1994 @ 16% p.a. construction of house is completed on May 31st, 1995)
for the year 1999-2000: Rs. 9,600 (loan is still unpaid)
Determine the income from house property for the assessment year 2001-
2002.

WEALTH TAX

97. Wealth tax is payable in respect of excess of assets over debts. However,
Section 45 Wealth Tax Act exempts certain ‘persons’ from the purview of
wealth tax. Name.

98. Mr. Verma made a cash gift of Rs. 4 lakh to Mrs. Verma in 1993. Mrs.
Verma bought jewelry with the money. The value of the jewelry as on
March 31, 2001 was Rs. 6,50,000. What would be the implication of
these in the computation of net wealth of Mr. Verma for the assessment
year 2001-2002?

99. As on March 31, 2001 Illiad and Odyseey Ltd. owns two office flats at
Hyderabad. Illiad and Odyseey purchased these flats for resale in the year
2000 at a price of Rs. 5 lakh and Rs. 4 lakh respectively. What would be
the net wealth of Illiad and Odessey with respect to these two flats for the
assessment year 2002-2003?

100.Mr. Inder Kumar Agarwal, owns a house property situated at Pune. The
annual value of the property as per the municipal records is Rs. 80,000.
Rent received from the tenant is Rs. 72,000. Municipal taxes are paid
partly by him Rs. 4,000 and partly by the tenant Rs. 3,000. Repair
expenses of Rs. 5,200 are, however, borne by the tenant. The tenant has
deposited Rs. 1,00,000 with owner as refundable security, which does not
carry any interest. The difference between the unbuilt area and the
specified area does not exceed 5% of the aggregate area.
Required:
Determine the value of the property on the assumption that the house is
built on (a) freehold land; (b) leasehold land (unexpired period of lease is
more than 50 years).