NMIMS Global Access

School for Continuing Education (NGA-SCE)

Course: Taxation - Direct & Indirect
Internal Assignment
Examination

Applicable

for

December

2016

Assignment Marks: 30
Instructions:

All Questions carry equal marks.

All Questions are compulsory

All answers to be explained in not more than 1000 words for question 1
and 2 and for question 3 in not more than 500 words for each
subsection. Use relevant examples, illustrations as far as possible.

All answers to be written individually. Discussion and group work is not

advisable.

Students
are
free
to
refer
to
any
books/reference
material/website/internet for attempting their assignments, but are not
allowed to copy the matter as it is from the source of reference.

Students should write the assignment in their own words. Copying of

assignments from other students is not allowed

1. Mrs Mangla owns a house. It is given on rent to a post office. Municipal value of
the property is Rs230,000. Fair rent is 240,000 and standard rent is Rs
234,000.Muncipal taxes paid by Mrs Mangla is Rs 50000 on March15,2015 and
Rs 55000on May15,2015. On May 1, 2015, rent is increased from Rs 15,000 to
20,000 per month with retrospective effect from April 1,2014Arrears of rent of
2014-15 are paid on May1, 2015. Find out the income chargeable to tax for the
assessment year 2015-16 and 2016-17.

(10 Marks)

Gross Annual Value

on the assumption that rent is Rs. 15000 pm for the PY 2014-15 and Rs.
20000 for PY 2015-16

Assessment Ye
2015-16

Municipal Value

2,30,000

Fair Value

2,40,000

Standard Rent
Step I - Reasonable expected rent i.e. higher of MV or FV, but subject to
max of SR
Step II- Rent received/ receivable after deducting unrealised rent but before
adjusting loss due to vacancy

2,34,000

Step III- Greater of step I and II

Step IV- Loss due to vacancy

2,34,000
0

Step V- Gross Annual Value

Less: Municipal Taxes

2,34,000
50,000

Net Annual Value

Less: Standard deduction of 30 percent u/s 24

1,84,000
55,200

Income from property

Arrears of rent of the PY 2014-15 paid on May 1, 2015

1,28,800

2,34,000
1,80,000

201
2,30
0
2,40
0
2,34
0
2,34
0
2,40
0
2,40
0
0
2,40
0
55,
1,85
0
55,
1,29
0

2,40
0
2,34
0
6,0
1,8
4,2

Gross Annual Value of py 2014-15 if rent is Rs. 20000 pm

Less: gross annual value considered earlier
Arrears of rent
Less: 30 percent of 6000
Amount taxable
Income from House property

1,28
0
1,33
0

AY 2015-16
AY 2016-17

2. Mr Amaar purchased a land for 50 lacs and a building for 48 Lac for business
purpose. He wants to claim depreciation on both. As a tax consultant advise him
and also explain the conditions he should satisfy to claim depreciation.
(10 Marks)

Solutiono Land is not applicable for depreciation u/s 32 of the Income Tax Act,
1961
o Building is allowed to be depreciated 10 percent on WDV method

Assuming that the building was purchased at the start of the py and has
been used for more than 180 days
Amount in Rupees
Actual cost of building purchased
4,800,000.00
Less: Depreciation @ 10 percent
480,000.00
Depreciated value of the asset at the end of the py
4,320,000.00

Depreciation will be calculated as 10 percent of Rs. 4,320,000 in the next py and so on

using WDV method
Conditions required to be fulfilled to claim depreciation

Depreciation is allowable as expense in Income Tax Act, 1961 on basis of block

of assets on Written Down Value (WDV) method.

Block of assets means group of assets falling within a class of assets for which
same rate of depreciation is prescribed.

Depreciation is allowable only to the owner of the asset- It is not necessary that
the taxpayer should be the registered owner of the asset. If a person acquires a
building by satisfying conditions of section 53A of Transfer of property Act [i.e.,
under a Power of Attorney Transaction], depreciations available even if he is not
the registered of the building - Mr. Aman is the owner therefore this condition is
fulfilled

Asset must be used for the purpose of business or profession Any forced
idleness of the machinery cannot disentitle the taxpayer form getting the benefit
of depreciation allowance. If an asset is used partly for business purpose and
partly for other purposes, proportionate depreciation is available. This condition
is also fulfilled

User of the asset in the previous year-the asset, in respect of which depreciation
is claimed, must have been used for the purpose of business during the relevant
previous year. Even if an asset is used for a few days (or even for a few hours)
during the previous year, depreciation for the entire year is available.However.in
the first year, in which an asset is acquired, the asset should be used at least for
180 days to claim fully years depreciation (if it is used for less than 180 days,
half years depreciation in the first year in which the asset is acquired)

Depreciation is available on tangible (building, machinery, plant or furniture) as

well as intangible assets (know-how, patents, copyrights, trademarks, licences,
franchises, etc)

3. a) ZARA International is a Spanish clothing and accessories retailer based in

Arteixo. The company established one of its subsidiary company in India to sell
the clothes and accessories of the non-resident parent company. Can these
intimate connections between these two can be termed as business connection?
Elaborate and illustrate with regard to the same.

(5 Marks)

Solution
Section 9 specifies certain types of income that are deemed to accrue or arise in India
in certain circumstances. Section5 and 9 embody the source rule of income taxation
in the domestic law. No income of a non-resident can be taxed in India unless it falls
within the four corners of section 5 read with section 9 of the Income-tax Act.
Section 9(1) of the I.T. Act specifies that for the income to be taxed in India, it should
be deemed to accrue or arise in India. And one among those incomes are income
from business connection in India.
The current situation falls under the ambit of a business connection since the
subsidiary company established in India by ZARA International has been set up to
carry out the sale of its clothes and accessories in India. Therefore, all income that
the subsidiary company earns would be considered as taxable in India as it is deemed
to accrue in India and is not a foreign income.

3. b) SecuritiesTransaction Tax (STT) is levied on every purchase or sale of

securities to stop tax avoidance of capital gains. Do all types of
securities/transactions falls in the scope of STT. Discuss the same with the
current rates of STT.

(5 Marks)

Solution
STT is levied on every purchase or sale of securities that are listed on the Indian
stock exchanges. This would include shares, derivatives or equity-oriented mutual
funds units. The rate of tax that is deducted is determined by the central
government, and it varies with different types of transactions and securities. STT
is deducted at source by the broker or AMC, at the time of the transaction itself,
the net result is that it pushes up the cost of the transaction done.
Scope of STT
According to the Securities Contracts (Regulation) Act, 1956, STT would be
applicable on following securities.

Shares, bonds, debentures, debenture stock or other marketable securities

of a like nature in or of any incorporated company or other body corporate

Derivatives

Units or any other instrument issued by any collective investment scheme

to the investors in such schemes

Security receipt as defined in section 2(zg) of the Securitisation and

Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002

Government securities of equity nature

Rights or interest in securities

Equity-oriented mutual funds

STT is not applicable for any off-market transaction

STT applicable for Equity Transactions

Delivery
Transactions:
Purchase: 0.10% of Turnover i.e. (Number of Shares * Price)
Sell: 0.10% of Turnover i.e. (Number of Shares * Price)
Intra-day
Transactions:
Purchase:
NIL
Sell: 0.025% of Turnover i.e. (Number of Shares * Price)

STT applicable for Derivative Transactions

Future
Transactions:
Purchase:
NIL
Sell: 0.010% of Turnover i.e. (Number of Lots * Lot Size * Price)
[Note: STT rate on Sale of Future in securities has been revised from
0.017% to 0.010% vide the 2013 Budget effective 1st June 2013]
Option
Transactions:
Purchase: NIL at the time of purchase of option. However the
purchaser has to pay 0.125% of the Settlement Price i.e. (Number of
Lots * Lot Size * Strike Price), in case of option exercise
Sell: 0.017% of Premium

Summary of the STT rates is given in the table below:

Product
Equity-Delivery
Equity-Intraday
Future
Option

Transaction
Purchase
Sell
Purchase
Sell
Purchase
Sell
Purchase
Sell

STT rate
0.10%
0.10%

0.025%

0.010%
0.125%
0.017%

Charged on
Turnover
Turnover

Turnover

Turnover
Settlement price, on exercise
Premium

Note that the STT rates were revised in 2012 Budget and the above rates came in effect
from 1st July 2012. STT rates for Equity Delivery transactions (Both Purchase and Sale
transaction) was reduced from 0.125% to 0.10%.

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