PREFACE
It gives me an immense pleasure to present this compilation of all questions of ICAI at
one place for all my dearest students. I have done this just to ensure that a student’s
time is not wasted in searching
...
PREFACE
It gives me an immense pleasure to present this compilation of all questions of ICAI at
one place for all my dearest students. I have done this just to ensure that a student’s
time is not wasted in searching questions from the ICAI study material for their
practice.
It has all the questions along with the solutions of study material relevant for May/ Nov
2020 attempt students of New Course as well as old course.
The students do not have to refer any other material for their practice after doing this
material. It is comprehensive in every sense.
A student shall endeavour to read this booklet at least twice before exams to have firm
grip on this mammoth subject.
God Bless you all.
CA Aarish Khan.
INDEX
CHAPTER
NO
CHAPTER NAME
1 Basic Concepts
2 Residence & Scope of Total Income
3 Income which do not Form Part of Total Income
4 Salaries
5 Income from House Property
6 Profits & Gains from Business or Profession
7 Capital Gains
8 Income from Other Sources
9 Clubbing
10 Set off & Carry Forward of Losses
11 Deductions under Chapter VIA
12 Assessment of Various Entities
13 Taxation of Trust
14 Tax Planning , Evasion & Avoidance
15 TDS, TCS & Advance Tax
16 Income Tax Authorities
17 Assessment procedure
18 Appeals & Revision
19 Settlement Commission
20 Penalties
21 Offences & Prosecution
22 Liability in Special Cases
23 Miscellaneous
24 Transfer Pricing
25 Non Resident Taxation
26 Double Taxation Relief
27 Advance Ruling
28 Equalisation Levy
29 Application & Interpretation of Tax Treaties
30 Fundamentals of Base Erosion & Profit Shifting
31 Overview of Model Tax Convention
32 Past Exam Revision Test Papers
33 Past New Course Suggested
34 Past Mock Test Paper
CA AARISH KHAN.EXERCISE
Question 1
Mr. Bhargava, a leading advocate on corporate law, decided to reduce his practice and to
accept briefs only for paying his taxes and making charities with the fees received on
such briefs. In a particular case, he agreed to appear to defend one company in the
Supreme Court on the condition that he would be provided with Rs. 5 lacs for a public
charitable trust that he would create. He defended the company and was paid the sum by
the company. He created a trust of that sum by executing a trust deed. Decide whether the
amount received by Mr. Bhargava is assessable in his hands as income from profession.
Answer
In the instant case, the trust was created by Mr. Bhargava himself out of his professional
income. The client did not create the trust. The client did not impose any obligation in the
nature of a trust binding on Mr. Bhargava. Thus, there is no diversion of the money to
the trust before it became professional income in the hands of Mr. Bhargava. This case is
one of application of professional income and not of diversion of income by overriding
title. Therefore, the amount received by Mr. Bhargava is chargeable to tax under the head
“Profits and gains of business or profession”.
Question 2
XYZ Ltd. took over the running business of a sole-proprietor by a sale deed. As per the
sale deed, XYZ Ltd. undertook to pay overriding charges of Rs. 15,000 p.a. to the wife of
the sole-proprietor in addition to the sale consideration. The sale deed also specifically
mentioned that the amount was charged on the net profits of XYZ Ltd., who had accepted
that obligation as a condition of purchase of the going concern. Is the payment of
overriding charges by XYZ Ltd. to the wife of the sole-proprietor in the nature of diversion
of income or application of income? Discuss.
Answer
This issue came up for consideration before the Allahabad High Court in Jit & Pal X-Rays
(P.) Ltd. v. CIT (2004) 267 ITR 370 (All). The Allahabad High Court observed that the
overriding charge which had been created in favour of the wife of the sole-proprietor was
an integral part of the sale deed by which the going concern was transferred to the
assessee. The obligation, therefore, was attached to the very source of income i.e. the
going concern transferred to the assessee by the sale deed. The sale deed also specifically
mentioned that the amount in question was charged on the net profits of the assesseecompany and the assessee-company had accepted that obligation as a condition of
purchase of the going concern. Hence, it is clearly a case of diversion of income by an
overriding charge and not a mere application of income.
Question 3
MKG Agency is a partnership firm consisting of father and three major sons. The
partnership deed provided that after the death of father, the business shall be continued
by the sons, subject to the condition that the firm shall pay 20% of the profits to the
mother. Father died in March, 2019. In the previous year 2019-20, the reconstituted firm
paid Rs. 1 lakh (equivalent to 20% of the profits) to the mother and claimed the amount
as deduction from its income. Examine the correctness of the claim of the firm.
Basic Concepts AJ Education NeXt
1.2
Answer
The issue raised in the problem is based on the concept of diversion of income by
overriding title, which is well recognised in the income-tax law. In the instant case, the
amount of Rs. 1 lakh, being 20% of profits of the firm, paid to the mother gets diverted at
source by the charge created in her favour as per the terms of the partnership deed. Such
income does not reach the assessee-firm.
Rather, such income stands diverted to the other person as such other person has a better
title on such income than the title of the assessee. The firm might have received the said
amount but it so received for and on behalf of the mother, who possesses the overriding
title. Therefore, the amount paid to the mother should be excluded from the income of
the firm. This view has been confirmed in CIT vs. Nariman B. Bharucha & Sons (1981)
130 ITR 863 (Bom).
Question 4
Anand was the Karta of HUF. He died leaving behind his major son Prem, his widow, his
grandmother and brother’s wife. Can the HUF retain its status as such or the surviving
persons would become co-owners?
Answer
In the case of Gowli Buddanna v. CIT (1966) 60 ITR 293 (SC), the Supreme Court has
made it clear that there need not be more than one male member to form a HUF as a
taxable entity under the Income-tax Act, 1961. The expression “Hindu Undivided family”
in the Act is used in the sense in which it is understood under the personal law of the
Hindus.
Under the Hindu system of law, a joint family may consist of a single male member and the
widows of the deceased male members and the Income-tax Act, 1961 does not mandate
that it should consist of at least two male members. Therefore, property of a joint Hindu
family does not cease to belong to the family merely because the family is represented by a
single co-parcener who possesses the right which an owner of property may posses.
Therefore, the HUF would retain its status as such.
Question 5
Mr. C borrowed on Hundi, a sum of Rs. 25,000 by way of bearer cheque on 11-09-2019
and repaid the same with interest amounting to Rs. 30,000 by account payee cheque on 12-
10-2019.
The Assessing Officer (AO) wants to treat the amount borrowed as income during the
previous year. Is the action of AO valid?
Answer
Section 69D provides that where any amount is borrowed on a hundi or any amount due
thereon is repaid otherwise than by way of an account-payee cheque drawn on a bank, the
amount so borrowed or repaid shall be deemed to be the income of the person
borrowing or repaying the amount for the previous year in which the amount was so
borrowed or repaid, as the case may be.
In this case, Mr. C has borrowed Rs. 25,000 on Hundi by way of bearer cheque.
Therefore, it shall be deemed to be income of Mr. C for the previous year 2019-20. Since
the repayment of the same along with interest was made by way of account payee cheque,
the same would not be hit by the provisions of section 69D. Therefore, the action of the
Assessing Officer treating the amount borrowed as income during the previous year is valid
in law.
Basic Concepts AJ Education NeXt
1.3
Question 6
The Assessing Officer found, during the course of assessment of a firm, that it had paid
rent in respect of its business premises amounting to Rs. 60,000, which was not debited
in the books of account for the year ending 31.3.2020. The firm did not explain the source
for payment of rent. The Assessing Officer proposes to make an addition of Rs. 60,000
in the hands of the firm for the assessment year 202-21. The firm claims that even if the
addition is made, the sum of Rs. 60,000 should be allowed as deduction while computing
its business income since it has been expended for purposes of its business. Examine the
claim of the firm.
Answer
The claim of the firm for deduction of the sum of Rs. 60,000 in computing its business
income is not tenable. The action of the Assessing Officer in making the addition of Rs.
60,000, being the payment of rent not debited in the books of account (for which the
firm failed to explain the source of payment) is correct in law since the same is an
unexplained expenditure under section 69C. The proviso to section 69C states that such
unexplained expenditure, which is deemed to be the income of the assessee, shall not be
allowed as a deduction under any head of income. Therefore, the claim of the firm is not
tenable.
ADDITIONAL ILLUSTRATIONS FOR PRACTICE:
Illustration 1
Mr. X has a total income of Rs. 12,00,000 comprising of his salary income and interest on
fixed deposit. Compute his tax liability.
Solution
Computation of Tax liability
Tax liability = Rs. 1,12,500 + 30% of Rs. 2,00,000 = Rs. 1,72,500
Alternatively:
Tax liability :
First Rs. 2,50,000 - Nil
Next Rs. 2,50,000 – Rs. 5,00,000 - @ 5% of Rs. 2,50,000 = Rs. 12,500
Next Rs. 5,00,000 – Rs. 10,00,000 - @ 20% of Rs. 5,00,000 = Rs.
1,00,000
Balance i.e. Rs. 12,00,000 minus Rs.
10,00,000
- @ 30% of Rs. 2,00,000 = Rs. 60,000
= Rs.
1,72,500
Illustration 2
Compute the tax liability of Mr. A (aged 42), having total income of Rs. 51 lakhs for the
Assessment Year 2020-21. Assume that his total income comprises of “Salary income”,
“Income under the head house property” and “Interest from Saving Bank Account”.
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