Question Paper

Business Law - II (MB262) : October 2007

• Answer all questions.
• Marks are indicated against each question.

< Answer >

1. Which of the following statements is false in respect of income from house property under the Income
Tax Act, 1961?
(a) Income from house property held for charitable purpose is not taxable
(b) Income from farm house is taxable
(c) Property income of an approved scientific research association is exempt from tax
(d) Annual value of any one palace of an ex-ruler is exempt from tax
(e) Property income of an educational institution is not taxable.
(1 mark)
< Answer >
2. Under the Income Tax Act, 1961, ‘Capital asset’ under the head of ‘Capital gains’ does not include
(a) National Defence Gold Bonds, 1980
(b) Jewellery and immovable property which is not a personal effect
(c) Agricultural land outside India
(d) Agricultural land in India situated in an urban area
(e) Right of tenancy under Tenancy Act.
(1 mark)
< Answer >
3. A person suffering from which of the following disabilities is not entitled to deduction u/s 80-U of the
Income Tax Act, 1961?
(a) Hearing impairment
(b) Locomotor disability to the extent of 25%
(c) Cerebral palsy
(d) Blindness
(e) Mental retardation.
(1 mark)
< Answer >
4. Under the Income Tax Act, 1961, ‘Income from other sources’ does not include
(a) Examination fees received by a teacher from a person other than his employer
(b) Rent of a plot of land
(c) Annuity payable under a will
(d) Annuity payable by an employer
(e) Income from letting of plant and machinery.
(1 mark)
< Answer >
5. Which of the following statements is false with respect to the mode of taxation of arrears of rent in the
year of receipt under the Income Tax Act, 1961?
(a) It should not have been taxed in any previous year to which such arrears relate
(b) The amount so received after deduction of a sum equal to 30% of such amount is deemed to be
the income chargeable under the head Income from house property
(c) The deduction of 30% is irrespective of the actual expenditure incurred
(d) It is taxable in the previous year in which it is received
(e) It is taxable only if the assessee is the owner of the property relating to which the arrears of rent
is received.
(1 mark)
< Answer >
6. The income from the property transferred to the wife, with an agreement to live apart is taxable in the
hands of the
(a) Husband as the deemed owner
(b) Wife as the transferee
 (c) Either the husband or the wife whose income is higher
(d) Both the husband and the wife equally
(e) Husband’s legal heir.
(1 mark)
< Answer >
7. Mrs. Arvind, a professional aged 50 years gives details of her income and wishes to ascertain the
amount of taxable income for the assessment year 2007-08.
Rs.
Income from profession 11,00,000
Salary income and other income 3,10,000
Contribution toward National Savings
Certificate VIII issue 1,55,000
Public Provident Fund 15,000
(a) Rs.12,40,000
(b) Rs.12,55,000
(c) Rs.13,10,000
(d) Rs.14,10,000
(e) Rs. 9,45,000.
(2 marks)
< Answer >
8. Which of the following statements is false in relation to set off and carry forward of losses under the
Income Tax Act, 1961?
(a) Loss of speculative business can be set off against profit of speculative business
(b) Long term capital loss can be set off against short term capital gain
(c) Loss from maintaining and owning race horses cannot be set off against any other income
except from income from such business
(d) Short term capital loss can be set off against any capital gain
(e) Business loss cannot be set off against salary income.
(1 mark)
< Answer >
9. Under section 54 of the Income Tax Act, 1961, if new house property acquired by use of capital gains is
transferred within a period of 3 years from the date of its purchase then, capital gains arising there from
will
(a) Be exempted
(b) Be taxable one year after sale of new house property
(c) Be taxable along with earlier exempted capital gain in the year of sale of new house property
(d) Be taxable along with earlier exempted capital gain in the third year after the sale of the new
house property
(e) Not be taxable, but earlier exempted capital gain will be taxable in the year of sale of new house
property.
(1 mark)
< Answer >
10. Income from house property in respect of self occupied property can be negative on account of
(a) Municipal taxes
(b) Repairs
(c) Insurance
(d) Interest on the house loan
(e) Standard deduction.
(1 mark)
< Answer >
11. Mr.Ramana aged 56 years has the following income for the previous year 2006-07:
Particulars Rs.
Income from salaries 4,25,000
Income from Business 1,15,000
Income from lotteries (gross) 1,40,000
What is the taxable income of Mr.Ramana for the assessment year 2007-08?
(a) Rs.2,55,000
 (b) Rs.4,25,000
(c) Rs.5,40,000
(d) Rs.5,65,000
(e) Rs.6,80,000.
(2 marks)
< Answer >
12. Which of the following activities is considered as manufacture under section 2(f) of the Central Excise
Act, 1944?
(a) Printing and lacquering plain tubes and containers of aluminium bought from the market
(b) Straightening of steel wires and cutting them into the required sizes
(c) The processes of cleaning, cutting, deep freezing and packing green peas
(d) De-husking of paddy into rice
(e) Tanned leather cut into straps.
(1 mark)
< Answer >
13. Under the Wealth Tax Act, 1957, in which of the following situations, the assets held by a minor are
included in the wealth of the parent?
(a) Assets held by a minor suffering from total blindness
(b) Assets held by a married minor daughter
(c) Assets acquired by a minor out of his/her own skill, knowledge and experience
(d) Assets held by a minor son
(e) Assets acquired by a minor from manual work.
(1 mark)
< Answer >
14. A return filed by an assessee for any previous year at any time before one year from the end of the
assessment year or before the assessment is completed, whichever is earlier in case he has failed to file a
return within the time allowed under section 139(1) is known as
(a) Loss return
(b) Defective return
(c) Revised return
(d) Belated return
(e) Regular return.
(1 mark)
< Answer >
15. A dealer effected the sales during the first quarter of the year 2006-07 as per the details given below:
Sale price inclusive
Particulars
of the taxes
Sale to B 1,82,000
Sale to C 1,70,560
Sales returns from B (within 6 months) 41,600
What is the total Central Sales Tax payable by the dealer? (CST at 4%)
(a) Rs.14,102
(b) Rs.12,438
(c) Rs.18,000
(d) Rs.11,960
(e) Rs.13,560.
(2 marks)
< Answer >
16. The income from the sale of the coffee grown, cured, roasted and grounded by the seller in India
without mixing any flavouring ingredients is treated as agricultural income to the extent of
(a) 40 percent
(b) 60 percent
(c) 75 percent
(d) 50 percent
(e) Nil.
(1 mark)
< Answer >
17. Anupama, a minor daughter of Geeta, is a professional dancer and earns an amount of Rs.1,75,000 on
 account of her dance performances. The income received by Anupama is
(a) Taxable in the hands of Anupama
(b) Taxable in the hands of her mother Geeta
(c) Exempted from tax as Anupama is a minor
(d) Exempted as it is the income from the exercise of an art
(e) Taxable in the hands of her father.
(1 mark)
< Answer >
18. Ms. Radha, not being covered by the Payment of Gratuity Act, 1972 retires during the year 2006-07
from Sanket Private Ltd., and receives Rs.40,000 as gratuity after a service of 40 years and 11 months.
Her average monthly salary during the last 10 months of service was Rs.1,200. The amount of gratuity
chargeable to tax for the assessment year 2007-08 is
(a) Rs.15,400
(b) Rs.16,000
(c) Rs.24,400
(d) Rs.37,600
(e) Rs.40,000.
(2 marks)
< Answer >
19. Which of the following statements is false with respect to contribution to provident fund under the
Income Tax Act, 1961?
(a) Employer’s contribution to statutory provident fund is not taxable
(b) Employer’s contribution at the rate of 15% of salary to recognized provident fund is exempt
from tax
(c) Employers’ contribution to unrecognized provident fund is not taxable
(d) Employer need not make any contribution to public provident fund
(e) Deduction under Section 80 C is not available on employees’ contribution to unrecognized
provident fund.
(1 mark)
< Answer >
20. Under the Central Sales Tax Act, 1956, the form to be submitted by the Government department on any
interstate purchase made by it , irrespective of the nature of the goods purchased is
(a) Form ‘C’
(b) Form ‘D’
(c) Form ‘G’
(d) Form ‘H’
(e) Form ‘F’.
(1 mark)
< Answer >
21. Which of the following persons is considered as an assessee under the Wealth Tax Act, 1957?
(a) Social club
(b) Political party
(c) Company
(d) Co-operative society
(e) A Mutual Fund specified under Section 10 (23D) of Income Tax Act.
(1 mark)
< Answer >
22. Mrs. Laxmi, aged 35 years, the executive director of a private company is in receipt of Rs.30,000 p.m.
as basic salary and Rs.4,000 p.m. towards entertainment allowance. The tax liability of Mrs. Laxmi for
the assessment year 2007-08 is
(a) Rs.59,160
(b) Rs.68,900
(c) Rs.70,278
(d) Rs.72,400
(e) Rs.73,848.
(2 marks)
< Answer >
23. Mr. Shyam, an Indian National and resident and ordinarily resident has the following assets and
liabilities as on March 31, 2007:
 Particulars Rs.
Jewellery held in India 53,00,000
Gold ornaments kept outside India 41,70,000
Capital borrowed for purchasing gold ornaments outside India 80,000
Capital borrowed for acquiring Jewellery held in India 93,000
The net wealth of Mr. Shyam for the assessment year 2007-08 is
(a) Rs.52,20,000
(b) Rs.93,90,000
(c) Rs.40,77,000
(d) Rs.92,97,000
(e) Rs.53,00,000.
(2 marks)
< Answer >
24. Which of the following statements is true in respect of the profits earned by an assessee out of the sale
proceeds of goods imported illegally?
(a) The profits are not taxable as the same are from the illegal business
(b) The profits are taxable as the illegality of the source of income is not material
(c) The assessee need not disclose the profits, as the business is illegal
(d) The profits are not taxable as the assessee does not have the legal authority to sell the same
(e) The profits are taxable under the Customs Act, as they are in respect of the imported goods.
(1 mark)
< Answer >
25. Which of the following is considered as goods under the Central Sales Tax Act, 1956?
(a) Movable property
(b) News paper
(c) Immovable property
(d) Actionable claims
(e) Shares.
(1 mark)
< Answer >
26. The following particulars relate to Mr. Tapan, an employee of Zentech Ltd.:
Average salary Rs.30,000 per month since last 10 months
Duration of service 22 years and 8 months
Leave utilized 21 months
Leave entitled as per terms of 1 month for each completed
agreement year of service
Mr. Tapan receives Rs.36,000 as leave salary at the time of retirement on January 31, 2007. The amount
of taxable leave salary of Mr. Tapan for the assessment year 2007-08 is
(a) Rs. 6,000
(b) Rs.29,000
(c) Rs.32,000
(d) Rs.33,000
(e) Nil.
(2 marks)
< Answer >
27. Which of the following is not a condition to be fulfilled for a price to be accepted as ‘Normal Price’ as
defined under Section 4(1)(a) of the Central Excise Act, 1944?
(a) The price should be one at which the goods are ordinarily sold by the assessee
(b) The price should be the wholesale price
(c) The sale should be for delivery at the time and place of removal of goods
(d) The buyer in the ordinary course of trade should not be a related person
(e) The price should not be the sole consideration for the sale.
(1 mark)
< Answer >
28. In which of the following instances assets transferred will be included in the net wealth of the transferor
for computation of net wealth under the Wealth Tax Act, 1957?
I. Assets transferred directly or indirectly by an individual to his/her spouse without adequate
 consideration.
II. Assets transferred by an individual to a person under a revocable transfer.
III. Assets transferred after May 31, 1973 by an individual to his or her son’s wife without adequate
consideration.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (I) and (II) above
(e) All (I), (II) and (III) above.
(1 mark)
< Answer >
29. Under the Income Tax Act, 1961 which of the following is a taxable perquisite for the assessment year
2007-08?
(a) Interest free loan from employer in respect of medical treatment not exceeding Rs.20,000
(b) Hotel accommodation in excess of 15 days on transfer of an employee
(c) Conveyance facility provided to an employee from house to office and back
(d) Use of computers and laptop provided by employer
(e) Expenses of telephone provided to employee.
(1 mark)
< Answer >
30. Scion Ltd., purchased goods on credit from Trendz Ltd. on May 6, 2007 for Rs.45,000, which is paid as
follows:
i. Rs.15,000 in cash on May 11, 2007.
ii. Rs.30,000 by a bearer cheque on May 31, 2007.
The amount of disallowance under section 40 A(3) of the Income Tax Act, 1961 is
(a) Rs.15,000
(b) Rs.20,000
(c) Rs.30,000
(d) Rs. 6,000
(e) Rs. 3,000.
(2 marks)
< Answer >
31. Mr. Sasank, has earned a lottery income of Rs.1,20,000 (gross) during the accounting year 2006-07. He
invested an amount of Rs.10,000 in PPF account maintained with State Bank of India and Rs.24,000 in
National Savings Certificates. The tax payable by Mr. Sasank, for the assessment year 2007-08 is
(a) Rs.36,000
(b) Rs.35,280
(c) Rs.36,720
(d) Rs.39,000
(e) Nil.
(2 marks)
< Answer >
32. Which of the following statements is true in respect of the salary and other allowances received by a
Member of Parliament?
(a) It is taxable under the head ‘Income from salaries’
(b) It is taxable under the head ‘Profits and gains from business or profession’
(c) It is taxable under the head ‘Income from other sources’
(d) It is taxable under the head ‘Income from salaries’ in respect of the salary and ‘Income
from other sources’ in respect of the allowances
(e) It is exempted from tax.
(1 mark)
< Answer >
33. If the goods at sea in a ship are separated from it by some peril, it is known as
(a) Derelict
(b) Jetsam
(c) Flotsam
(d) Wreck
(e) Peril.
 (1 mark)
< Answer >
34. Suraj Ltd. is engaged in construction and sale of buildings. It had the following assets as on March 31,
2007:
Description of asset Rs.
Building in which the office of the company is located 5,00,000
Two flats held as stock-in-trade 8,00,000
House occupied by General Manager whose annual salary is Rs.4 lakh 3,00,000
House occupied by CEO whose annual salary is Rs.6 lakh 5,00,000
House occupied by CFO whose annual salary is Rs.5.5 lakh 4,00,000
Guest house located in Mumbai 2,00,000
The net wealth of Suraj Ltd. for the assessment year 2007-08 is
(a) Rs.27,00,000
(b) Rs.11,00,000
(c) Rs.12,00,000
(d) Rs. 5,00,000
(e) Rs.24,00,000.
(2 marks)
< Answer >
35. The percentage of depreciation allowed on land in respect of computation of profits and gains of
business or profession under the Income Tax Act is
(a) 10%
(b) 15%
(c) 25%
(d) Nil
(e) 5%.
(1 mark)
< Answer >
36. Mr. Ram Mohan, aged 54 years and who has put in 20 years of service in a public sector undertaking
voluntarily resigns the job under a scheme of voluntary separation. He has 7 years and 2 months of
service left and his last drawn salary is Rs.15,000. He is paid Rs.15 lakhs as compensation. The taxable
amount of compensation is
(a) Rs. 5,00,000
(b) Rs.15,00,000
(c) Rs. 9,00,000
(d) Rs.10,00,000
(e) Rs.20,00,000.
(2 marks)
< Answer >
37. Mr. Ramu purchased 4,000 equity shares of Rs.10 each for Rs.60,000 on February 01, 2006. The shares
were sold on January 20, 2007 for Rs.1,10,000.
The income from capital gains in the hands of Mr. Ramu for the assessment year 2007-08 is
(a) Rs.50,000 (Long term)
(b) Rs.15,563 (Short term)
(c) Rs.70,000 (Short term)
(d) Rs.50,000 (Short term)
(e) Rs.70,000 (Long term).
(2 marks)
< Answer >
38. Which of the following statements is false regarding deduction allowed on interest on borrowed capital
under section 36(1)(iii)?
(a) Interest on borrowed capital cannot be capitalized after the asset has been put to use
(b) Interest paid on debentures is allowed as deduction
(c) Interest paid by firm to its partners is allowable as deduction within the limits specified
under section 40(b)
(d) Interest on capital borrowed for acquisition of new asset for extension of existing business is not
allowed as deduction
 (e) Brokerage or commission paid to an agent for the purpose of arranging loan for the
purpose of business is not deductible.
(1 mark)
< Answer >
39. Wealth tax is charged in respect of the net wealth of an assessee as on
(a) The first day of the calendar year
(b) The first day of the financial year
(c) The last day of the calendar year
(d) The valuation date
(e) The last day of the assessment year.
(1 mark)
< Answer >
40. Mr. Roshan who retired on June 30, 2006 submits the details of his income as below:
Particulars Rs.
Basic salary (since January 2006) 30,000 p.m.
Dearness allowance (1/3 of which is part of salary
for retirement benefits) 9,000 p.m.
Pension after retirement (uncommuted) 15,000 p.m.
Salary and pension become due on the last day of each month. The net income from salary of Mr.
Roshan for the assessment year 2007-08 is
(a) Rs.1,17,000
(b) Rs.1,35,000
(c) Rs.2,52,000
(d) Rs.2,07,000
(e) Rs.2,25,000.
(2 marks)
< Answer >
41. In which of the following situation(s) tax liability on capital gains does not arise?
I. Mr. Suresh purchased gold in 1975 for Rs.15,000. In 2006-07, it is gifted to his son at the time of
his marriage.
II. A house property is purchased by a Hindu undivided family in 1950 for Rs.30,000. It is given to
one of the family members in 2006-2007 at the time of partition of the family.
III. Mr. Rajesh purchased 15 convertible debentures in 1985 which are converted into 100 shares in
2006 by the company.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (I) and (II) above
(e) All (I), (II) and (III) above.
(1 mark)
< Answer >
42. An individual resident assessee has made the following investments for the previous year 2006-07:
Particulars Rs.
Insurance premium paid on the life of the spouse (Assured value Rs.1,00,000) 18,000
Insurance premium on the dependant mother’s life 6,000
Medical insurance premium for the daughter who is employed 14,000
Medical insurance premium for self 12,000
Contribution to the PPF 20,000
Investments in the National Savings Certificates VIII Issue 10,000
Investment in the infrastructure securities 25,000
The total amount of deduction that can be claimed under section 80C of the Income Tax Act, 1961 is
(a) Rs. 89,000
(b) Rs. 83,000
(c) Rs.1,00,000
(d) Rs. 73,000
(e) Rs. 80,000.
 (2 marks)
< Answer >
43. Mr. Rahul owns a house at Hyderabad. The Municipal valuation of the house is Rs.10,00,000. Its fair
value is Rs.12,00,000. The standard rent of the house is Rs.12,50,000 and the actual rent received in the
previous year 2006-07 is Rs.10,00,000. He pays municipal taxes amounting to Rs.1,50,000 in respect of
the property. The Net Annual Value, if the house has been let out through out the previous year, is
(a) Rs.10,50,000
(b) Rs.12,50,000
(c) Rs.11,00,000
(d) Rs. 8,50,000
(e) Nil.
(2 marks)
< Answer >
44. Mr. Chandrasekhar residing in Delhi purchased a car on the August 1, 2006, by availing a concessional
loan repayable in 2 years, of Rs.6,00,000 from his office at 5% interest per annum whereas the lending
interest rate in State Bank of India is 8.5%. What is the taxable value of the perquisite in respect of the
concessional loan for the assessment year 2007-08?
(a) Rs.14,000
(b) Rs.21,000
(c) Rs.40,000
(d) Rs.51,000
(e) Nil.
(2 marks)
< Answer >
45. Which of the following expenses will not be deductible under Section 37(1) of the Income Tax Act?
(a) Fees paid to obtain license to investigate and search minerals
(b) Stamp duty incurred in connection with transfer of a part of business
(c) Professional tax paid by a person carrying on business or trade
(d) Amount paid to third parties in order to use his quota rights
(e) Expenses for launching of a new project.
(1 mark)
< Answer >
46. Mr. Raghu, the director of Zentech Ltd. furnishes the particulars of his income during the year ending
March 31, 2007. Basic salary Rs.4,000 per month; Dearness allowance Rs.600 per month provided in
terms of employment; House rent allowance Rs.600 per month; rent paid for house at Kolkata is Rs.750
per month. Mr. Raghu and the company each contributed 12½% of salary to the recognized provident
fund. The taxable salary in the hands of Mr.Raghu for the assessment year 2007-08 is
(a) Rs.59,196
(b) Rs.58,920
(c) Rs.55,200
(d) Rs.60,720
(e) Rs.60,996.
(2 marks)
< Answer >
47. According to the Customs Act, 1962, the goods which are to be taken out of India to a place outside
India are called
(a) Export goods
(b) Coastal goods
(c) Prohibited goods
(d) Dutiable goods
(e) Identical goods.
(1 mark)
< Answer >
48. Mr. Vinay, who is not registered under Local Sales Tax Act, wants to register himself as a dealer under
the Central Sales Tax Act, 1956. Which of the following statements is true with respect to registration
of dealer?
(a) He will be permitted to register since he is not registered under Local Sales Tax Act
(b) He is not permitted because, where a person intends to get registered under Central Sales Tax
Act, he will necessarily have to be registered under the Local Sales Tax Act
 (c) He will be permitted, but he has to pay both taxes at higher rates
(d) Registration is not necessary, mere submission of application under Central Sales Tax Act is
sufficient
(e) It is not compulsory for him to be registered under Central Sales Tax Act as he intends to carry
interstate sales.
(1 mark)
< Answer >
49. Mrs. Radhika owns a house property, which is let out. The fair rent of the entire property is Rs.80,000,
municipal value is Rs.82,500 and the standard rent fixed by the rent controller is Rs.82,000. The rent
received from the tenant is Rs.6,000 per month. Interest on the capital (borrowed in 2002 for the
construction of the property) is Rs.36,000. What is the income from the property to be taxed in the
hands of Mrs. Radhika for the assessment year 2007-08?
(a) Rs.14,600 (loss)
(b) Rs.36,000 (loss)
(c) Rs.21,400
(d) Rs.22,800
(e) Rs.43,500.
(2 marks)
< Answer >
50. Mr. Rohan retires from Trendz & Co. on June 30, 2006. He gets pension of Rs.2,000 per month up to
October 31, 2006. With effect from November 1, 2006, he gets 60% of pension commuted for
Rs.40,800. He also got gratuity of Rs.10,000 at the time of retirement. The amount of commuted
pension exempted from his taxable salary for the assessment year 2007-08 is
(a) Rs.18,133
(b) Rs.15,600
(c) Rs.20,400
(d) Rs.34,000
(e) Rs.22,667.
(2 marks)
< Answer >
51. In which of the following cases, the transfer of capital assets like work of art or painting is treated as
transfer under section 47(ix) of the Income Tax Act, 1961?
(a) If it is transferred to the Government
(b) If it is transferred to the National Museum
(c) If it is transferred to the University
(d) If it is transferred to the Notified Institution
(e) If it is transferred to the Private Library.
(1 mark)
< Answer >
52. The due date for filing of return by a company having a turnover of less than Rs.40,00,000 under
Sec.139 (1) of the Income Tax Act, 1961 is
(a) 31st July
(b) 31st October
(c) 31st August
(d) 1st April
(e) 1st March.
(1 mark)
< Answer >
53. Mr. Kaushik owns a house property, which was self occupied up to June 30, 2006 and let out for
remaining part of the year on a monthly rent of Rs.3,000. Municipal valuation of the property is
Rs.40,000. Property taxes paid, including arrears of Rs.1,000, during the year 2006-07 were Rs.5,000.
The income from house property for the assessment year 2007-08 is
(a) Rs.23,800
(b) Rs.24,800
(c) Rs.24,500
(d) Rs.21,700
(e) Rs.22,700.
(2 marks)
 < Answer >
54. Prabhat, an individual, holds 4% Government of India Loan of the face value of Rs.5,00,000. Interest is
paid on 1st May and 1st November every year. He spends Rs.1,000 every year by way of bank charges
and commission for realizing the interest. For the assessment year 2007-08, the amount of interest that
would be chargeable to tax under the head ‘income from other sources’ is
(a) Rs.19,000
(b) Rs.20,000
(c) Rs.15,000
(d) Rs.17,500
(e) Rs.21,000.
(2 marks)
< Answer >
55. Who among the following persons is treated as a ‘manufacturer’ for the purpose of the Central Excise
Act, 1944?
(a) Raw material supplier
(b) Independent contractor carrying out manufacture in the premises of the raw material supplier
(raw material supplier has no control over manufacturing process)
(c) Loan licensee, under whose brand name drugs are manufactured by the factory owner
(d) Contractor supplying the labour in the premises of the manufacturer
(e) Brand owner.
(1 mark)
< Answer >
56. Mr. Vikram owns a house property that has been let out as per the details given below:
Municipal valuation Rs.1,76,000
Fair rent Rs.1,65,000
Standard rent Rs.1,70,000
The property has been let out at Rs.12,000 per month up to September, 2006 with an increase of 15%
from October, 2006. The property has been transferred on February 1, 2007 for an adequate
consideration. What is the gross annual value of the property for the assessment year 2007-08 in the
hands of Mr. Vikram?
(a) Rs.1,76,000
(b) Rs.1,70,000
(c) Rs.1,41,667
(d) Rs.1,27,200
(e) Rs.1,65,000.
(2 marks)
< Answer >
57. The minimum estimated income in respect of the heavy goods vehicle (per truck) as per the provisions
of section 44AE of the Income Tax Act, 1961, per month is
(a) Rs.3,500
(b) Rs.3,150
(c) Rs.2,500
(d) Rs.2,750
(e) Rs.3,000.
(1 mark)
< Answer >
58. Gratuity sanctioned to an employee, after his death while in service is taxable in the hands of
(a) Deceased employee
(b) Legal heirs
(c) The employee's wife as income from other source
(d) Neither the deceased employee nor his wife or legal heirs
(e) The employee's wife as income from salaries.
(1 mark)
< Answer >
59. A return of income is not considered to be defective under section 139(9) of the Income Tax Act, 1961
when
(a) The return is filed by an employee through his employer
(b) The proof of the tax deducted at source is not enclosed
 (c) The proof of the self assessment tax paid is not enclosed
(d) The return of income is not duly filled in
(e) Audit report under section 44AB has not been enclosed in the relevant cases.
(1 mark)
< Answer >
60. Mr. Shubham submits the following particulars for the assessment year 2007-08:
Particulars Rs.
Income from salary 2,00,000
Business profits (before depreciation) 30,000
Current depreciation 2,50,000
Income from other sources 1,00,000
Unabsorbed depreciation of earlier year 75,000
What is the taxable income of Mr. Shubham for the assessment year 2007-08?
(a) Rs.2,00,000
(b) Rs. 5,000
(c) Nil
(d) Rs. 50,000
(e) (Rs. 25,000).
(2 marks)
< Answer >
61. Mr. Balu is the kartha of the HUF, whose members derive income as given below:

Particulars Rs.
I. Income from Mr. Balu’s own business 48,000
II. Salary of Mrs. Balu, a dermatologist 80,000
III. Minor son Deepak (earning interest on fixed deposits with ABC Ltd.,
which were gifted to him by his grand father) 15,000
IV. Minor daughter Priya gave a dance performance and received
remuneration 1,00,000
V. Deepak got winnings from lottery (Gross) 2,00,000
The total income of the Mrs. Balu for the assessment year 2007-08 is
(a) Rs.2,93,500
(b) Rs.2,39,500
(c) Rs.4,43,000
(d) Rs.3,43,000
(e) Rs.2,43,000.
(2 marks)
< Answer >
62. Mr. Dhananjay, a 67 year old resident Indian has disclosed his taxable income of previous year 2006-07
as Rs.7,00,000. His tax liability for the assessment year 2007-08 is
(a) Rs.1,56,500
(b) Rs.1,35,000
(c) Rs.1,50,960
(d) Rs.1,48,000
(e) Rs.1,75,593.
(2 marks)
< Answer >
63. Section 4 of the Central Excise Act, 1944 provides for exclusion of some expenses in assessable value.
Which of the following expenses is excluded?
(a) Packing cost
(b) After sales service in warranty period
(c) Interest on receivables
(d) Design and consultancy charges
(e) Expenses incurred by buyer on behalf of manufacturer.
(1 mark)
< Answer >
64. Axle Ltd. declares a bonus of Rs.1,75,000 to its employees for the previous year 2006-07. Out of this,
 an amount of Rs.75,000 is paid in the month of July, 2007, Rs.50,000 in the month of September, 2007
and the balance in the month of December 2007. The amount that can be claimed by Axle Ltd. in its
return of income for the assessment year 2007-08 is
(a) Rs.1,75,000
(b) Rs.1,25,000
(c) Rs. 75,000
(d) Rs. 50,000
(e) Nil.
(2 marks)
< Answer >
65. The indexed cost of the acquisition is applicable to
(a) Sale of the long term debentures
(b) Sale of long term assets like house property
(c) Sale of depreciable asset
(d) Sale of the shares in an Indian company by a non-resident
(e) Sale of goodwill of a business.
(1 mark)
< Answer >
66. Which of the following statements is false regarding valuation of medical facilities provided to
employees under the Income Tax Act, 1961?
(a) Cost of medical facility incurred in a hospital maintained by the employer is not taxable
(b) Cost of medical facility incurred or reimbursed by an employer where the hospital is
maintained by the Central Government is not taxable
(c) Medical insurance premium reimbursed by the employer is chargeable to tax
(d) Cost of medical facility amounting to Rs.14,000 incurred in a private clinic by the
employee, reimbursed by the employer is not taxable
(e) Cost of medical facility incurred for a dependent brother in a hospital maintained by
State Government is not taxable.
(1 mark)
< Answer >
67. Mr. Prabhu, who is 22 years of age received rent of Rs.1,00,000 from his tenant, Mr. Sukanth for the
year 2006-07. Income of Mr. Prabhu from business is Rs.3,50,000. The taxable income of Mr. Prabhu
for the assessment year 2007-08 is
(a) Rs.3,50,000
(b) Rs.1,00,000
(c) Rs.4,20,000
(d) Rs.4,50,000
(e) Rs.2,50,000.
(2 marks)
< Answer >
68. Redhills School, Faridabad is owned and maintained by Axion Ltd., a manufacturing company. The
books of account of the school and Axion Ltd. are maintained separately.
Mr. Neelam is an employee of the company and his dependant brother is a student in the said school.
The cost of education of his dependent brother in similar institution is Rs.7,000 per month and the
amount charged to him towards the same is Rs.2,600 per month. What is the taxable value of the
perquisite for the assessment year 2007-08?
(a) Rs.52,800
(b) Rs.31,200
(c) Rs.84,000
(d) Rs.72,000
(e) Rs.40,800.
(2 marks)
< Answer >
69. Mr.Pranay, an individual, is the holder of the following properties as on March 31, 2007:
Particulars Amount (Rs.)
Vehicles for personal use 12,50,000
Cash on hand 1,20,000
Jewellery 7,50,000
 House property (400 square meters) gifted to the smaller HUF consisting of
himself, wife and children 9,50,000
The gross wealth of Mr. Pranay as on March 31, 2007 was
(a) Rs.20,70,000
(b) Rs.22,70,000
(c) Rs.30,20,000
(d) Rs. 5,70,000
(e) Rs.15,20,000.
(2 marks)
< Answer >
70. The deduction under section 37(2B) of the Income Tax Act, 1961 in respect of expenditure incurred by
an assesee on advertisement in any souvenir, brochure, pamphlet or the like published by a political
party is
(a) 100 percent
(b) 50 percent
(c) 25 percent
(d) 10 percent
(e) Nil.
(1 mark)
< Answer >
71. Sunny Limited of Bangalore sent spare parts to Twinkle Limited of Mumbai through its branch office in
Mumbai. Under the Central Sales Tax Act, 1956, the transaction has to be regarded as
(a) Branch transfer by Head office
(b) Interstate sale
(c) Intrastate sale
(d) Sale by transfer of document of title
(e) Penultimate sale.
(1 mark)
 Suggested Answers
Business Law - II (MB262): October 2007
1. Answer : (b) < TOP >
Reason : Income from farm house is exempt from tax under the head “Income from House Property. Hence (b) is
the correct answer. All other statements are true.
2. Answer : (a) < TOP >
Reason : National Defence Gold Bonds, 1980 is not a capital asset. All others are capital assets. Hence option (a) is
the correct answer.
3. Answer : (b) < TOP >
Reason : A person who is disabled is eligible for a deduction under section 80-U only if the disability is not less
than 40%. Hence the option (b), where the person has a Locomotor disability to the extent of 25% is not
eligible for the deduction.
4. Answer : (d) < TOP >
Reason : Annuity payable by an employer is chargeable under the head salaries. Hence, (d) is the correct answer.
All others are chargeable under income from other sources.
5. Answer : (e) < TOP >
Reason : The rent is taxable even if the assessee is not the owner of that property in that year. Hence (e) is the
correct answer.
6. Answer : (b) < TOP >
Reason : In the case of the transfer of the property to a wife with an agreement to live apart, the income from the
said property is taxable in the hands of the transferee (wife).
7. Answer : (c) < TOP >
Reason : Income from Profession 11,00,000
Salary and other income 3,10,000
Gross Total Income 14,10,000
Less: Deduction under 80C 1,00,000
Net Taxable Income 13,10,000
Gross qualifying amount for deduction under section 80C
Contribution toward National Savings
Certificate VIII issue 1,55,000
Public Provident Fund 15,000
Total 1,70,000
Net qualifying amount 1,00,000
8. Answer : (b) < TOP >
Reason : Long term capital loss can be set off only against long term capital gain. All the other statements are true
statements. Hence option (b) is the correct answer.
9. Answer : (c) < TOP >
Reason : Any capital gain arising from transfer of a house property by an individual or a HUF, which has been held
by the assessee for a period of more than 36 months before the sale or transfer and where the income from
such house property is taxable under the head ‘Income from House Property’ – is exempted under section
54. The house property may be let-out or self-occupied.
The only condition for availing this exemption is that the assessee should have purchased residential
house (whether old or new) within a period of one year before the transfer or within a period three years
after the date of transfer. The construction of such house should have been completed within 3 years from
the date of transfer. Date of commencement of construction is immaterial.
If such a new house is transferred within a period of three years from the date of its purchase or date of
completion of construction, the amount of capital gains arising therefrom, together with the amount of
capital gains exempted earlier, will be chargeable to tax in the year of sale of the new house property as
short-term capital gain.
10. Answer : (d) < TOP >
 Reason : The annual value in case of the self occupied property is taken to be nil. Only the interest on the house
loan can be claimed by an assessee and he is not entitled to claim any deduction in respect of the municipal
taxes or the standard deduction. There is no separate deduction allowed in respect of the repairs and
insurance. Hence the option (d) is correct.
11. Answer : (e) < TOP >
Reason : Calculation of the tax liability of Mr.Ramana for the assessment year 2007-08: Taxable Income:
Particulars Rs.
Income from salaries 4,25,000
Income from Business 1,15,000
Income from lotteries (gross) 1,40,000
Taxable income 6,80,000
12. Answer : (d) < TOP >
Reason : As per the definition of the manufacture as per the Central Excise Act, 1944 a new and different article
must emerge having a distinct name and character or use. The following have been held as not amounting
to manufacture under the Central Excise Act:
• Printing and lacquering plain tubes and containers of aluminium bought from the market
• Straightening of steel wires and cutting them into the required sizes
• The processes of cleaning, cutting, deep freezing and packing green peas
• Tanned leather cut into straps.
De-husking of paddy to rice is treated as manufacture as a new and different article has emerged. In State
of Karnataka v. Raghurama Shetty, it was rightly held that de-husking of paddy into rice is a
manufacturing process as rice is a distinct commercially different commodity from paddy. Hence, (d) is
correct answer.
13. Answer : (d) < TOP >
Reason : Inclusion of assets held by minors in the parent’s wealth is dealt by section 4(1) (a) (ii) of the Wealth Tax
Act, 1957. According to this section the assets acquired by minor shall be included in the wealth of parent
if the assets are held by a minor son of the parent (d). It shall not be included if assets held by a minor who
is suffering from any disability as specified u/s 80U of the Income Tax Act (a); Assets held by a married
minor daughter (b) shall not be included in the wealth of the parent. The assets of a minor acquired by
him/her out of his/her abilities, skill, knowledge and experience (c) will not be clubbed with the assets of
the parent. The assets acquired by a minor from manual work (e) shall not be included in the net wealth of
a parent.
14. Answer : (d) < TOP >
Reason : A return filed by an assessee for any previous year at any time before one year from the end of the
assessment year or before the assessment is completed, whichever is earlier in case he has failed to file a
return within the time allowed under section 139(1) is known as belated return.
15. Answer : (d) < TOP >
Reason :
Sales CST Gross sales
Sale to B (Including taxes) 1,75,000 7,000 1,82,000
Sale to C 1,64,000 6,560 1,70,560
3,39,000 13,560 3,52,560
Sales returns within 6
40,000 1,600 41,600
months

Gross sale turnover

135000 + 164000 2,99,000
Sales tax at 4% 11,960 3,10,960
16. Answer : (b) < TOP >
Reason : Income from the sale of the coffee grown and cured by the seller in India without adding any flavouring
ingredients, is treated as agricultural income to the extent of 60% of the income.
17. Answer : (a) < TOP >
 Reason : If the income is earned by a minor, using his/ her professional capacity, is taxable, in the hands of the
minor.
18. Answer : (b) < TOP >
Reason : Computation of taxable gratuity of Ms. Radha
Rs.
Actual gratuity 40,000
Less: Exempt u/s 10(10) to the extent of the least of the
following
i. Rs. 3,50,000
ii. 1,200 /2×40 = Rs. 24,000
iii. Actual gratuity received = Rs. 40,000 24,000
Taxable gratuity 16,000
19. Answer : (b) < TOP >
Reason : Employer’s contribution up to 12% of salary to recognized provident fund is only exempt. Excess
contribution of employer over 12% of salary is taxable. Hence option (b) is the correct answer.
20. Answer : (b) < TOP >
Reason : Under the Central Sales Tax Act, 1956, the form to be submitted by the Government department on any
interstate purchase made by it , irrespective of the nature of the goods purchased is Form ‘D’. Hence, the
answer is (b).
21. Answer : (c) < TOP >
Reason : As per section 45 of Wealth Tax Act, wealth tax is charged for every assessment year in respect of net
wealth of individuals, Hindu Undivided families and companies. Hence (c) is the correct answer.
22. Answer : (c) < TOP >
Reason :
Particulars Rs.
Salary @Rs.30,000 × 12 3,60,000
Entertainment allowance @ Rs.4,000/- p.m 48,000
Less: Deductions u/s.16
Entertainment allowance Nil.
(not eligible for deduction as she is not a Government employee)
Taxable salary Income: 4,08,000
Tax (Rs.21,500 + 30% of Rs.1,58,000 i.e., exceeding
68,900
Rs.2,50,000)
Add: Surcharge (Net income does not exceed Rs.10,00,000) -
Tax and surcharge 68,900
Add: Education cess @ 2% of tax and surcharge) 1,378
Tax liability 70,278
23. Answer : (d) < TOP >
Reason :
Particulars Rs. Rs.
Assets
Jewellery in India 53,00,000
Gold ornaments situated outside India 41,70,000 94,70,000
Less: Debts
Capital borrowed for purchase outside 80,000
India (as per question)
Capital borrowed in India 93,000 1,73,000
Net wealth 92,97,000
24. Answer : (b) < TOP >
Reason : The income tax law does not make any distinction between the income accrued or arisen from the legal
source and the income tainted with illegality. Though the profits are from the sale of goods imported
illegally, the same are taxable. Hence, (b) is correct answer.
25. Answer : (a) < TOP >
Reason : The term goods includes all materials, articles, commodities and all other kinds of movable property ,but
 does not include Newspapers, actionable claims, stocks, shares and securities.
26. Answer : (a) < TOP >
Reason : Taxable leave salary of Mr. Tapan
Total leave eligible on the basis of one month 22 months
for each completed year of service
Leave to his credit (22- 21) 1 month
Average salary of last 10 months salary Rs. 30,000
Rs. Rs.
Actual leave salary 36,000
Less: Exempt u/s 10(10AA) of the following:
1. cash equivalent of leave to the credit of 30,000
employee at the time of retirement
2. 10 months salary – 30,000 ×10 3,00,000
3. Maximum amount not taxable 3,00,000
4. Actual leave salary 36,000 30,000
Taxable leave salary 6,000
27. Answer : (e) < TOP >
Reason : The term normal price is defined by section 4(1)(a). For a price to be accepted as a normal price the
following conditions must be fulfilled:
a. The price should be one at which the goods are ordinarily sold by the assessee
b. The price should be the wholesale price
c. The sale should be for delivery at the time and place of removal.
d. The buyer in the ordinary course of trade should not be a related person
e. The price should be the sole consideration for the sale.
From the above it is clear that the price should be the sole consideration for the sale, hence option (e) is
correct answer.
28. Answer : (e) < TOP >
Reason : Instances where assets transferred will be included in the net wealth of the transferor for computation of
net wealth under the Wealth Tax Act, 1957 are:
I. Assets transferred directly or indirectly by an individual to his/her spouse without adequate
consideration.
II. Assets transferred by an individual to a person under a revocable transfer.
III. Assets transferred after May 31, 1973 by an individual to his or her son’s wife without adequate
consideration.
Hence, option (e), combination of all statements is correct answer.
29. Answer : (b) < TOP >
Reason : The following are exempted perquisites:
i. Interest free loan in respect of medical treatment not exceeding Rs.20,000.
ii. Hotel accommodation up to 15 days on transfer.
iii. Conveyance provided from house to office and back.
iv. Medical facility in own hospital; public hospital; Government hospital or approved hospital.
v. Use of computers and laptop.
vi. Expenses of telephone provided to employees.
Hence the correct answer is (b) which is taxable perquisite because in this case the hotel accommodation is
provided for more than 15 days.
30. Answer : (d) < TOP >
Reason : Nothing will be disallowed out of payment of Rs.15,000 in cash on May 11, 2007 as the payment does not
exceed Rs.20,000. Payment by bearer cheque in excess of Rs.20,000 is disallowed. 20% of Rs.30,000 i.e.,
Rs.6,000 is disallowed. Hence, (d) is the correct answer.
31. Answer : (c) < TOP >
Reason : Computation of net income of Mr. Sasank
Particulars Rs.
 Income from lottery 1,20,000
Tax @ 30% on Rs.1,20,000 36,000
Add: Surcharge (Net income does -
not exceed Rs.10,00,000)
Tax and surcharge 36,000
Add: Education cess: (2% of tax) 720
Tax liability 36,720
32. Answer : (c) < TOP >
Reason : The amount which is received from a person other than the employer cannot be termed as salary. A
Member of Parliament or a State Legislature is not treated as an employee of the Government. Hence the
salary and other allowances received by Member of Parliament is taxable under the head Income from
other sources and (c) is correct answer.
33. Answer : (c) < TOP >
Reason : If the goods at sea in a ship are separated from it by some peril, it is known as flotsam.
34. Answer : (b) < TOP >
Reason : Net wealth of Suraj Ltd. for the assessment year 2007-08
Particulars Rs.
Office building - not an asset (since it is occupied for business purpose) –
Flats ready for sale are not assets (as they are stock-in-trade) –
House occupied by General Manager – not an asset (since annual salary is
–
less than Rs.5,00,000)
House occupied by CEO (whose annual salary is Rs.6 lakh) 5,00,000
House occupied by CFO (whose annual salary is Rs.5.5 lakh) 4,00,000
Guest house 2,00,000
Net wealth 11,00,000
35. Answer : (d) < TOP >
Reason : No depreciation is allowed on the land in respect of profits & gains of business or profession under the
Income Tax Act.
36. Answer : (d) < TOP >
Reason : Computation of taxable compensation
Particulars Rs. Rs.
Actual compensation 15,00,000
Least of the following is exempt;
(i) Rs. 15,000 × 3 × 20 = Rs. 9,00,000 9,00,000
(ii) Monetary ceiling 5,00,000
(iii) Actual compensation 15,00,000 5,00,000
Taxable compensation 10,00,000
37. Answer : (d) < TOP >
Reason : The cost of acquisition of shares is Rs.60,000. To find out whether or not the shares are long-term capital
asset or short-term capital asset, the period of holding shall be determined from the date of allotment of
shares. In the given problem, the period of holding of shares is from February 01, 2006 to January 20,2007
i.e. less than one year. Hence, the shares are short-term capital assets. The capital gains taxable in the
hands of Mr.Ramu is
Particulars Rs.
Sale consideration 1,10,000
Less : Cost of acquisition 60,000
Capital gains 50,000
38. Answer : (b) < TOP >
Reason : Interest paid on debentures is not deductible under section 36(1)(iii). Hence option (b) is the correct
answer. All other options are true statements.
39. Answer : (d) < TOP >
Reason : Wealth tax is charged in respect of net wealth of an assessee on the valuation date.
40. Answer : (c) < TOP >
Reason : Computation of net income for the assessment year 2007-08
 Particulars Rs.
Basic Salary (Rs.30,000×3) 90,000
Dearness allowance (Rs.9,000× 3) 27,000
Pension (Rs.15,000×9) 1,35,000
Gross Salary 2,52,000
Less: Deductions -
Net income from salary 2,52,000
41. Answer : (e) < TOP >
Reason : As the element of transfer is missing in all the three transactions, hence there is no tax liability on capital
gains in any of the transactions.
42. Answer : (d) < TOP >
Reason : The amount that qualifies for the deduction under section 80C is calculated as under:
Insurance premium paid on the life of the spouse (Assured value 18,000
Rs.1,00,000)
Insurance premium on the dependant mother’s life ( not allowed)
Medical insurance premium on the daughter, who is employed (not
allowed)
Medical insurance premium on self (80D) -
Contribution to the PPF 20,000
Investments in the National Savings Certificates VIII Issue 10,000
Investment in the infrastructure securities 25,000
Total amount that qualifies for the deduction 73,000
43. Answer : (a) < TOP >
Reason :
Particulars Rs. Rs.
Step I: Municipal valuation of Rs.10,00,000 or Fair 12,00,000
rent of Rs.12,00,000 (whichever is higher)
Step 2: Standard Rent of Rs.12,50,000 or Amount in 12,00,000
step I (whichever is lower)
Step 3: Actual Rent of Rs.10,00,000 with amount in 12,00,000
step II (whichever is more)
Gross Annual Value 12,00,000
Less Municipal taxes 1,50,000
Net Annual Value 10,50 000
44. Answer : (a) < TOP >
Reason : The value of the concessional loan is taken as under
Rs.6,00,000 x 3.5% x 8/12 = Rs.14,000.
45. Answer : (e) < TOP >
Reason : Expenses for launching of a new project is a capital expenditure and hence not deductible under Section
37 (1). All the other options are deductible. Hence, (e) is the correct answer.
46. Answer : (a) < TOP >
Reason : Computation of taxable salary of Mr.Raghu for the assessmnet year 2006-07.
Rs.
Basic salary at Rs.4,000 per month 48,000
Dearness allowance at Rs. 600 per month 7,200
House rent allowance (note 1) (Rs. 7,200 less: Rs. 3480) 3,720
Employers contribution in excess of 12% of salary (55,200 × .5%) 276
Gross salary 59,196
Less: Deductions Nil
Taxable salary 59,196
Note 1: The least of the following is exempt u/s 10(13A) for H.R.A
Rs. Rs.
 (i) Actual rent paid at Rs. 750 per month 9,000
Less: 10% of salary 55,200 × 10% 5,520 3,480
(ii) 50% of salary 27,600
(iii) Actual HRA received 7,200
47. Answer : (a) < TOP >
Reason : According to the Customs Act, 1962, the goods which are to be taken out of India to a place outside India
are called as exported goods. The goods, other than imported goods, transported in a vessel from one port
to another are called coastal goods. Goods which are prohibited to be exported or imported are called
prohibited goods. Identical goods are those goods which fulfill all of the following conditions i) the goods
should be same in all respects, including physical characteristics, quality and reputation. ii) the goods
should have been produced in the same country, (iii) they should be produced by same manufacturer.
Hence the answer in option (a) is correct.
48. Answer : (b) < TOP >
Reason : Where a person intends to get registered under the Central Sales Tax Act. He will necessarily have to be
registered under the Local Sales Tax Act. Thus, a person who is not registered as a dealer under the Local
Sales Tax Act cannot get himself registered under the Central Sales Tax Act. Hence, (b) is the correct
answer.
49. Answer : (c) < TOP >
Reason : Calculation of Income from House Property of Mrs. Radhika
Particulars Let out
Step I – Fair rent or the municipal value 82,000
whichever is higher subject to a maximum of
the standard rent
Step II – Actual rent received 72,000
Gross annual value (higher of the above two) 82,000
Less municipal taxes Nil
Net annual value of the property 82,000
Less standard deduction@ 30% 24,600
Less Interest on the capital borrowed 36,000
Net income from the property 21,400
50. Answer : (e) < TOP >
Reason :
Particulars Rs.
Commuted value of 60% of pension 40,800
Commuted value of full pension (Rs.40,800×10/6) 68,000
Amount exempt 22,667
(1/3 of commuted value of full Pension Rs.68,000
×1/3)
Hence option (e) is the correct answer.
51. Answer : (e) < TOP >
Reason : Transfer of a capital asset being any work of art, archaeological or scientific or art collection, any book
manuscript, painting, drawing, etc., to the Government or University or notified Museums, Art Gallery or
approved institutions is not treated as transfer. Hence the transfer of any work of art or painting to a private
library is treated as transfer. Hence, the correct option is (e).
52. Answer : (b) < TOP >
Reason : Different situations Due date of submission of return
1. Where the assessee is a company – October 31st
2. Where the assessee is other than company
(a) In case where accounts of the assessee are
Required to be audited under any law – October 31st
(b) Where the assessee is a ‘working partner’
In a firm whose accounts are required to be
Audited under any law. – October 31st
 (c) Where the assessee is covered by the first
Proviso to section 139 (1) – October 31st
(d) In any other case – July 31st.
Hence the due date for filing of return under sec.139 (1) by a company having a turnover of less than
Rs.40, 00,000 is October 31st.
53. Answer : (c) < TOP >
Reason :
Particulars Rs.
Gross Annual Value 40,000
Less: Municipal tax 5,000
Net Annual Value 35,000
Less: Deduction u/s 24-30% of Net annual value 10,500
Income from house property 24,500
Note: The actual rent for 9 months @ Rs.3,000 per month is Rs.27,000. The fair rent of the property is
given as Rs.40,000. Higher of the above shall be taken as the gross annual value i.e., Rs.40,000. Municipal
taxes is deductible based on payment basis and not on due basis.
54. Answer : (a) < TOP >
Reason : Interest earned by Prabhat on 4% Government of India Loan is chargeable to tax under the head ‘ Income
from other sources’. The taxable income in his case is computed as follows :
Particulars Rs.
Interest – Rs.5,00,000X4% 20,000
Less: Realization expenses – Bank charges and 1,000
commission
Taxable Income 19,000.
55. Answer : (b) < TOP >
Reason : As per Section 2(f) of the Central Excise Act-1944, persons who manufacture goods themselves on their
own account are treated as manufacturers. In Tamilnadu Electricity Board v. CCE it was held that raw
material supplier is not the manufacturer even if manufacturing is done by independent contractors at the
site of the raw material supplier, if relationship between contractor and raw material supplier is principal to
principal basis. The owner of factory which carries on the actual manufacturing activity is the
manufacturer in case of a loan licensee. A raw material supplier and a brand owner are not considered as
manufacturers. Hence, answer is (b).
56. Answer : (c) < TOP >
Reason : Computation of the annual value of the property of Mr. Vikram for the assessment year 2007-08 :
Municipal value Rs.1,76,000
Fair rent Rs.1,65,000
Standard rent Rs.1,70,000
Step I : Municipal value or the fair rent whichever is higher subject to a Rs.1,70,000
maximum of the standard rent (i.e Rs.1,65,000 orRs.1,76,000 subject to a max.of
Rs.1,70,000)
The value arrived at above is to be considered only for 10 months as the property Rs.1,41,667
has been transferred on February 1st , 2007. (Rs.1,70,000 x 10 / 12 )
Step II Actual rent received ((Rs.12,000x6) + (Rs.13,800x 4) Rs.1,27,200
The standard rent as per the step I being higher than the rent actually received, Rs.1,41,667
the same is treated as the annual value
57. Answer : (a) < TOP >
Reason : The income from the business of plying the heavy goods vehicle (per truck) is Rs.3,500 per month during
which the goods carriage is owned by the tax payer.
58. Answer : (d) < TOP >
Reason : Since the gratuity is sanctioned after the death of the employee, it becomes due and payable after his
death. It is not taxable in the hands of the employee or his wife or legal heirs as it is totally exempt. Hence
option (d) is the correct answer.
59. Answer : (a) < TOP >
Reason : When the return is filed by an employee through his employer, the return of income cannot be considered
 defective.
60. Answer : (a) < TOP >
Reason : Taxable income of Mr. Shubham Rs. Rs.
Business Income 30,000
Less Depreciation [2,50,000+75,000] 3,25,000 Nil
Depreciation not deductible against business 2,95,000
income
Income from other sources 1,00,000
Less Depreciation 2,95,000 Nil
Income from Salaries 2,00,000
Net Income 2,00,000
61. Answer : (a) < TOP >
Reason :
Particulars Rs.
Salary income 80,000
Income of minor clubbed as per Sec.64(1A) –
2,15,000
Less: exemption u/s.10(32) 1,500 2,13,500
Total Income 2,93,500
Note:
1. Income from Mr. Balu’s own business is chargeable to tax in his hands.
2. The clubbing provisions do not apply to salary income of Mrs. Balu since the same is not received
from a concern in which the spouse has substantial interest.
3. The income of minor daughter shall not be clubbed if the income is earned on the account of manual
work done by her or any activity involving application of skill, talent, specialized knowledge and
experience. Therefore in the given case clubbing provision cannot be applied in respect of income
earned by minor daughter Priya.
4. The interest income and lottery earnings of minor son Deepak will be clubbed in the hands of the
parents who’s total income is higher.
In the given case Mrs. Balu’s income of Rs.80,000 is greater than the income of Mr. Balu’s, which is only
Rs.48,000. Hence the income of minor son will be clubbed in the hands of Mrs. Balu.
62. Answer : (c) < TOP >
Reason :
Computation of tax payable by Mr. Dhananjay Rs.
Income tax payable on 7,00,000
- On first Rs.1,85,000(basic exemption for senior citizens) Nil
- From Rs.1,85,001 to Rs.2,50,000 @ 20% 13,000
- On balance Rs.4,50,000 @ 30% 1,35,000
1,48,000
Add: Surcharge (Net income does not exceed Rs.10,00,000) -
Tax and surcharge 1,48,000
Add: Education cess @ 2% 2,960
Total tax payable 1,50,960.
63. Answer : (c) < TOP >
Reason : Interest on receivables is excluded in the assessable value under the Central Excise Act, 1944. Hence
option (c) is the correct answer.
64. Answer : (b) < TOP >
Reason : As per the Sec 43B, the bonus can be deducted only on the actual payment basis. The payments made on
or before the due date for the filing the return of income are also considered provided a proof of the same is
enclosed. Hence in the given case, as the payment of Rs.1,25,000 is made before the due date for filing the
return, can be deducted. The balance amount can be deducted only when it is paid in the next assessment
year.
65. Answer : (b) < TOP >
Reason : The benefit of the indexation is not available in the case of the short term assets and the debentures
whether short term or long term, sale of shares in an Indian company by a non resident, and sale of
 goodwill. Hence, (b) is the correct answer.
66. Answer : (c) < TOP >
Reason : Medical insurance premium paid or reimbursed by the employer on the health insurance policy of the
employee and family members is exempt from tax without any monetary ceiling. Hence option (c) is the
correct answer.
67. Answer : (c) < TOP >
Reason : Tax liability of Mr. Prabhu for the assessment year 2007-08
Particulars Rs.
Income from House Property
Rent received
1,00,000
Less: Standard deduction 30% of Rs.1,00,000 30,000 70,000
Business Income 3,50,000
Net taxable income 4,20,000
68. Answer : (a) < TOP >
Reason :
Rs.
Cost of education of dependent brother
[12 × (Rs.7,000 – 2600 = Rs.4,400)] 52,800
69. Answer : (c) < TOP >
Reason : Computation of the wealth of Mr.Pranay as on March 31, 2007:
Particulars Amount (Rs.)
Vehicles for personal use 12,50,000
Cash on hand (1,20,000-50,000) 70,000
Jewellery 7,50,000
Property gifted to the smaller HUF consisting of himself, wife 9,50,000
and children (The value as per the Schedule III is Rs.8,00,000)
Gross wealth 30,20,000
70. Answer : (e) < TOP >
Reason : No allowance shall be made under section 37(2B) in respect of expenditure incurred by an assesee on
advertisement in any souvenir, brochure, pamphlet or the like published by a political party
71. Answer : (b) < TOP >
Reason : Sec.3(a) Inter-State sale:
In order that a sale may be regarded as an inter-state sale, property in goods may pass in any state. But the
movement should be in pursuance of sale.
English Electric Co. of India Ltd. vs. Dy. Commercial Tax Officer.
In the above case also even though the movement is through the branch transfer it is not held as branch
transfer it is held as interstate sale only as the outside party has placed the order.

< TOP OF THE DOCUMENT >