Basis of Chargeability And Assignment - Taxation | Income Tax for assessment (Inter Level) PDF Download

Section 145. Basis of Chargeability
Method used to determine when revenues and expenses (with associated assets and liabilities) are recognized in the accounts of a person, and reported in its financial statements.
1. In accrual basis accounting, for example, revenues are recognized when earned and expenses are recognized when incurred, whether or not any cash is received or paid.
2. In cash basis accounting, however, revenues and expenses are recognized only when cash is received or paid, irrespective of the timing of actual sales or purchases.

Computation of Income from Other Sources

P1(Page 8.7) : Mr. X attends a Board Meeting at Delhi for which he receives a fees of Rs. 10,000. He incurs a travelling expenditure of Rs. 2,000 attending the Board meeting. Mr. X also gets interest on Central Govt. securities of Rs. 16,000. Collection charges being Rs. 100. Compute Income from Other Sources.

Solution

Computation of Income from Other Sources

P2R(Page 8.8): Mr. Taxcrazy furnishes the following particulars of his income for the relevant PY.
1. Interest on securities (held as investment) – collection charges Rs. 200.  - 5,000
2. Dividend from a foreign company – collection charges Rs. 9,000.     21,000
3. Dividend from an Indian company – collection charges Rs. 100.  -  2,000
4. Family pension  -  6,000 p.m.
5. Lottery income (Cost of lottery ticket Rs. 3,000)  -  7,000
6. Refund of income tax including interest of Rs. 200  -  1,200
7. Board sitting fees at Mahe (Rs. 2,000 incurred for travelling to Mahe)  - 10,000
8. Gift received from a friend on the occasion of his first wedding anniversary  - 51,000
Find out the income is chargeable under the head ‘Income from Other Sources.

Ans: 1,40,000. [4,800 + 12,000 + 0 + 57,000 + 7,000 + 200 + 8,000 + 51,000 =1,40,000]

P3(Page 8.8): Under which head following incomes are taxable.
1. Salary received as a Member of Parliament Rs. 8,000 p.m.
2. Income from articles published in the Business Today Rs. 20,000.
3. Remuneration received for the lectures delivered as a guest faculty in Law campus Rs. 26,500.
4. Remuneration received for working as an examiner of various universities Rs. 12,000.
5. He is author of many text-books. He received royalty of Rs. 8,00,000 in the PY. He claims the following deductions out of his income :
(a) Salary of a clerk Rs. 60,000.
(b) Books purchased for revising the books Rs. 20,000.
(c) Telephone expenses in connection with the printing and sale of book Rs. 10,000.
6. He has fixed deposits of Rs. 5,00,000 in ICICI Bank. He earned Rs. 14,000 (gross) as interest on such deposits.
7. He earned Rs. 2,000 from Playwin lottery. He had spent Rs. 200 during the PY on the purchase of lotteries ticket.
8. He got an income of Rs. 9,800 from agricultural land in Japan and Rs. 3,500 from another agricultural land in Tamilnadu.
9. His other incomes are :
(a) Interest received from bonds of the Government of Germany Rs. 6,000 (gross).
(b) Winning from chess game, card game and betting Rs. 20,000.
(c) Received interest on RBI Relief bonds for a nominal value of Rs. 1,00,000 @ 9% p.a.
(d) Interest from Public Provident Fund Rs. 5,000.
(e) Interest on Post Office (CTD) Scheme Rs. 1,520.
10. He purchased a plot of land on 1-7-2016 for constructing a house for himself. On account of remaining busy he could not get the house constructed. Hence on 1-1-2017 he let out this land on a rent of Rs. 6,000 p.m.
11. Dividend from Foreign Company declared on 1-3-2017 received on 1-4-2017 Rs. 6,000.
12. Mr. X is a director of a company. From there he received salary of Rs. 45,000, entertainment allowance Rs. 15,000 and fees of Rs. 2,500. He spent on entertainment in respect of the work of the company Rs. 6,000. Both the company and the director contributes Rs. 5,500 each to recognised provident fund.

13. Mr. X has worked as invigilator for 45 days in annual examination conducted by the ICAI in May 2016 and November 2016 and received Rs. 2,000 as his remuneration for the same in December 2016.
14. He maintains horses for horse race. During the PY he earned Rs. 40,000 from his business. The income was calculated before deduction of Rs. 10,000 for expenses which were related to this business.
15. Nestle Swiss Ltd. (a foreign company) proposed an Interim dividend of Rs. 3,000 on February 2016. Dividend warrants posted in April 2016 and payment received in May 2016.
16. Interest on public deposits from a company Rs. 20,000. Bank commission charged @ 2%.
17. Dividend from a Co-operative society of Rs. 1,000. Bank commission charged @ 1%.
18. Interest on listed debentures of Dipa Ltd. Rs. 6,000. Bank commission charged @ 2%.
19. On 1st June, 2016 he hired a house at a rent of Rs. 3,000 per month and sub let the half portion of this house on the same day to another person at a rent of Rs. 2,500 per month.
20. Interest on NSC VIII issue re-invested. Rs. 1,65,000.
21. Interest on saving account in post office. Rs. 13,500.

Ans: (1) OS (2) OS (3) OS (4) OS (5) OS Rs. 7,10,000 (6) OS Rs. 14,000 (7) OS Rs. 2,000 (8) OS Rs. 9,800.

Agricultural income from Tamil Nadu is exempt (9) (a) OS (b) OS (c) Exempt (d) Exempt (e) Exempt u/s 10(15) (10) OS Rs.18,000 (11) OS taxable in the year 2016-17 (12) OS 45,000 + 15,000 + 2,500 – 6,000 RPF 5,500 – 12% of Rs. 45,000 = 100 (13) OS (14) OS Rs. 30,000 (15) OS 2016-17 (16) OS Rs. 19,600 (17) OS Rs. 990 (18) OS Rs. 5,880 (19) OS Rs. 10,000 (20) OS Rs. 1,15,000. Deduction u/s 80C allowed Rs. 1,50,000 (21) Other Sources. Rs. 3,500 exempt u/s 10(15). Deduction u/s 80TTA allowed Rs. 10,000.

P4(Page 8.9): From the following particulars, compute the gross total income of Radha :
(i) She is employed on a part time basis in a fashion designing firm on a monthly salary of Rs. 5,000.
(ii) She has a house property situated in Delhi which has been let out at a rent of Rs. 3,000 p.m.
(iii) She holds the following shares and securities :
• 1,000 Equity shares in X Ltd. of Rs. 10 each, bought @ Rs. 40 per share.
• Rs. 20,000, 8% ICICI Bonds.
• 1,000, 12% Preference shares of Rs. 100 each in Rosa Ltd. a foreign company. Dividend received on 25th March, 2017.
• X Ltd. an Indian company declared 18% equity dividend on 25th March, 2016, but the cheque was received subsequent to 31st March, 2017. Other interest and dividends were, however, duly received.
(iv) She had set up a factory with building, plant, machinery, furniture, etc. However, she decided to give it on hire at a composite rent of Rs. 12,000 p.m. During the year, she spent Rs. 15,000 for repairs and Rs. 5,000 for insurance of the factory. The depreciation allowable is Rs. 50,000. She had borrowed Rs. 5,00,000 interest thereon. The amount was spent for marriage of her brother. [CS J04]

Ans: 1,72,800. [Sal 60,000+ HP 25,200+ Int 1,600+ Div 12,000+ Rent 74,000=1,72,800]

P5 : Mr. A is a resident Indian. During the F.Y. interest of Rs. 92,000 was credited to his Non-resident (External) Account with the SBI Rs. 20,000 being interest on fixed deposit with SBI was credited to his savings bank account during this period. He also earned Rs. 4,000 as interest on this savings account.

Ans : Rs. 92,000 is exempt from tax u/s 10(4). Other Interest of Rs. 20,000 + 4,000 = 24,000 – 4,000 = 20,000 is taxable under the head ‘Other Sources’. 80TTA deduction allowed.

P6(Page 8.9): X (42 years) gives the following information for the previous year 2016-17 :
1. On December 1, 2016, he gets gift of House A from his friend B (stamp duty value is determined at Rs. 6,00,000).
2. On December 3, 2016, he gets gift of House B from C (who is father-in-law of his elder brother) (stamp duty value is Rs. 40,000, however, current market value is Rs. 65,000).
3. On December 7, 2016, X purchases a second hand car for Rs. 70,000 from D (market value is, however, 3,00,000.
4. On December 14, 2016, X purchases a work of art for Rs. 5,00,000 from E (fair market value is Rs. 5,30,000).
5. On December 20, 2016, X purchases jewellery for Rs. 7,00,000 from F (fair market value is Rs. 7,25,000).
F is not a registered dealer.
6. On December 21, 2016, X purchases a painting for Rs. 4,00,000 from G (who is brother of Mrs. X)
(fair market value is Rs. 7,00,000).
7. On December 24, 2016, X purchases a commercial property for Rs. 20,00,000 from H (stamp duty value is Rs. 90,00,000).
8. On December 25, 2016, X gets a gift of 100 preference shares in A Ltd. from J, stock exchanges are closed, the lowest quotation on the immediate preceding working day in National Stock Exchange is Rs. 45).
9. On January 25, 2017, X gets a gift cheque of Rs. 1,00,000 from his friend L on his birthday.
10. On January 28, 2017, minor son of X gets the gift of Rs. 55,000 from elder brother of X’s grandfather.
Determine the amount of net income of X for the assessment year 2017-18.

Solution :