CA Final – Direct Tax Laws MCQs – Set I

Mr. Akash is engaged in the business of running motor cars on hire. His brother, Mr. Vikas, is a dentist. Mr. Akash and Mr. Vikas each purchased a motor car of the value of ` 5 lakh on 1.11.2019 for their business/ profession and put the same to use immediately. The written down value of motor cars as on 1.4.2019 may be taken as ` 50 lakh for Mr. Akash and Nil for Mr. Vikas. What is the depreciation allowable in respect of motor cars to Mr. Akash and Mr. Vikas under section 32 for A.Y.2021-22, assuming that both of them have not opted for the special provisions of section 115BAC?

The turnover of Mr. Aarav, engaged in wholesale trading business, for the P.Y.2020-21 is ` 2 crore and the gross receipts of Mr. Vishal, engaged in legal profession is ` 50 lakhs. Mr. Aarav has been regularly following mercantile system of accounting and Mr. Vishal regularly follows cash basis of accounting. Out of the turnover of Mr. Aarav, he receives ` 1.20 crores through ECS through bank account during the P.Y.2020-21. He receives another ` 60 lakhs through ECS through bank account on or before 31.7.2021. Mr. Vishal receives ` 30 lakhs by account payee bank draft and ` 20 lakhs by crossed cheque during the P.Y.2020-21. What would be the income chargeable to tax under the head “Profits and Gains of Business and Profession”, if they want to minimize their tax liability? Both of them maintain books of account as per section 44AA. Income computed as per the regular provisions of Income-tax Act, 1961 is ` 11,50,000 and ` 24,75,000 in the hands of Aarav and Vishal, respectively. However, they have not got the books of account audited and do not intend to do so in future.

Mr. Vishal and Mr. Guha sold their residential house property in Pune for` 3 crore and ` 4 crore, respectively, in January, 2021. The house property was purchased by them 25 months back. The indexed cost of acquisition is ` 1 crore and ` 1.75 crore, respectively. Mr. Vishal purchased two residential flats, one in Delhi and one in Agra for ` 70 lakhs and ` 80 lakhs, respectively, in April, 2021. On the same date, Mr. Guha also purchased two residential flats, one in Mumbai and the other in Pune, for ` 80 lakhs and ` 75 lakhs, respectively. Both of them invested ` 30 lakhs in bonds of NHAI in March, 2021 and ` 30 lakhs in bonds of RECL in April, 2021. What is the income taxable under the head “Capital Gains” for A.Y.2021-22 in the hands of Mr. Vishal and Mr. Guha?

Mr. Hari is an interior decorator declaring profits under 44ADA in the P.Y.2020-21 and the earlier previous years. Mr. Hari has to pay brokerage of ` 10 lakhs to Mr. Lal, a broker, to buy a residential house, and ` 50 lakhs to Mr. Shyam, a contractor for reconstruction of the residential house. Are TDS provisions attracted in the hands of Mr. Hari in respect of the above transactions, and if so, what is the amount of tax to be deducted?

Mr. X, a foreign national and citizen of USA, working with M Inc., a US based company, came to India during the P.Y. 2020-21 for rendering services on behalf of the employer. He wishes to claim his salary income earned during his stay in India as exempt. Which of the following is not a condition to be fulfilled to claim such remuneration as exempt income under the Income-tax Act, 1961?

Mr. Ram, born on 1.4.1961, has a gross total income of ` 2,90,000 for A.Y.2021-22 comprising of his salary income. He does not claim any deduction under Chapter VI-A. He pays electricity bills of ` 10,000 per month. He made a visit to Melbourne along with his wife for a month in February, 2021 for which he incurred to and fro flight charges of 1.20 lakhs. The remaining expenditure for his visa, stay and sightseeing amounting to ` 80,000 was met by his son residing in Melbourne. Is Mr. Ram required to file return of income for A.Y.2021-22, and if so, why?

Mr. Rajesh is aggrieved by an order passed by the Commissioner of Income-tax imposing penalty under section 270A for under-reporting of income. What is the appellate remedy available to him under the Income-tax Act, 1961 and the specified time limit within which he has to file an appeal?

Ms. Aparna and Ms. Dimple, Indian citizens residing in California since the year 2010, visit India for 60 days every year. On 1.3.2021, Ms. Aparna transferred to Ms. Dimple in California, for consideration of dollar equivalent to ` 15 lakhs, rupee denominated bonds (issued outside India) of X Ltd., a company incorporated in India, which were acquired by her on 1.3.2019 for a price of dollar equivalent to ` 10 lakhs. What are the capital gains tax implications of such transfer in the hands of Ms. Aparna?

Mr. Sanjay, a salaried individual, pays brokerage of ` 40 lakhs to Mr. Harish, a broker, on 5.1.2021 to buy a residential house. His father, Mr. Hari, a retired pensioner, makes contract payments of ` 15 lakhs, ` 25 lakhs and ` 12 lakhs on 28.9.2020, 3.11.2020 and 15.2.2021 to Mr. Rajeev, a contractor, for reconstruction of residential house. With respect to the above payments made by Mr. Sanjay and Mr. Hari, which of the following statements is correct?

Mr. Rajesh and Mr. Brijesh, resident individuals, received ` 12 lakhs each on 1.4.2020 on maturity of life insurance policy taken on 31.3.2012 and 1.4.2012, respectively, the sum assured of which is ` 10 lakhs. They had paid an annual premium of ` 1.10 lakhs each. Are provisions of tax deduction at source attracted on maturity proceeds received by Mr. Rajesh and Mr. Brijesh?

During the P.Y.2020-21, Mr. Aakash has ` 80 lakhs of short-term capital gains taxable u/s 111A, ` 70 lakhs of long-term capital gains taxable u/s 112A and business income of ` 90 lakhs. Which of the following statements is correct?

An investment fund’s income for A.Y.2021-22 comprised of the following components:
(i) Business income ` 5 crore; and (ii)Capital loss ` 3 crore.
All the unit holders of the investment fund have held units in the investment fund for more than 12 months. What would be the tax treatment?

A Ltd., an Indian company, bought back its listed shares from its shareholders and B (P) Ltd., an Indian company, bought back its unlisted shares from its shareholders in the month of March, 2021. What are the tax consequences of such buyback in the hands of A Ltd., B (P) Ltd. and the shareholders?

Mr. Ganesh and Mr. Rajesh, resident Indians born on 1.7.1960 and 1.4.1941, respectively, have not furnished their returns of income for the P.Y.2020-21. However, the total income assessed in respect of such year under section 144 is ` 8 lakhs and ` 5 lakhs, respectively. Is penalty leviable under section 270A, and if so, what is the quantum of penalty?

M Ltd. and N Ltd. are Indian companies which have to pay interest of ` 2 lakhs and ` 1 lakh outside India to Mr. P, a non-resident, during the P.Y.2020-21 on rupee denominated bonds issued in January, 2019 and April, 2019, respectively. Which of the following statements is correct relating to liability of M Ltd. and N Ltd. to deduct tax at source on such interest payable to Mr. P?

Which of the following orders is not appealable before Commissioner (Appeals)?

Mr. Mahesh is found to be the owner of two gold chains of 50 gms each (value of which is ` 1,45,000 each) during the financial year ending 31.3.2021 but he could offer satisfactory explanation for` 50,000 spent on acquiring these gold chains. As per section 115BBE, Mr. Mahesh would be liable to pay tax of –

XYZ Ltd., a Foreign Institutional Investor (FII), has total income comprising of only short-term capital gains of ` 50 lakh on sale of listed equity shares and interest income referred under section 194LD of ` 15 lakh. What is the tax liability of the FII for the P.Y. 2020-21?

Mr. Jakir, a non-resident, wants to file an application before the AAR pertaining to tax implications arising in respect of a service contract entered into with an Indian company under the provisions of the Income-tax Act, 1961. He is of the opinion that the following persons can be a revenue member of a Bench of the AAR for the purpose of adjudicating his advance ruling application –
(I)A person from the Indian Revenue Service who is qualified to be a member of CBDT.
(II)A officer of the Indian Customs and Central Excise Service who is qualified to be a member of CBEC.
(III)A member from the Indian Legal Service, who is a Joint Secretary to the Government of India.
Identify, who can be a revenue member of a bench of the AAR for adjudicating his advance ruling application.

Mr. Ranveer, a non-resident, earned interest income of ` 6,20,000 during the P.Y. 2020-21 on bonds, issued by Tilt Ltd., an Indian company, under a scheme notified by the Central Government, which were purchased by him in foreign currency. Such interest is –

X Ltd. is engaged in the business of letting out of properties. As per the memorandum of association of X Ltd., letting out of properties is its main objective. The total income of X Ltd. comprises only of rental income from the business of letting out of properties. Y Ltd. is engaged in the construction and sale of properties, which is also its main objective as per its memorandum of association. Incidentally, it lets out some properties which are held as stock-in-trade and earns rental income therefrom. Which of the following statements is correct?

PQ Ltd. is a company having two units – Unit P carries on specified business of setting up and operating warehousing facility for storage of agricultural produce and Unit Q carries on specified business of setting up and operating warehousing facility for storage of edible oil. Unit P commenced operations on 1.4.2019 and claimed deduction of 120 lakhs incurred in April, 2019 on purchase of two buildings for ` 70 lakhs and ` 50 lakhs (for operating warehousing facility for storage of agricultural produce) under section 35AD for A.Y.2020-21. However, in March, 2021, Unit P transferred its building costing ` 70 lakhs to Unit Q. What are the tax implications of such transfer in the hands of PQ Ltd.?
(i) 70 lakhs would be deemed as business income in the hands of PQ Ltd. for A.Y.2021-22.
(ii) 63 lakhs would be deemed as business income in the hands of PQ Ltd. for A.Y.2021-22.
(iii)Actual cost of building for computing depreciation for P.Y.2020-21 would be ` 70 lakhs.
(iv)Actual cost of building for computing depreciation for P.Y.2020-21 would be ` 63 lakhs.
Which of the above statements are correct?

XYZ Ltd. engaged in the business of manufacture of steel, claimed deduction under section 80-IB on the profits and gains of business, which included transport subsidy, interest subsidy and power subsidy received from the Government and duty drawback receipts. XYZ Ltd. contended that all the above receipts are profits derived from the business of the industrial undertaking and are hence, eligible for deduction under section 80-IB. Is the contention of XYZ Ltd. correct?

During the P.Y.2020-21, HelpAid Charitable Trust registered under section 12AA received donations of ` 80 lakhs, out of which ` 10 lakhs were corpus donations and ` 20 lakhs were anonymous donations. The trust applied ` 40 lakhs towards its objects during the P.Y.2020-21. The tax liability of the trust for A.Y.2021-22 is –

In the course of search operations under section 132 in May, 2021, Mr. Hari makes a declaration under section 132(4) on the earning of income in respect of P.Y.2020-21 not disclosed in the books of account. Mr. Hari explains the manner in which income was derived and pays the tax, together with interest in respect of such income.However, he does not disclose such income in his return of income filed on 31.7.2021. Is penalty leviable in this case, and if so, what is the quantum of penalty?

A Ltd. filed its return of income for A.Y.2021-22 on 30th September, 2021. The return is selected for regular assessment under section 143(3). The time limit for service of notice u/s 143(2) in this case is –

Shipcargo Inc., a company based in Netherlands operating its ships to and fro Cochin port, collected freight of ` 85 lakhs, demurrage of ` 5 lakhs and handling charges of ` 2 lakhs in respect of goods shipped at Cochin port. It incurred expenses of ` 35 lakhs during the year for operating its fleet. In respect of goods shipped at Rotterdam, Netherlands, it received ` 50 lakhs in India. Its tax liability (rounded off) for the A.Y.2021-22 is –

Mr. Ganesh, a citizen of India, is employed in the Indian embassy in the USA. He is a non-resident for A.Y.2021-22. He received salary and allowances in the USA from the Government of India for the year ended 31.3.2021 for services rendered by him in the USA. In addition,he was allowed perquisites by the Government. Which of the following statements is correct?

Mr. Rajesh, a resident Indian, is an employee of M/s. ABC Ltd., Bangalore. In addition to the salary income from M/s. ABC Ltd., he also earns interest from fixed deposits. M/s. PQR Inc., a foreign company not having permanent establishment in India, rendered online advertisement services to Mr. Rajesh, for which Mr. Rajesh made a payment of ` 2 lakhs in the F.Y.2020-21.(i)The transaction is subject to equalisation levy since payment exceeding ` 1 lakh has been made for online advertisement services.
(ii)The transaction is subject to equalisation levy since payment is made by a resident to a non-resident not having permanent establishment in India.
(iii)Equalisation levy has to be deducted and paid by Mr.Rajesh.
(iv)Equalisation levy has to be paid by M/s. ABC Ltd.
(v)The rate of equalization levy is 6%.
(vi)The rate of equlisation levy is 2%.
(vii)The transaction is not subject to equalization levy. Which of the statements is correct?

Mr. A, aged 59 years, won ` 9 lakh and Mr. B, aged 50 years, won 8 lakh from lotteries. Tax deductible at source under section 194B was duly deducted. Assuming that this is the only source of income of Mr. A and Mr. B for A.Y.2021-22, are Mr. A and Mr. B liable to pay advance tax for that year?

Mr. Vallish, employed as Manager with ABC Ltd., pays rent of 50,000 per month to his landlord. Which of the following statements is correct?

Mr. X is aggrieved by an order passed under section 143(3) by the Assessing Officer. Mr. Y is aggrieved by an order passed under section 272A by the Director General. What is the remedy available to Mr. X and Mr. Y and the time limit within which they should exercise the remedy?

Mr. Ram Mohan, a non-resident, operates an aircraft between Malaysia and Cochin. He received the following amounts while carrying on the business of operation of aircrafts for the year ended 31.3.2021:
(i) 2 crores in India on account of carriage of passengers from Cochin.
(ii) 1 crore in India on account of carriage of goods from Cochin.
(iii) 3 crores in India on account of carriage of passengers from Malaysia.
(iv) 0.50 crore in Malaysia on account of carriage of passengers from Cochin.
(v)1.30 crores in Malaysia on account of carriage of passengers from Malaysia.
(vi) 1.20 crore in Malaysia on account of carriage of goods from Malaysia.
(vii) 0.50 crore in Malaysia on account of carriage of goods from Cochin
The total expenditure incurred by Mr. Ram Mohan for the purposes of the business during the year ending 31.3.2021 was ` 3 crores. What is the income of Mr. Ram Mohan chargeable to tax in India under the head “Profits and gains of business or profession” for the A.Y.2021-22?

As per section 245N(a)(iv), advance ruling means determination or decision by the Authority for Advance Rulings (AAR) whether an arrangement, which is proposed to be undertaken by a person is an impermissible avoidance arrangement as referred to in Chapter X-A or not. For making an application in this regard, the applicant has to be –

Gamma Ltd. has distributed on 15.12.2020, dividend of ` 460 lakhs to its shareholders. From April, 2020 to November, 2020, Gamma Ltd. has received dividend of ` 120 lakhs from domestic companies and 30 lakhs from a foreign company in which it has 5% shareholding. What is the deduction, if any, available to Gamma Ltd. in respect of such dividend?

Mr. Hari has income of ` 52 lakhs under the head “Profits and gains of business or profession”. One of his businesses is eligible for deduction@100% of profits under section 80-IA for A.Y.2021-22. The profit from such business included in the business income is ` 35 lakhs. What is the tax payable (rounded off) by Mr. Hari for A.Y.2021- 22, assuming that he has no other income during the P.Y.2020-21, and credit for alternate minimum tax, if any, to be carried forward?

A charitable trust, created on 1.4.2018 with the objective of relief of poor, applied for registration on 31.10.2019. The application was not disposed of by the Commissioner even after the expiry of the period of 6 months stipulated u/s 12AA(2). Which of the following statements is correct?

In the P.Y.2020-21, Mr. Ganguly, a resident individual aged 60 years, earned income from profession (computed) ` 1,45,000, winnings from card games ` 1,50,000 (gross). He also has interest of ` 40,000 on fixed deposit with banks and ` 9,000 on savings bank account with banks. He deposited ` 1,50,000 in PPF. What is the total income of Mr. Ganguly for P.Y.2020-21, assuming that he does not opt for section 115BAC?

Dinesh, a resident individual of age of 47 years, has not furnished his return of income for the A.Y. 2021-22. However, his total income for such year as assessed u/s 144 is ` 18 lakhs. Is penalty under section 270A attracted and if so, what is the quantum of penalty?

The assessment of M/s. Epsilon Associates for A.Y.2019-20 was made u/s 143(3) on 28th March, 2021. The Assessing Officer added ` 3 lakh being 30% of ` 10 lakh, for non-deduction of tax at source and ` 4 lakh on account of unexplained investments. The assessee contested the addition on account of unexplained investments in appeal before Commissioner (Appeals). The appeal was decided against the assessee in December, 2021. What is remedy available to the assessee in respect of disallowance under section 40(a)?