Income, Which Do Not Form Part Of Total Income – CMA Inter Direct Tax Study Material is designed strictly as per the latest syllabus and exam pattern.
Income, Which Do Not Form Part Of Total Income – CMA Inter Direct Tax Study Material
Short Notes
Question 1.
Write a short note on the following:
Provisions of Equalization levy as per the Finance Act. 2016. (June 2017, 5 marks)
Answer:
Provisions of equalization levy as per the Finance Act 2016:
In terms of the recommendations of the committee on taxation of e-commerce constituted by the CBDT on taxation of E-commerce, with effect from 01-06-2016, new chapter VIII has been inserted to provide for as under:
1. Charge of Equalization Levy: On and from the date of commencement of this Chapter VIII, there shall be charged on equalization levy at the rate of 6% of the amount of consideration for any specified service received or receivable by a person, being a non-resident from:
- a person resident in India and carrying on business or profession; or
- a non-resident having a permanent establishment in India.
2. When equalization levy Is not chargeable: Under section 165(2), the equalization levy shall not be charged where:
- The non-resident providing the specified service has a permanent establishment ¡n India and the specified service is effectively connected with such permanent establishment.
- The aggregate amount of consideration for specified service received or receivable in a previous year by the non-resident from a person resident in India and carrying on business or profession, or from a non-resident having a permanent establishment in India, does not exceed one lakh rupees; or
- Where the payment for the specified, service by the person resident in India, or the permanent establishment in India is not for the purposes of carrying out business or profession.
Distinguish Between
Question 2.
State the difference between Exemption u/s 10 and Deduction under Chapter VIA of the Income-tax Act, 1961. (Dec 2012, 3 marks)
Answer:
Difference between Exemption u/s 10 and Deduction under Chapter VIA
| Exemption u/s 10 | Deduction under Chapter VIA |
| (i) Exemption doesn’t form part of a total income. | (i) Deduction forms part of total income |
| (ii) Expenditure in relation to exempt income is not deductible. | (ii) Expenditure in relation to these incomes is deductible. |
| (iii) Deduction is normally allowed based on payment or fulfillment of specified conditions. | (iii) Income is normally exempts subject to certain conditions. |
Descriptive Question
Question 3.
What are the conditions for claiming exemption u/s 10(10C) of the Income-tax Act, 1961 reLating to Voluntary Retirement
Compensation? (Dec 2013, 3 marks)
Answer:
Conditions for claiming exemption under Section 10(10C) are:
- Compensation is received at the time of voluntary retirement or termination or voluntary separation;
- Compensation is received in accordance with the scheme of voluntary retirement! separation which is framed in accordance with prescribed guidelines;
- Maximum amount of exemption is ₹ 5,00,000;
- An individual who has retired under the voluntary retirement scheme should not be employed in another Company of the same management;
- He should not have received any other voluntary retirement compensation before from any other employer and claimed exemption;
- The person who has availed a relief under Section 89 in respect of compensation for voluntary retirement or separation or termination of service, will not be able to claim any exemption under Section 10(10C) for the same assessment year or any other assessment year.
Question 4.
There exists no difference in the treatment of income claimed as exempt u/s 10 with those entitled to deduction under chapter VI-A of the Income Tax Act, 1961. Do you agree with the statement? Justify your answer. (June 2014, 3 marks)
Answer:
The statement is not correct. There are differences between the two. The differences in the tre3tment of income claimed u/s 10 with those Chapter VI-A of the Income Tax Act, 1961 are as follows:
| Exemption u/s 10 | Deduction under Chapter VI-A |
| Income exempt does not form part of the total income | Income forms part of total income |
| Expenditure in relation to income exempt not deductible | Expenditure in relation to income deductible |
| It will not enter into the calculation of gross total income | It is a deduction from gross total income. Hence, the impugned income might enter the calculation up to gross total income. |
| Income exemption is normally subject to certain conditions | Deduction is normally allowed based on payment or fulfillment of certain conditions |
Question 5.
State the conditions to be satisfied by political party to avail income-tax exemption. (Dec 2014, marks)
Answer:
Section 13 A deals with tax exemption for incomes of political parallels. Any income of a political party which is chargeable under the head income from house property” or income from other sources” or “Capital gains” or any income by way of voluntary contributions received by a political party from any person shall not be included in the total income of the previous year of such political party.
- such political party keeps and maintains such books of accounts and other documents as would enable the Assessing Officer to properly reduce its income therefrom;
- in respect of each such voluntary contribution other than contribution by way of electoral bond in excess of 20,000, such political party keeps and maintains a record of such contribution and the name and address of the person who has made such contribution.
- the accounts of such political party are audited by an accountant as defined in the Explanation below sub-section (2) of section 288; an donation exceeding two thousand rupees is received by such political party otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account or through electoral bond.
Provided also that such political party furnishes a return of income for the previous year in accordance with the provisions..of sub-section (4B) of section 139 on or before the due date under that section.
Practical Questions
Question 6.
Decide the exemption/taxability of following receipts/recipients:
(i) Educational scholarship of 10,000 received from a charitable trust by a college student.
(ii) Rental income earned by a registered trade union.
(iii) Co-operatives formed for promoting the interest of scheduled tribes.
(iv) Dividend received from Indian companies by resident individuals and tax on such dividend paid by the company u/s. 115-O.
(v) Amount received by a non-resident towards compulsory acquisition of urban agricultural land in India by Central Government. (June 2013, 5 marks)
Answer:
(i) Educational scholarship is exempt in the hands of recipient regardless of the amount or source of scholarship [Section 10(16)].
(ii) Rental income of registered trade unions is exempt from tax. [Section 10(24)].
(iii) Income of cooperative society meant for promoting the Interests of members of scheduled tribes is exempt [Section 10(27)]
(iv) There is a change in the dividend taxation regime with the abolishment of dividend distribution tax in case of dividends paid/distributed by domestic companies after 1st April 2020, hence, Section 10(34) which provided exemption from dividends received (after payment of Dividend Distribution Tax) is provided with a sunset clause i.e., the exemption would not be applicable on income received by way of dividend on or after 1st April 2020.
(v) Amount received towards compulsory acquisition of urban agricultural land is exempt under Section 10(37) if the acquisition if such compensation is received after March 31, 2004, and the agricultural land was used by the assessee (or by any of his parents) for agricultural purposes during 2 years immediately prior to transfer. The residential status of the recipient has no bearing on the benefit of exemption.
Question 7.
Answer the following sub-divisions briefly in the light of the provisions of the Income-tax Act, 1961:
Giant Oil Inc. sold crude oil to HPCL, a company in India. The sale was made within India. Is the income arising from such sale liable to tax? (Dec 2013, 1 mark)
Answer:
As per Section 10(48), the income from sale of crude oil by foreign company to any person in India is exempt from tax-provided income received in India in Indian currency by a foreign company on account of sale of crude oil to any person in India.
Question 8.
MNO Ltd. commenced commercial production of its unit located in Special Economic Zone (SEZ) from 01 .04.2012. It furnishes the following information for the year ended 31.03.2023:
| Particulars | ₹ In lakhs |
| Total sales | 100 |
| Export sales | 50 |
| Profit earned | 30 |
Compute the deduction under section 10 AA and income chargeable to tax for the assessment year 2023-24. Your computation must be supported by reasons. (Dec 2015, 4 marks)
Answer:
U/s 10AA, 100% of the profit derived from export of articles or services is deductible for a period of 5 consecutive assessment years and 50% of profit are deductible for next 5 years and 50% of the profit are further deductible from 11th to 15th year provided on equivalent amount is debited to profit and loss account of the previous year and credited to special economic zone reinvestment allowance reserve account.
As per Section 10AA(7), the profit derived from export of things or services shall be the amount which bears to the profit of the business of the undertaking, being the unit, the same proportion as the export turnover in respect of articles or things or services bears to the total turnover of the business carried on by the undertaking:
Deduction u/s 10AA = \(\frac{\text { Profit of the unit } \times \text { export turnover }}{\text { Total turnover }} \times 50 \% \)
= \(\frac{30 \times 50}{100} \times 50 \%\)
Deduction u/s 10 AA will be ₹ 7.5 lakhs.
Question 9.
Discuss, with brief reasons, the taxability or otherwise of the following under the Income-tax Act:
(i) Agricultural income of ₹ 1,50,000 earned from land situated in Bihar by Mrs. Bhagyashree, a non-resident.
(iii) An amount of ₹ 4,00,000 withdrawn by Mr. Prakash, a resident individual from Public Provident Fund as per relevant rule. (Dec 2016, 2 x 2 = 4 marks)
Answer:
(i) Income from agricultural operations carried out on land situated in India is exempt under section 10(1) of the Income-tax Act both in case of residents and non-residents. In view of above, agricultural income of ₹ 1,50,000 from land situated in Bihar will not be liable to tax.
(iii) Amount withdrawn from Public Provident Fund is exempt under section 10(11) of the Income-tax Act. Hence, withdrawal of ₹ 4,00,000 by Mr. Prakash from Public Provident Fund as per relevant rule would not be chargeable to tax in his hands.
Question 10.
State the income-tax consequence of the following transactions:
A charitable trust registered under section 12AA sold in August 2022 its vacant land for ₹ 25 lakhs. The land was acquired in the year 2000 for ₹ 5 lakhs. The entire sale proceeds were kept in 3-year fixed deposit with SBI for construction of the community hall by the trust. (Dec 2021, 3 marks)
Answer:
Sale of capital asset by Trust [Section 11(1 A)]:
- When a capital asset held by a trust is transferred and the whole of the sale consideration ¡s utilized for acquiring another capital asset. The entire capital gain would be exempt from tax.
- In this case, the charitable trust has capital gain on sale of and. The entire sale consideration has been kept in fixed deposit which is one of the specified investments under section 11(5) of the Act. Therefore, the entire capital gain is not chargeable to tax as the sale consideration is kept in the form of approved investment.