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TaxLawsJune11 Answer1(a) a) b) c) d) e) Rs.2000 Rs.30000 Reimbursementoftravellingexpenses Compensationreceivedfrominsurancecompanyonaccountoflossofcrop Rs.

300000

Answer1(b) I. II. III. IV. V. Oneyear Rs.1500000 MultipleofRs.10 Totalincome 30thSeptember

Answer1(c) ComputationofValueofPerquisite MonthEnding May2010 June2010 July2010 August2010 September2010 October2010 November2010 December2010 January2011 February2011 March2011 Total InterestonRs.4180000@10%p.a. (4180000*10*1)/1200=Rs.34833 Answer2(a) I. II. False:Unabsorbeddepreciationcanbecarriedtowardsindefinitely False:Speculationlossescannotbesetoffagainstnonspeculativegains.However,theloss ofnonspeculationbusinesscanbesetoffagainsttheincomefromspeculativebusiness Maximumamountofloanoutstanding 480000 460000 440000 420000 400000 380000 360000 340000 320000 300000 280000 4180000

III. IV. V.

False:nodeductionisallowedinrespectofanyexpenditureorallowanceincomputingthe incomebywayoflotteriescrosswordpuzzlesetc False:Whenzerocouponbondsareheldformorethan12monthssuchbondsshallbe treatedaslongtermcapitalassets. False:Clubbingprovisionsarenotapplicableontheincomeofminorchildonaccountof manualworkorsufferingfromanydisabilityofnaturespecifiedinsection80U

Answer2(b) ComputationoftotalIncomeofAnurag FortheAY201112 Incomefromsalary Incomefromhouseproperty 40000 Less:Businesslossadjusted 10000 BusinessLoss 190000 Less:setoffagainstcapitalgain 180000 less:setoffagainsthouseproperty 10000 Lossfromspecifiedbusinessnotallowedtobeset off 60000 Incomefromcapitalgain longtermcapitalgain 240000 less:shorttermcapitalloss 60000 180000 Less:Businesslossadjusted 180000 GrosstotalIncome Less:Deductions TotalIncome UptoRs.160000 Nil FromRs.160001toRs.500000 10% thereforetaxonRs.50000@10%plus3%educationandSHECtax Rs.5,150 Answer3(a) Exemptionshallbeallowedtotheextentoftheminimumofthefollowingamounts a)Amountofgratuityreceived Rs.4,19,800 b)15dayssalaryforeveryyearofservices (14060*15*30/26) Rs.2,43,346 c)Rs1000000 ThereforeRs.243346isexemptfromtax Answer3(b) ComputationofNetwealthofMrs.Sarita 180000 30000 Nil nil 210000 Nil 210000

FortheAssessmentYear201112 i)HousepropertyatIndore Exempt ii)FDinaNationalizedBank Notanasset iii)FDfor5yearsinachitfund Notanasset iv)Agriculturalland&equipment Notanasset v)Cars 1487000 vi)Ornaments 1360000 vii)shareapplicationmoney Notanasset viii)CashinhandinexcessofRs.50000 180000 ix)Propertyinthenameofminorson 50000 Grosswealth 3077000 less:liabilities nil Netwealth 3077000 wealthtaxshallbe@1%inexcessofnetwealthofRs.3000000thatisRs.770 Answer3(c) EnhancedcompensationofRs.900000Rs.240000=Rs.660000shallbetaxableundertheheadcapital gain.Whereasinterestonenhancedcompensationshallbetaxableundertheheadincomefrom othersourcesasunder: Interestonenhancedcompensationreceived Less:deduction@50% BalanceTaxable Answer4(a) IncomeofHarianonresidentshallbechargeabletotaxforAY201112asunder RoyaltyreceivedbyhimoutsideIndiafromtheGovernmentofIndia TechnicalfeesreceivedfromanIndiancompanyinGermanyforadvice givenbyhiminrespectofaprojectsituatedinIran IncomefromabusinesssituatedinSriLanka(goodsaresoldinSriLanka, saleconsiderationisreceivedinSriLankabutbusinessispartlycontrolled inSriLankaandpartlyinIndia) IncomereceivedinNepalfromabusinessconnectioninIndia GiftinforeigncurrencyfromafriendreceivedinIndiaon20thJanuary, 2011 Pastuntaxedprofitof200001broughtinIndiaon10thApril,2010 Total Answer4(b)(i)Referanswertoquestionno.2008Dec[3](b) nil Rs.240000 Rs.120000 Rs.120000

17000

nil

317000 80000 414000

nil

Answer4(b)(ii)Slabrateandflatrate Slabrateoftaxisataxbywhichthetaxrateincreasesasthetaxablebaseamountincreases.Slab taxesattempttoreducethetaxincidenceofpeoplewithalowerabilitytopay,astheyshiftthe incidenceincreasinglytothosewithahigherabilitytopay. Flatrateoftaxisataxsystemwithaconstanttaxrate.Anincometaxhavingasinglerateforall taxpayersregardlessoflevelandtype.Flatrateoftaxesofferssimplicityinthetaxationsystem. Answer4(b)(iii)Referanswertoquestionno.2009June[3](a)(ii) Answer4(b)(iv)Referanswertoquestionno.2008June[4](b)(iii) Answer4(b)(v) SummaryassessmentandScrutinyassessment Undersummaryassessment,AssessingOfficercompletestheassessmentwithoutpassinga regularassessmentorder.TheAssessingOfficerissueanacknowledgement/intimationundersection 143(1)oftaxpayableorrefundableasthecasemaybeonthebasisofReturnofIncomefiledbythe assesseeundersection139orinresponsetoanoticeissuedundersection142(1).TheAssessing Officer(AO)processesthereturninthefollowingmanner: (1) Thetotalincomeorlossaftermakingadjustmentforanyarithmeticerrorinthereturnorfor anyincorrectclaimwhichisapparentfromanyinformationinthereturniscalculated (2) Thenthetaxandinterest,ifany,onthebasisofthetotalincomecomputedinstep(1)is computed. (3) Nowfollowingadjustmentsaremadetothetaxandinterestcalculatedabovetodetermine thesumpayablebytheassesseeoranyamountofrefundduetohim; taxdeductedatsource. Anytaxcollectedatsource, Anyadvancetaxpaid. UnderScrutinyAssessment:theassessingofficermayserveanoticeundersection 143(2)requiringtheassesseetosubmittheadditionalevidencetosupportthereturnofthe incomefiledbyhimundersection139or142(1).Theassesseecamalsobeaskedtoattend theofficeoftheAOorproducetheevidencebythedatementionedinthenotice.TheAO thenmakestheassessmentoftotalincomeorthelossoftheassesseeanddeterminethe sumpayablebyhimorrefundduetohim.Theassessmenthastobemadeaftertakinginto considerationsuchevidenceproducedbytheassesseeandallrelevantmaterialgatheredby him. Answer5(a)(i) Whereanycapitalexpenditureisincurredbytheassesseeforacquiringanyrighttooperate telecommunicationservicesandforwhichpaymenthasactuallybeenmadetowhichthelicensea deductionwillbeallowedinequalinstalmentsovertheperiodforwhichthelicenseremainsin forcesubjecttothefollowing (1) Ifsuchamountispaidbeforethecommencementofsuchbusinessthedeductionshallbe allowedforthepreviousyearbeginningwiththepreviousyearinwhichsuchbusinessis commenced

(2) Ifthefeeispaidafterthecommencementofsuchbusinessthedeductionshallbeallowed forthepreviousyearsbeginningwiththepreviousyearinwhichthelicensefeeisactually paid Answer5(a)(ii) If any such person and in the cases referred to in section 194, the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax: Provided that no penalty shall be charged under section 221 from such person, principal officer or company unless the [ Assessing] Officer is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons] failed to deduct and pay the tax Without prejudice to the provisions of sub- section (1), if any such person, principal officer or company as is referred to in that subsection does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at [ fifteen] per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid Where the tax has not been paid as aforesaid after it is deducted, 3[ the amount of the tax together with the amount of simple interest thereon referred to in sub- section (1A)] shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub- section (1) Answer5(a)(iii) (1) Where any business or profession carried on by an association of persons has been discontinued or where an association of persons is dissolved, the Assessing Officer shall make an assessment of the total income of the association of persons as if no such discontinuance or dissolution had taken place, and all the provisions of this Act, including the provisions relating to the levy of a penalty or any other sum chargeable under any provisions of this Act, shall apply, so far as may be, to such assessment (2) Without prejudice to the generality of the foregoing sub-section, if the Assessing Officer or the Commissioner (Appeals) in the course of any proceeding under this Act in respect of any such association of persons as is referred to in that sub-section is satisfied that the association of persons was guilty of any of the acts specified in Chapter XXI, he may impose or direct the imposition of a penalty in accordance with the provisions of that Chapter (3) Every person who was at the time of such discontinuance or dissolution a member of the association of persons, and the legal representative of any such person who is deceased, shall be jointly and severally liable for the amount of tax, penalty or other sum payable, and all the provisions of this Act, so far as may be, shall apply to any such assessment or imposition of penalty or other sum

(4) Where such discontinuance or dissolution takes place after any proceedings in respect of an assessment year have commenced, the proceedings may be continued against the persons referred to in sub-section (3) from the stage at which the proceedings stood at the time of such discontinuance or dissolution, and all the provisions of this Act shall, so far as may be, apply accordingly Answer5(a)(iV)

Where any tax is payable on the basis of any return required to be furnished under section 139 or section 148 or section 148 or, as the case may be, section 158BC, after taking into account the amount of tax, if any, already paid under any provision of this Act, the assessee shall be liable to pay such tax, together with interest payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax and interest. After a regular assessment under section 143 or section 144, or an assessment under section 158BC has been made, any amount paid under sub-section (1) shall be deemed to have been paid towards such regular assessment or assessment, as the case may be 1472c If any assessee fails to pay the whole or any part of such tax or interest or both in accordance with the provisions of sub-section (1), he shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of the tax or interest or both remaining unpaid, and all the provisions of this Act shall apply accordingly.
Answer5(b) ComputationofTotalIncomeofMs.Rajni fortheAssessmentYear201112 Incomeundertheheadsalary(20000*12) Add:Cashgiftfromemployer lessDeduction Incomefromothersources I)Giftfromafriendisincludible ii)Giftofjewelleryistaxable iii)GiftofRs.50000fromherhusband'sFriend iv)GiftofRs.21000fromhermothersfriendsisincluded v)Giftfromherbrothersfatherinlawistaxableasdonor TotalIncome Answer6(a) 240000 26000 266000 Nil 266000 500000 300000 50000 21000 26000 897000 1163000

Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.
Answer6(b)ifanindividualwritesabookheshallbeallowedadeductionforhisgrosstotalincome undersection80QQBoftheact

80QQB. (1) Where, in the case of an individual resident in India, being an author, the gross total income includes any income, derived by him in the exercise of his profession, on account of any lump sum consideration for the assignment or grant of any of his interests in the copyright of any book being a work of literary, artistic or scientific nature, or of royalty or copyright fees (whether receivable in lump sum or otherwise) in respect of such book, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such income, computed in the manner specified in sub-section (2). (2) The deduction under this section shall be equal to the whole of such income referred to in sub-section (1), or an amount of three lakh rupees, whichever is less: Provided that where the income by way of such royalty or the copyright fee, is not a lump sum consideration in lieu of all rights of the assessee in the book, so much of the income, before allowing expenses attributable to such income, as is in excess of fifteen per cent of the value of such books sold during the previous year shall be ignored: Provided further that in respect of any income earned from any source outside India, so much of the income shall be taken into account for the purpose of this section as is brought into India by, or on behalf of, the assessee in convertible foreign exchange within a period of six months from the end of the previous year in which such income is earned or within such further period as the competent authority may allow in this behalf. (3) No deduction under this section shall be allowed unless the assessee furnishes a certificate in the prescribed form and in the prescribed manner, duly verified by any person responsible for making such payment to the assessee as referred to in sub-section (1), along with the return of income, setting forth such particulars as may be prescribed. (4) No deduction under this section shall be allowed in respect of any income earned from any source outside India, unless the assessee furnishes a certificate, in the prescribed form from the prescribed authority, along with the return of income in the prescribed manner. (5) Where a deduction for any previous year has been claimed and allowed in respect of any income referred to in this section, no deduction in respect of such income shall be allowed under any other provision of this Act in any assessment year. Explanation.For the purposes of this section, (a) author includes a joint author; (b) books shall not include brochures, commentaries, diaries, guides, journals, magazines, newspapers, pamphlets, text-books for schools, tracts and other publications of similar nature, by whatever name called;

(c) competent authority means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange; (d) lump sum, in regard to royalties or copyright fees, includes an advance payment on account of such royalties or copyright fees which is not returnable.]
Answer6(c) ComputationofTaxableCapitalGainsofGoverdhan FortheassessmentYear201112 SaleproceedsofPlot LessBrokerage@2% NetSalesProceeds LessIndexedcostofacquisition97800*711/100 Less:Deductionundersection54F CapitalGain*costofnewhouse/netsalesproceed 706042*687000/1401400 TaxableCapitalGain Answer7(i) AdvanceRulinginServiceTax AdvancerulingmeansthedeterminationbytheAuthority,ofaquestionoflaworfacts specifiedintheapplicationregardingtheliabilitytopayservicetaxinrelationtoaserviceproposed tobeprovidedbytheapplicant. Applicantmeans (i) (a)anonresidentsettingupajointventureinIndia;or (b)aresidentsettingupajointventureincollaborationwithanonresident. (c)awhollyownedsubsidiaryIndiancompanyofwhichtheholdingcompanyisaforeign companywhoorwhich,asthecasemaybe,proposestoundertakeanybusinessactivity inIndia; (ii) ajointventureinIndia;or (iii) aresidentfallingwithinanysuchclassorcategoryofpersons,astheCentralGovernment may,bynotificationintheOfficialGazette,specifyinthisbehalf. Anapplicantdesirousofobtaininganadvancerulingmaymakeanapplicationinsuchformand insuchmannerasmaybeprescribedstatingthequestiononwhichtheadvancerulingissought. Answer7(ii) 1430000 28600 1401400 695358 706042 346119 359923

1. FilltheFormST1induplicate.EnclosephotocopyofPANcardandproofofaddresstobe registered. 2. CopyofPANcardisnecessaryasaPANbasedcode(ServiceTaxCode)isallottedtoevery assessee. 3. These forms are required to be submitted to the jurisdictional Central Excise office ( in case of six Service Tax Commissionerates, to the jurisdictional Division office. There are separate service tax commissionerates in Mumbai, Chennai, Delhi, Kolkata, Bangalore and Ahmedabadasmentionedinthepreviouschapter). 4. A person liable to pay service tax should file an application for registration within thirty daysfromthedateonwhichtheservicetaxonparticulartaxableservicecomesintoeffect orwithinthirtydaysfromthecommencementofhisactivity. 5.Whereaperson,liableforpayingservicetaxonataxableservice, (i)providessuchservicefrommorethanonepremisesoroffices;or (ii)receivessuchserviceinmorethanonepremisesoroffices;or, iii)ishavingmorethanonepremisesoroffices,whichareengagedinrelationtosuchservice inanyothermanner,makingsuchpersonliableforpayingservicetax, andhascentralisedbillingsystemorcentralisedaccountingsystem inrespectofsuch service, and suchcentralisedbillingorcentralisedaccountingsystemsare locatedinoneormorepremises,he may, at his option, register such premises or offices from where centralised billing or centralised accountingsystemsarelocated. 6. The registration under subrule (2), shall be granted by the Commissioner of Central Excise in whose jurisdiction the premises or offices, from where centralised billing or accountingisdone,arelocated: Providedthatnothingcontainedinthissubruleshallhaveanyeffectontheregistrationgrantedto thepremisesorofficeshavingsuchcentralisedbillingorcentralisedaccountingsystems,priortothe 2nddayofNovember,2006. 7. A single registration is sufficient even when an assessee is providing more than one taxableservices.However,hehastomentionalltheservicesbeingprovidedbyhiminthe applicationforregistrationandthefieldofficeshallmakesuitableentries/endorsementsin theregistrationcertificate. 8.Anassesseeshouldgettheregistrationcertificate(registrationnumber)within7daysfromthe dateofsubmissionofformS.T.1,undernormalcircumstances. 9.Afreshregistrationisrequiredtobeobtainedincaseoftransferofbusinesstoanotherperson.

10. Any registered assessee when ceases to provide the taxable service shall surrender the registrationcertificateimmediately. 11. Incasearegisteredassesseestartsprovidinganynewservicefromthesamepremises,he need not apply for a fresh registration. He can simply fill in the Form S.T.1 for necessary amendments he desires to make in his existing information. The new form may be submitted to the jurisdictional Superintendent for necessary endorsement of the new servicecategoryinhisRegistrationcertificate. Answer7(iii) Duedateforpaymentofservicetax;Rule6(1)providesthatservicetaxmustbepaidbythedue date.Theprescribedduedatesareasfollows: (a) Forindividuals/proprietaryfirms/partnershipfirms Thepaymenthastobemadeeveryquarters.Theduedateofpaymentisupto5thofthe month(6thdayiftaxisdepositedelectronically)immediatelyfollowingthesaidquarter. (b) Forother(companyandHUF) Thepaymenthastobemadeeverycalendarmonth.Theduedateofpaymentisupto5thof themonth(6thdayoftaxisdepositedelectronically)immediatelyfollowingthesaidcalendar month. Rateofinterestfordelayedpayment:Iftheservicetaxispaidaftertheduedate,simpleinterestis paid@13%forlatepaymentoftaxfortheperiodofdelay. Penaltyfordefaultinpaymentofservicetax:ifservicetaxisnotpaidorpaidafterduedates penaltycanbeimposedwhichwillbeequalto: (a) Rs.200perdayduringwhichthefailurecontinues,or (b) 2%permonthduringwhichthefailurecontinueswhicheverishigher. However,thepenaltyamountpayableshallnotexceedtheamountofservicetax. Answer7(iv) TaxableServicesandtheirvaluation ServicestaxappliestotaxableservicesprovidedonorafterJuly1,1994.Section66ofthe FinanceAct,1994isthechargingsection.Notallservicesareliableforservicetax.Onlythose serviceswhicharespecifiedinSection65(105)areliabletoservicetax. Theconsiderationforataxableserviceshallbethegrossamountchargedbyservice providerfortheserviceshallbecalculatedasunder Valueoftaxableservices=(grossamountcharged)/(100+Rateofservicetax)*100 Answer7(V) a) July1,1994 b) 10.3%

c) Rs.900000 d) Jammu&Kashmir e) 25thofthemonth Answer8(i)


Advantages of VAT In the advantages part we will first look after the broad coverage of VAT in the Indian market. Then we will consider the level of security the Indian VAT is having on our revenues. Obviously the selection of items to be covered by VAT in India will be given a bullet to think upon and at last we will check out the co-ordination VAT in India will be having with our existing direct tax system. 1) Coverage If the tax is carried through the retail level, it offers all the economic advantages of a tax that includes the entire retail price within its scope, at the same time the direct payment of the tax is spread out and over a large number of firms instead of being concentrated on particular groups, such as wholesalers or retailers. If retailers do evade, tax will be lost only on their margins because customers that are registered firms gain nothing if their suppliers fail to collect tax, except delay in payment; they will pay more to the government themselves. Under other forms of sales tax, both seller and customer gain by evading tax. One particular advantage is that of the widening of the tax base by bringing all transactions into the tax net. Specifically, VAT gives the new government the opportunity to bring back into the tax system all those persons and entities who were given tax exemptions in one form or another by the previous regime. 2) Revenue security VAT represents an important instrument against tax evasion and is superior to a business tax or a sales tax from the point of view of revenue security for three reasons. In the first place, under VAT it is only buyers at the final stage who have an interest in undervaluing their purchases, since the deduction system ensures that buyers at earlier stages will be refunded the taxes on their purchases. Therefore, tax losses due to undervaluation should be limited to the value added at the last stage. Under a retail sales tax, on the other hand, retailer and consumer have a mutual interest in underdeclaring the actual purchase price. Secondly, under VAT, if payment of tax is successfully avoided at one stage nothing will be lost if it is picked up at a later stage; and even if it is not picked up subsequently, the government will at least have collected the VAT paid at stages previous to that at which the tax was avoided; while if evasion takes place at the final stage the state will lose only the tax on the value added at that point. If evasion takes place under a sales tax, on the other hand, all the taxes due on the product are lost to the government. A significant advantage of the value added form in any country is the cross-audit feature. Tax charged by one firm is reported as a deduction by the firms buying from it. Only on the final sale to the consumer is there no possibility of cross audit. Cross audit is possible with any form of sales tax, but the tax-credit feature emphasises and simplifies it and is likely to make firms more careful not to evade because they know of the possibility of cross check. 3) Selectivity VAT may be selectively applied to specific goods or business entities. We have already addressed essential goods and small business. In addition the VAT does not burden capital goods because the consumption-type VAT provides a full credit for the tax included in purchases of capital goods. The credit does not subsidize the purchase of capital goods; it simply eliminates the tax that has been imposed on them. 4) Co-ordination of VAT with direct taxation Most taxpayers cheat on their sales not to evade VAT but to evade personal and corporate income taxes. The

operation of a VAT resembles that of the income tax more than that of other taxes, and an effective VAT greatly aids income tax administration and revenue collection. It is interesting to note that when Trinidad and Tobago set out to introduce VAT it chose one of its top income tax administrators as the VAT Commissioner.

Answer8(ii)
1. The subtraction method 2.The addition method 3.Tax credit method The subtraction method:- under the method the tax rate is applied to the difference between the value of output and the cost of input; The addition method :- under this method value added is computed by adding all the payments that are payable to the factors of production(wages, salaries, interest, tax paid on inputs from tax collected on sales ,indian states opted for tax credit method, which is similar to cenvat.

Answer8(iii) Itisthecreditfortaxpaidoninputs.Everydealerhastopayoutputtaxonthetaxablesaleeffected byhim.ThebasicformulaofVATisthateverydealerpaystaxonlyonthevalueadditioninhis hands.Insimplewordsinputtaxcreditisthemechanismbywhichthedealerisenabledtosetoff againsthisoutputtax,theinputtax.Dealersarenoteligibleforinputtaxcreditonallinputs.There arecertainrestrictionsandconditionsontheeligibilityofinputtaxcreditasitisstipulatedinthe respectiveStatelegislation Answer8(iv)ComputationofVATLiability PurchasesincludingVAT@4% LessVAT(4/104of65000) PurchaseswithoutVAT Add:Storageandtransportation Margin5% Sales Taxonsales@4% Less:TaxonPurchases VATLiability Answer8(v) Rs.65000 Rs.2500 Rs.62500 Rs.2500 Rs.65000 Rs.3250 Rs.68250 Rs.2730 Rs.2500 Rs.230

a) True:Thereisasignificantdifferencebetweenthetwo.Whileinanexemptedtransaction, thetaxpaidoninputlapses.i.e,itcannotbesetoff,underthezeroratedsalespriorstages issetoffagainstthe0%taxpaidandeffectivelytheentiretaxpaidonpurchaseiseligiblefor refund b) False:aspecialVATrateof1%insteadof2%isprescribedforpreciousandsemiprecious metals c) True:theadoptionofVAThelpsinreducingevasionoftax d) True:oncertainpurchasessuchasfromunregistereddealer,frominterstate,fromadealer whooptforcompositeschemeetcnoinputcreditisavailable e) False:InputVATcreditisnotavailableoninterstatepurchases

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