28 5 Income Tax

PAPER – 5: TAXATION
QUESTIONS
1. State with reasons whether the following statements are true or false [A.Y. 2009-10] –
(a) The accounts of the trust for the previous year should be audited if the total income
exceeds Rs.1,00,000.
(b) Gift received on the occasion of marriage from non-relatives is chargeable to tax
under the head “Income from other sources”.
(c) In case the parents are non residents, the income of the minor child who is resident
in India, should be clubbed with the income of the non resident parents.
(d) The provisions of section 79 are applicable only in case of carry forward of losses.
Residential Status and Scope of total income

2. The following are the particulars of income of Mr. Umesh for the previous year 2008-09:
Particulars Rs.
(a) Rent from a property in Mumbai received in New York 1,90,000
(b) Income from a business in New York controlled from Chennai 1,50,000
(c) Income from a business in USA controlled from Coimbatore 2,60,000
(d) Rent from a property in Coimbatore received there but subsequently 85,000
remitted to India
(e) Interest from deposits with an Indian company received in Coimbatore 25,000
(f) Past untaxed profits for the year 2006-07 of a business in Coimbatore 50,000
remitted to India during the previous year 2008-09
(g) Gifts received from his parents-in-law 1,60,000
(h) Gifts received from friends 40,000
Compute his income for the assessment year 2009-10 if he is:
(i) Resident and ordinarily resident in India,
(ii) Resident but not ordinarily resident in India,
(iii) Non-resident in India.
Incomes which do not form part of total income

3. Examine the taxability of the following:
(a) PQ, a film director, is awarded a cash prize of Rs.1 lakh under the scheme of State
award for films instituted by the Central Government. PQ claims this to be exempt from
tax as a casual receipt.
(b) Ram, Shyam and Mohan are three medical doctors who have formed a partnership to
establish and run a nursing home. The profits of the nursing home for the year
amounted to Rs.25,00,000, which is claimed by the partners as exempt under the
Income-tax Act.
(c) Ravi is the coparcener of a Hindu Undivided Family consisting of himself, his father and
two elder brothers. The assets of the family have not yet been partitioned. Out of the
rental income of the family, Ravi's father sends Ravi Rs.20,000 to enable him to
maintain his family. Besides, the above receipt, Ravi has received a salary of Rs.
2,60,000 from his employer.
(d) Manish suffered a loss of Rs.1,00,000 due to loss of stock because of Tsunami, out
of which a sum of Rs.80,000 was allowed as deduction. He received a sum of Rs.
2,00,000 from Central Government on account of the disaster occurred.
Incomes which do not form part of total income

4. Explain the method of determining the amount of expenditure in relation to income not
includible in total income.
Income from house property

5. Rohit owns two houses. Relevant details are given below –
House I House II
Let out April 1, 2008 to June 30, Jul 1, 2008 to March 31,
2008 (rent being Rs.8,000 2009 (rent being Rs.
per month) 15,000 per month)
Self-occupied Jul 1, 2008 to March 31, April 1, 2008 to June 30,
2009 2008
Rs.
Municipal valuation per annum 90,000 1,50,000
(a)
Fair Rent per annum (b) 85,000 1,20,000
Standard rent per annum (c) 80,000 1,25,000
Rent of let out period (d) 25,000 1,35,000
Interest on borrowed capital 5,000 45,000
Municipal tax paid 15,000 25,000
Assuming that income of Rohit from business is Rs.6,00,000 (he does not have any other
income) and he deposits Rs.70,000 in public provident fund. Find out his total income
and tax liability for the assessment year 2009-10.
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Income from House Property
6. How is income from self occupied property or property meant for owner occupation, but
remaining wholly or partly unoccupied computed? Discuss.
Profits and gains of business or profession

7. Ramesh owns the following commercial vehicles:
(i) 3 light commercial vehicles – One for 8 months and 11 days, one for 11 months and
2 days and one for 7 months and 29 days.
(ii) 2 heavy goods vehicles – One for 9 months and 5 days and the other for 4 months.
(iii) 1 medium goods vehicle – One for 3 months and 15 days.
(a) Compute the income from business if Ramesh opts for the scheme under
section 44AE. You are also required to compute his tax liability for the
assessment year 2009-10, if he deposits Rs.15,000 in PPF Account during the
previous year.
(b) What will be the income if the trucks were not used for business for one month
during the year due to strike?
Profits and gains of business or profession

8. M/s. Sigma Pvt. Ltd. furnishes the details of the following expenditure incurred during the
year 2008 -09:
Nature of payment Amount Details of tax deduction
(Rs.)
a. Contract payment 2,65,000 Tax not deducted at source
b. Salary 6,50,000 Tax not deducted at source
c. Rent 12,00,000 Tax deducted at source on 31-12-2008.
Actual remittance made on 31-03-2009.
d. Interest 5,00,000 Tax deducted only on 01-04-2009 and
remitted on 07-04-2009.
e. Professional charges 7,00,000 Liability towards this expense was accounted
in the books on 31.03.2009 and TDS was
remitted on 18.11.2009.
Advise the company on the allowability of the above expenses for the A.Y.2009-10.
9. State with reasons whether the following statements are true or false [A.Y. 2009-10] -
(i) An assessee can claim the additional depreciation @ 20% over and above the
normal depreciation for new plant and machinery acquired and installed in the
trading concern.
(ii) All dividend incomes are exempt under section 10(34).
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(iii) An individual repays a sum of Rs.25,000 towards principal and Rs.15,000 as
interest in respect of loan taken from a bank for pursing eligible higher studies, the
deduction allowable under section is Rs.40,000.
(iv) Loss under the head house property and unabsorbed depreciation can be carried
forward even if return is not filed in accordance with the provisions of section
139(3).
Salaries
10. Raman has been in the service of a private company since 1 st January, 1993, in Chennai.
During the financial year ending 31-3-2009, he received from the company, salary
Rs.15,000 p.m. dearness allowance Rs.3,000 p.m., city compensatory allowance Rs.400
p.m., entertainment allowance Rs.1,500 per month and house rent allowance Rs.5,000
p.m. Raman resides in the house property owned by his HUF for which he pays a rent of
Rs.5,500 p.m. Raman has been in receipt of entertainment allowance from the company
since January, 1993.
Raman contributes Rs.2,000 p.m. to the recognised provident fund. The company is also
contributing an equal amount. Raman retires from the service of the company on 31-12-
2008 when he was paid a gratuity of Rs.95,000 and pension of Rs.8,000 p.m. He is not
covered under the Payment of Gratuity Act, 1972. On 1-2-2009, he got one-half of the
pension commuted and received Rs.1,95,000 as commuted pension. He also received
Rs.4,00,000 as the accumulated balance of the recognised provident fund.
Compute his income under the head salary for the A.Y. 2009-10.
Capital Gains
11. Nakul acquired a plot of land on 8.7.1993 for Rs.8,00,000, which was sold 28.2.2009 for
Rs.40,00,000. The expenses of transfer were Rs.85,000.
Nakul made the following investments on 10.3.2009 from the proceeds of the above plot:
1. Bonds of National Highways Authority of India redeemable after a period of 3 years
Rs.6,00,000.
2. Deposits under Capital Gain Scheme for purchase of a residential house as he does not
own any house Rs.15,00,000.
Compute the capital gain chargeable to tax for assessment year 2009-10.
[Cost Inflation Index for F.Y.2008-09 – 582 and F.Y.1993-94 – 244]
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Set-off and Carry forward of losses
12. (a) Shiv furnishes the following particulars of his income for the P.Y. 2008-09:
Particulars Rs.
(i) Business income (before providing for depreciation) 1,80,000
(ii) Depreciation 90,000
(iii) Income from house property (computed) 80,000
(iv) Income from other sources 6,000
The following information is also available -
Brought forward loss relating to P.Y.2007-08
Business loss 50,000
Loss from house property 45,000
Compute the total income of Shiv for the assessment year 2009-10.
(b) From the following details, compute the Gross Total Income of Mr. Manas for the
A.Y.2009-10:
Particulars Rs.
1. Taxable income from salary 95,000
2. Income from let-out house property House ‘A’ 1,50,000
3. Loss from self-occupied house property House ‘B’ (1,65,000)
4. Short-term capital gain 50,000
5. Long-term capital loss (15,000)
6. Interest on securities (Gross) 10,000
Income from other sources
13. Ms. Roshni, who draws a salary of Rs.18,000 p.m. received the following gifts during the
previous year 2008-09 -
(i) Gift of Rs.3,00,000 on 17-8-2008 from her best friend.
(ii) Gift of gold jewellery worth Rs.7,00,000 on 14-9-2008 from her fiancée.
(iii) Gifts of Rs.80,000 each received from her 3 friends on the occasion of her marriage
on 13-12-2008.
(iv) Gift of Rs.70,000 on 14-11-2008 from her mother's brother.
(v) Gift of Rs.40,000 on 15-12-2008 from her father's sister.
(vi) Gift of Rs.50,000 from her husband's friend on 1-11-2008.
(vii) Gift of Rs.15,000 on 2-02-2008 from her father's friend.
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(viii) Gift of Rs.25,000 on 2-02-2008 from her sister's mother-in-law.
(ix) Gift of Rs.51,000 from her husband's sister.
Compute her gross total income for the assessment year 2009-10.
Deductions from Gross Total Income

14. Anand carries on his proprietary business with three industrial undertakings. One of the
unit is eligible for deduction under section 80-IA, suffered loss in the initial year and
derives profit in the later year. The other two non-eligible units earn profit in all the years.
Advise how deduction under section 80-IA should be computed.
Computation of total income and tax liability of an individual

15. The following are the particulars of the income of Mr. Pandey, a Government servant, for
the year ended 31.3.2009.
(a) Salary at Rs.25,000 per month.
(b) He contributed @ 10% to his Provident Fund to which the Government contributed
an equal amount.
(c) He owns two flats one of which is let out at Rs.5,000 p.m. and the other is occupied
by him for residence, the annual rental value of which is Rs.40,000. He has paid
Rs.2,000 as ground rent and insurance charge in respect of the first flat and
Rs.1,000 in respect of the second. The municipal taxes paid by him in respect of
the two flats amounted to Rs.800 and Rs.850 respectively.
(d) He received during the year Rs.7,000 as interest on Government securities and
Rs.2,800 as dividend from an Indian company. He has insured his life and pays an
annual premium of Rs.35,000 on the policies.
Ascertain the total income and the tax payable by Mr. Pandey for the A.Y.2009-10.
Computation of Total Income

16. From the following information submitted by Rajan the Karta of a HUF consisting of four
members viz., Rajan, Siya, Tina and Uday sharing the income equally, compute (A) the
Total Income of the HUF and its members; (B) the tax liability of the HUF and its
members for the assessment year 2009-10:
Particulars Amount (Rs.)
1 Rent received from a joint family property let out 30,000
2 Salary received by Siya from P Ltd. 1,78,000
3 Profit from Business of HUF 2,00,000
4 Long-term capital gain on sale of gold belonging to HUF 50,000
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5 Short-term capital gain on sale of shares on 5-11-2008 through a 30,000
recognized stock exchange held in the name of Rajan
(purchased out of family funds)
6 Dividends received from units held in the name of Rajan 15,000
(purchased out of family funds (Gross)
7 Share of profit from a firm in which the Karta was a partner 55,000
representing the HUF
8 Donation to National Defence Fund (out of family funds) 20,000
9 Director's remuneration received by Tina on account of his 1,95,000
personal qualifications from a company in which shares are held
by Rajan, the Karta (shares purchased out of family fund)
10 Dividend received by Rajan on units of equity oriented fund 18,000
purchased out of his own funds
11 Short – term capital gains on sale of above units on 15.11.2008 1,75,000
through recognised stock exchange
12 Amount deposited in PPF account in the name of Karta, (out of 50,000
family funds)
Advance Tax
17. Discuss the provisions about the interest chargeable
(i) under section 234B for defaults in payment of Advance Tax
(ii) under section 234C for deferment of advance tax
Tax deducted at source

18. Examine the applicability of tax deduction at source in the following situations:
(i) Akshay, an individual carrying on business and made gross turnover of Rs.80,00,000 for
the year ended 31.03.2008, effected a payment of Rs.50,000 to Times of India news
paper for recoupment of staff;
(ii) RBS private limited has paid a sum of Rs.2 crores to Sical C & F limited towards
clearing and forwarding charges;
(iii) Colors limited paid a sum of Rs.18,000 to ABT parcel service and Rs.15,00,000 to
Indian Railways towards freight charges.
(iv) S Private limited entered into a contract with Thermax Limited for supply of materials
amounting to Rs.40,00,000.
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Provisions for Filing of Return of Income
19. Can a return submitted by the asssesee be revised? If so, what are the circumstances
under which it can be revised? What is the time limit for submission of such revised
return?
Levy of service tax

20. State briefly whether the following services provided are taxable services under the
Finance Act, 1994 as amended:
(i) Services provided in the State of Rajasthan by a person having a place of business
in the State of Jammu and Kashmir.
(ii) Services provided by the Reserve Bank of India to any person.
Special provision for payment of service tax in case of air travel agent
21. Explain the special provision for payment of service tax in case of an air travel agent.
Due date for payment of service tax

22. Prahlaad has paid the amount of service tax for the quarter ending June 30, 2009 by
cheque. The date of presentation of cheque to the designated bank is July 5, 2009 and it
is realised by the bank on July 7, 2009? What is the date of payment of service tax in this
case? Whether any interest and penalty is attracted in this case?
Exemption to services provided to a developer or units of SEZ in relation to authorized

operations
23. Explain the procedure for claiming the exemption of service tax paid on the services
provided in relation to the authorized operations in a Special Economic Zone, and
received by a developer or units of a Special Economic Zone.
Variants of VAT
24. Briefly explain, the three variants of VAT. Which of these methods is most widely used
and why?
Computation of VAT
25. Compute the VAT liability of Mr. S. Banerjee, for the month of January 2009, using
‘invoice method’ of computation of VAT, from the following particulars:-
Particulars
Purchase price of the inputs purchased from Rs. 26,000
the local market (inclusive of VAT)
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VAT rate on purchases 4%
Storage cost incurred Rs. 250
Transportation cost Rs. 950
Goods sold at a profit margin of 5% on
cost of such goods
VAT rate on sales 12.5%
SUGGESTED ANSWERS/HINTS
1. (a) False - The accounts of the trust for the previous year should be audited if the total
income exceeds the basic exemption limit i.e. Rs. 1,50,000 for the assessment year
2009-10.
(b) False - Gift received on the occasion of marriage of an individual is fully exempt
irrespective of whether the donors are relatives or not.
(c) False – In case where the parents are non residents and the minor child is a
resident deriving the income which accrues or arises outside India, the clubbing of
such income does not arise as the provisions of section 64(1A) cannot override the
provisions of section 5. In such a case, the minor child shall be chargeable to tax.
(d) True - The carry forward of unabsorbed depreciation is covered by section 32(2), its
carry forward and set off is not affected by section 79.
2. Computation of Total Income of Mr. Umesh for the Assessment Year 2009-10
Resident Not Non-
Particulars and Ordinarily Resident
ordinarily Resident
resident
(1) Income earned/deemed to accrue/arise in
India
Rent from a property in Mumbai 1,90,000 1,90,000 1,90,000
Income from business in USA 2,60,000 2,60,000 2,60,000
Interest from Indian company 25,000 25,000 25,000
(2) Income earned and received outside India,
from a business controlled from India
Income from business in New York 1,50,000 1,50,000 -
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(3) Income earned and received outside India
other than (2)
Rent from property in Coimbatore 85,000 - -
7,10,000 6,25,000 4,75,000
Note -
1. Profits of 2006-07 are not income of the previous year 2008-09 and hence, cannot
be included in the income for assessment year 2009-10.
2. Gifts received from parents-in-law are not taxable, since gifts received from
relatives are not treated as income under section 56(2)(vi). Parents-in-law fall
under the definition of relative as defined in section 56(2).
3. Since the aggregate of gifts received during the year from non-relatives is less than
Rs.50,000, gift of Rs.40,000 received from friends is not taxable.
3. (a) According to section 10(17A), any award either in cash or in kind instituted in the
public interest by the Central or State Government or by any approved body is
exempt from tax. The award received by PQ, film director, is professional income,
since it is earned during the course of carrying on of his profession. In this case,
Rs.1,00,000 cash prize is awarded under the scheme of state award for films
instituted by the Central Government. Therefore, the amount received is exempt.
(b) Section10(23C) of the Income-tax Act provides exemption for any income earned by
a hospital or medical institution which is established not for the purposes of profit
and:
(i) which is wholly or substantially financed by the Govt.; or
(ii) whose aggregate annual receipts do not exceed the prescribed amount
i.e.Rs.1 crore or
(iii) which may be approved by the prescribed authority.
In the given case, Ram, Shyam and Mohan have formed a partnership firm (Nursing
home) for the purpose of earning profits and sharing them. Exemption under section
10(23C) is not available to hospitals established with profit motive. Therefore, the
entire profit of Rs. 25,00,000 earned by the firm during the year is taxable under the
head 'Business income'.
(c) The amount of Rs.20,000 has been received by Ravi from out of the rental income
of the family in which he is a coparcener. Since the Hindu Undivided Family
consisting of himself, his father and two elder brothers has not yet been partitioned,
the income of the family is assessable in the status of the HUF. The share received
by Ravi as a member is exempt on account of the specific provision under section
10(2). In respect of the salary of Rs.2,60,000 earned by Ravi from his employer, he
is chargeable to tax in his individual status. The taxable salary income shall have to
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be computed subject to any other deduction or exemption available to Ravi based
on the particulars of salary and the provisions of the Act.
(d) According to section 10(10BC), any amount received or receivable as compensation
by individual or legal heir on account of any disaster is exempt from tax. In the given
case, Manish has received a sum of Rs.2,00,000 towards compensation for the loss
caused because of Tsunami. A sum of Rs.80,000 already allowed as a deduction for the
loss occurred. Therefore, balance Rs.1,20,000 (Rs.2,00,000 - Rs.80,000) alone will be
exempt under section 10(10BC).
4. The CBDT has, vide Notification No. 45/2008 dated 24.3.2008, inserted a new Rule 8D
which lays down the method for determining amount of expenditure in relation to income
not includible in total income.
If the Assessing Officer, having regard to the accounts of the assessee of a previous
year, is not satisfied with –
(a) the correctness of the claim of expenditure by the assessee; or
(b) the claim made by the assessee that no expenditure has been incurred in relation to
exempt income for such previous year,
he shall determine the amount of expenditure in relation to such income in the manner
provided hereunder -
The expenditure in relation to income not forming part of total income shall be the
aggregate of the following:
(i) the amount of expenditure directly relating to income which does not form part of
total income;
(ii) in a case where the assessee has incurred expenditure by way of interest during the
previous year which is not directly attributable to any particular income or receipt,
an amount computed in accordance with the following formula, namely :
B
A ×
C
Where,
A = amount of expenditure by way of interest other than the amount of interest
included in clause (i) incurred during the previous year;
B = the average of value of investment, income from which does not or shall not form
part of the total income, as appearing in the balance sheet of the assessee, on the
first day and the last day of the previous year;
C = the average of total assets as appearing in the balance sheet of the assessee, on
the first day and the last day of the previous year;
(iii) an amount equal to one-half per cent of the average of the value of investment, income
from which does not or shall not form part of the total income, as appearing in the
balance sheet of the assessee, on the first day and the last day of the previous year.
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5. Computation of Total Income and tax liability of Rohit for A.Y. 2009-10
Particulars House I House II
Rs. Rs.
Municipal Valuation per annum (a) 90,000 1,50,000
Fair Rent per annum (b) 85,000 1,20,000
Standard Rent per annum (c) 80,000 1,25,000
Annual Letting value (ALV)
Annual Letting value higher of Municipal Valuation and 80,000 1,25,000
Fair Rent but restricted to Standard Rent
Actual rent for let out period 25,000 1,35,000
Gross annual value (Higher of Annual letting 80,000 1,35,000
value and Actual rent)
Less : Municipal tax 15,000 25,000
Net annual value 65,000 1,10,000
Less : Deductions under section 24
Standard deduction (30% of NAV) 19,500 33,000
Interest on borrowed capital 5,000 45,000
Income from house property 40,500 32,000
Income from House property 72,500
Business income 6,00,000
Gross total income 6,72,500
Less : Deduction under section 80C
Contribution to public provident fund 70,000
Total Income 6,02,500
Computation of tax liability
Income-tax 85,750
Add : Surcharge (not applicable as total income does Nil
not exceed Rs.10,00,000)
85,750
Add :Education cess @ 2% 1,715
Add : Secondary and higher education cess @ 1% 857
Tax liability 88,322
Tax liability (rounded off) 88,320
Note-
1. In this case, since both the houses aer not self-occupied the benefit of section
23(2)(a) would not be available. The income will have to be computed as if the
properties were let out.
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6. Occupied Property or Unoccupied Property – Section 23(2)
The annual value of a self-occupied property can be adopted as Nil. Similarly, if a property
cannot be actually occupied by reason of the fact that owing to his employment, business or
profession carried on at any other place, the assessee has to reside at that other place in a
building not belonging to him, the annual value of such house shall also be taken to be nil.
Accordingly, the municipal and other taxes levied by the local authority and the adhoc
deduction of 30% are not deductible. However, interest on loans borrowed up to a maximum
of Rs. 1,50,000 (or Rs. 30,000 in certain specific situations) shall be allowed as a deduction.
Therefore, computation in the case of self-occupied property shall be as follows:
Annual value as per section 23(2) Nil
Less: Deduction under section 24(b) - Interest on loan borrowed paid or XXX
payable
Loss from house property XXX
In case such a property is acquired or constructed out of loan borrowed on or after 1- 4 - 99

and where such acquisition or construction is completed within 3 years from the end of the
financial year in which such loan is borrowed, then interest shall be allowed up to Rs.
1,50,000 instead of Rs. 30,000. In respect of a self occupied property not falling in this
category, the limit of such deduction shall continue to be Rs.30,000.
If the assessee owns more than one house property falling under the above mentioned
category, then the income from anyone such property, at the option of the assessee, shall be
computed as indicated above. The other self-occupied property shall be treated as "deemed
let-out property.”
7. (a) Computation of business income of Mr. Ramesh for the A.Y.2009-10
As per section 44AE, in the case of an assessee who carries on the business of plying,
hiring or leasing goods carriages and who owns not more than 10 goods carriages at
any time during the year, the income shall be deemed to be Rs.3,500 from a heavy
goods vehicle and Rs.3,150 from a vehicle other than a heavy goods vehicle for every
month or part of the month during which such goods vehicle is owned by the assessee
in the previous year or such higher sum as declared in the return of income by the
assessee. In this case, Mr. Ramesh owns 6 commercial vehicles and opts for the
scheme under section 44AE. Therefore, his income has been computed as per the
presumptive tax provisions contained in section 44AE.
The income under section 44AE shall be computed as under :
Particulars Rs.
(i) (9 x 3,150) + (12 x 3,150) + (8 x 3,150) 91,350
(ii) (10 x 3,500) + (4 x 3,500) 49,000
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(iii) 4 x 3,150 12,600
Income from business 1,52,950
Less : Deduction under section 80C 15,000
Total income 1,37,950
Tax on Rs.1,37,950 Nil
(b) Income from vehicles is to be computed for every month or part of the month during
which these were owned by the assessee even though these are not actually used
for business. Therefore, there will be no change in the answer.
8. According to Section 40(a)(ia), where tax has not been deducted or the amount of tax
deducted has not been remitted to the credit of Central Government as per the provisions of
Tax Deduction at source, the expenditure shall not be allowed as deduction while computing
income under the head “Profits and gains from business and profession. In case, the tax is
deducted and remitted in the subsequent years, such expenditure shall be allowed in the year
in which TDS is remitted to the credit of Central Government.
SI. Date of credit or payment Due date for remittance of TDS
No.
A. In case where the credit payment is Within 7 days from the end of the month
recorded in the books of the in which credit or payment is made or
asseseee during the financial year. within the end of the financial year.
B. In case where the credit entry Within 2 months from the end of the
(payable entry) is recorded in the financial year in which credit entry is
books of the asseseee on the last day recorded (31st May).
of the financial year (31st March)
Note:
(a) Though the relevant provisions of TDS warrants payment by 7th of subsequent month in
situation (A) as stated above, for the purpose of complying Section 40(a)(ia), it is
sufficient that the tax deducted is remitted on or before the end of the financial year.
Accordingly, 31st of March of the financial year shall be the due date for remittance of
TDS.
(b) Again, where tax was deductible in the month of March, and the same was deducted,
the remittance of TDS shall be made on or before due date for filing of return of income
under section 139(1) to avoid disallowance under section 40(a)(ia).
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Accordingly, in the situations given in question, the following shall be the tax consequences:
Sl. No. Nature of payment Compliance/ Tax consequence
Violation
(a) Contract payment TDS not Rs. 2,65,000 shall be disallowed.
deducted
(b) Salary TDS not Though tax is not deducted at
deducted sources, disallowance is not
warranted as salary payments are
not covered by the disallowance
under section 40(a)(ia).
(c) Rent Delay in TDS should have been remitted on
remittance of 07-01-2009. However, the same has
TDS been made on 31.03.2009.
Accordingly, no disallowance of
expenditure under section 40(a)(ia)
warranted.
(d) Interest Non deduction Since the tax has not been deducted
of tax during on or before 31-03-2009, interest
the financial expenditure of 5,00,000 shall be
year disallowed for the A.Y. 2009-10.
However, the same shall be allowed
as deduction for the A.Y. 2010-11 as
the assessee has deducted and
remitted TDS in the subsequent
year.
(e) Professional Liability Entire sum of Rs. 7,00,000 is subject
charges recorded on the to disallowance under section
last day of 40(a)(ia), since the remittance of
financial year TDS was made beyond the due date
for filing return of income under
section 139(1), which in this case
falls on 30.09.2009.
9. (i) False – In order to claim enhanced depreciation under section 32(1)(iia), the
assessee must have engaged in the business of manufacturing or production of an
article or thing. In the instant case, the assesee is engaged in trading activity and
hence, is not eligible for additional depreciation under section 32(1)(iia).
(ii) False – Exemption under section 10(34) is available only when dividend is received
from a domestic company and domestic company is subject to dividend distribution
71
tax under section 115-O. Deemed dividend under section 2(22)(e) is not subject to
dividend tax. The recipient will have to pay tax on it. In respect of dividend covered
by section 2(22) (a) to (d), company will pay dividend distribution tax and the
dividend is exempt in the hands of the shareholder.
(iii) False – Payment of interest on any loan availed for the purpose of pursuing full time
education is alone eligible for deduction under section 80E. The principal portion of
the loan repaid during the previous year cannot be claimed as a deduction under
section 80E.
(iv) True – As per section 139(3), an assessee is compulsorily required to submit return
of loss, on or before the due date mentioned under section 139(1) for carry forward
of losses under section 72, 73, 74 and 74A. However, the above provisions are not
applicable for carry forward of unabsorbed depreciation under section 32(2) and
loss under the head “Income from house property” under section 71B.
10. Computation of income under the head “Salaries” for the A.Y.2009-10
Particulars Rs.
Salary (Rs.15,000 x 9) 1,35,000
Dearness allowance (Rs.3,000 x 9) 27,000
City compensatory allowance (Rs.400 x 9) 3,600
Entertainment allowance (Rs.1,500 x 9) 13,500
House rent allowance [See Note 1] 9,000
Pension (Rs.8,000 + Rs.4,000 × 2) 16,000
Commuted pension (Rs.1,95,000 – Rs.1,30,000) [See Note 3] 65,000
Gross salary 2,69,100
Less: Deduction under section 16 [See Note 5] Nil
Income from salary 2,69,100
Note -
1. As per section 10(13A), house rent allowance will be exempt to the extent of
minimum of the following three amounts:
(i) 50% of salary i.e. Rs.67,500.
(ii) Rent paid minus 10% of salary i.e., Rs.5,500 – Rs.1,500 = Rs.4,000 x 9 =
Rs.36,000
(iii) HRA received Rs.5,000 x 9 = Rs.45,000
Therefore, out of Rs.45,000, Rs.36,000 will be exempt and the balance Rs.9,000
will be included in Gross Salary.
2. Gratuity of Rs.95,000 is fully exempt under section 10(10)(iii), being the minimum of
the following amounts:
72
(i) Actual gratuity received, i.e., Rs.95,000
(ii) Half month’s average salary for every completed year of service i.e.
Average monthly salary 15,000  16
 16 i.e. = Rs. 1,20,000
2 2
(iii) Notified limit i.e., Rs.3,50,000
3. As Raman is receiving gratuity, one-third of commuted pension will be exempt and
the balance would be taxable. 50% of the pension commuted is Rs.1,95,000.
Therefore, 100% would be Rs.3,90,000 and one-third of the same would be
Rs.1,30,000. The taxable portion of the commuted pension would be Rs.65,000
(i.e. Rs.1,95,000 - Rs.1,30,000).
4. Since employer’s contribution to recognized provident fund is less than 12% of
salary, it is not taxable. Accumulated balance of the recognized provident fund
received is exempt from tax, since Raman has rendered continuous service of more
than five years.
5. Deduction under section 16(ii) in respect of entertainment allowance can be claimed
only by Government employees. Therefore, Raman is not eligible for any deduction
in respect of entertainment allowance received by him.
11. Computation of capital gain chargeable to tax for A.Y.2009-10
Particulars Rs. Rs.
Gross sale consideration 40,00,000
Less : Expenses of transfer 85,000
Net sale consideration 39,15,000
582
Less: Indexed cost of acquisition Rs. 8,00,000 
244 19,08,197
20,06,803
Less : Exemption under section 54EC 6,00,000
[Investment in bonds of National Highways Authority of India]
Exemption under section 54F

for purchase of residential house
[Capital gain × Amount invested / Net sale consideration]
(20,06,803 x 15,00,000 / 39,15,000) 7,68,891 13,68,890
Taxable long-term capital gain 6,37,913
73
12. (a) Computation of Total Income of Mr. Shiv for the A.Y.2009-10
Particulars Rs. Rs.
(i) Business income 1,80,000
Less : Current year depreciation 90,000
90,000
Less : Brought forward business loss 50,000
40,000
(ii) Income from house property 80,000
Less : Brought forward loss from house property 45,000 35,000
(iii) Income from other sources 6,000
Total Income 81,000
(b) Computation of Gross Total Income of Mr. Manas for the A.Y.2009-10
Particulars Rs. Rs.
(i) Income from salary 95,000
(ii) Income from house property
Income from House A 1,50,000
Loss from House B (1,65,000)
(15,000)
(iii) Capital gains: Short-term capital gain 50,000
(iv) Income from other sources: Interest on securities 10,000
(Gross)
Gross Total Income 1,40,000
Note -
Long term capital loss cannot be set off against short-term capital gain or income
under any other head. Therefore, long-term capital loss of Rs.15,000 cannot be set-
off against any other income in the A.Y. 2009-10. The loss has to be carried
forward to the subsequent assessment years for set-off against long-term capital
gains arising in that year. It can be carried forward upto 8 years.
13. Computation of Gross Total Income of Ms. Roshni for the A.Y.2009-10
Particulars Rs. Rs.
Salary
Salary (Rs.18,000 x 12) 2,16,000
74
(i) Gift from best friend is includible 3,00,000
(ii) Gift of gold jewellery is exempt as it is in kind -
(iii) Gifts received from her 3 friends are exempt as they have -
been received on the occasion of her marriage
(iv) Gift from her mother's brother is exempt as the donor is -
covered in the definition of relative
(v) Gift from her father's sister is exempt as the donor is -
covered in the definition of relative
(vi) Gift from her husband's friend on 1-11-2008 is taxable 50,000
(vii) Gift from her father's friend is taxable 15,000
(viii) Gift from her sister's mother-in-law is taxable the donor is 25,000
not covered in the definition of relative
(ix) Gift from her husband's sister is exempt as the donor is
covered in the definition of relative -- 3,90,000
14. Section 80-IA(5) provides that for the purpose of determining the quantum of deduction under
section 80-IA the profits and gains from the eligible business shall be computed as if such
eligible business were the only source of income of the assessee during the previous year
relevant to the initial assessment year and to subsequent assessment year upto and including
the assessment year for which the deduction is to be made.
In this case the unit eligible for deduction under section 80-IA has to be treated as a separate
source of income and the loss is to be set off against any profit arising from such unit on a
stand alone basis. For this purpose, even if such loss was set off against other income in the
earlier year, it is immaterial. Only when the unit derives profit after setting off all its losses,
deduction under section 80-IA is available to such unit.
15. Computation of total income and tax liability of Mr. Pandey for the A.Y. 2009-10
Particulars Rs. Rs.
1. Income from Salary
Salary (Rs.25,000 x 12) 3,00,000
Less : Deduction under section 16 Nil 3,00,000
2. Income from House Property

(a) Self-occupied flat (Annual value of self-occupied Nil
property is Nil)
75
(b) Gross Annual Value (See Note below) 60,000
Less: Municipal taxes paid 800
Net Annual Value (NAV) 59,200
Less: 30% of NAV 17,760 41,440
Note – Actual rent @ Rs.5,000 per month has been taken as
the gross annual value in the absence of other information
3. Income from Other Sources
Interest on Government Securities 7,000
Dividend from Indian Company [Exempt under section 10(34)] Nil 7,000
Less : Deductions u/s 80C [ in respect of provident fund of
Rs.30,000 + 35,000 (Life insurance premium)] 75,000
Tax payable on Rs.2,73,440 12,344
Add : Education cess @ 2% 247
Add : Secondary and higher education cess @ 1% 123
Total tax payable 12,714
Tax payable (rounded off) 12,710
16. Computation of Total Income and Tax Liability of HUF for the A.Y. 2009-10
Rs. Rs.
I Income from house property
Rent received 30,000
Less: Standard deduction (30% of Rs. 30,000) 9,000 21,000
II Profit and gains of business or profession
Profit from business 2,00,000
Share of profit from firm Exempt 2,00,000
III Capital gains

Long-term capital gains 50,000
Short-term capital gains 30,000 85,000
76
IV Income from Other Sources
Dividend from units Exempt
Less: Deductions under section 80C to 80U
(i) under section 80C 50,000
(ii) under section 80G - 100% of Rs. 20,000 (qualifying 20,000 70,000
limit not applicable)
Tax on Total income of Rs. 2,36,000
Tax on long-term capital gains of Rs. 50,000 @ 20% 10,000
Tax on short-term capital gain covered under section 4,500
111A @ 15% on Rs. 30,000
Tax on balance income of Rs.1,56,000 600
15,100
Add: Surcharge Nil
15,100
Add: Education cess @ 2% 302
Add : Secondary and Higher education cess @ 1% 151
Tax Liability 15,553
Tax Liability (rounded off) 15,550
Computation of total income and tax liability of members

(i) Total Income of Rajan
Capital gains
Short term capital gain on units 1,75,000
Dividend from units Exempt
Gross total income 1,75,000
Less : Deductions under section 80C to 80U Nil
77
Tax on Rs. 25,000 (Rs. 1,75,000 – Rs. 1,50,000) 3,750
Add : Education Cess 75
Tax Liability 3,862
(ii) Total income of Siya

Income from salaries
Gross Salary 1,78,000
Less : Deductions under section 16 Nil
Gross Total income 1,78,000
Tax on Rs. 1,78,000 2,800
Tax Liability 2,884
(iii) Total income of Tina

Income from salaries
Gross salary 1,95,000
Less : Deductions under section 16 Nil
Tax on Rs.1,95,000 4,500
78
Tax Liability 4,635
(iv) Total income of Uday Nil

Share out of HUF income received by the members is exempt under section 10(2).
17. (i) Interest for non-payment or short-payment of advance tax [Section 234B]
(1) Interest under section 234B is attracted for non-payment of advance tax or
payment of advance tax of an amount less than 90% of assessed tax.
(2) The interest liability would be 1% per month or part of the month from 1 st April
following the financial year upto the date of determination of income under
section 143(1).
(3) Such interest is calculated on the amount of difference between the assessed
tax and the advance tax paid.
(4) Assessed tax is the tax calculated on total income less tax deducted at source.
(ii) Interest payable for deferment of advance tax [Section 234C]
(1) Interest under section 234C is attracted for deferment of advance tax beyond
the due dates.
(2) The interest liability would be 1% per month, for a period of 3 months, for every
deferment.
(3) However, for the last installment of 15 th March, the interest liability under this
section would be 1% for one month.
(4) The interest is to be calculated on the difference between the amount arrived
at by applying the specified percentage of tax on returned income and the
actual amount paid by the due date.
18. (i) Advertising contract, shall be deducted @ 1% of Rs.50,000;
(ii) Liable for tax deduction @ 2% plus surcharge and Education cess as the payment
exceeds Rs.1 crore;
(iii) Freight Payment to ABT not subject to TDS as the value of contract does not
exceed Rs.20,000. Again, payment to Railways is exempt from TDS;
(iv) Supply of goods and materials shall not be considered to be "work" and therefore
not subject to work.
79
19. Revised Return [section 139(5)]
(1) If any person having furnished a return under section 139(1) or in pursuance of a
notice issued under section 142(1), discovers any omission or any wrong statement
therein, he may furnish a revised return at any time before the expiry of one year
from the end of the relevant assessment year or before completion of assessment,
whichever is earlier.
(2) It may be noted that a belated return cannot be revised. It has been held in Kumar
Jagdish Chandra Sinha v. CIT [1996] 86 Taxman 122 (SC) that only a return
furnished under section 139(1) or in pursuance of a notice under section 142(1) can
be revised. A belated return furnished under section 139(4), therefore, cannot be
revised.
20. (i) As per section 64(1) of the Finance Act, 1994 as amended, service tax provisions
do not extend to the State of Jammu and Kashmir. Therefore, service tax will not be
payable if service is provided in Jammu & Kashmir. However, since service tax is a
destination based consumption tax, if a person from Jammu & Kashmir provides the
taxable service outside Jammu & Kashmir in any other part of India, the service will
be liable to service tax, as the location where service is provided is relevant.
Hence, the service provided in Rajasthan from Jammu and Kashmir would be liable
to service tax.
(ii) Notification No. 22/2006 ST dated 31.05.2006 exempts the services provided by the
Reserve Bank of India to any person.
21. Special provision for payment of service tax in case of air travel agent: Rule 6(7) of
the Service Tax Rules, 1994 provides that the person liable for paying the service tax in
relation to the services provided by an air travel agent, shall have the option:
(i) to pay an amount calculated at the rate of 0.6% of the basic fare in the case of
domestic bookings, and
(ii) at the rate of 1.2% of the basic fare in the case of international bookings, of
passage for travel by air, during any calendar month or quarter, as the case may be,
towards the discharge of his service tax liability instead of paying service tax at the
rate of specified service tax. The option once exercised, shall apply uniformly in
respect of all the bookings of passage for travel by air made by him and shall not be
changed during a financial year under any circumstances.
For the purposes of this sub-rule, the expression "basic fare" means that part of the air
fare on which commission is normally paid to the air travel agent by the airline.
22. Rule 6(1) of the Service Tax Rules, 1994, inter alia, provides that service tax on the
value of taxable services received by an individual during any quarter is payable by the
5th day of the month immediately following the said quarter. Therefore, in the given
case, the due date for payment of service tax is July 5, 2009.
80
Further, in case the amount of service tax is paid by cheque, the date of presentation of
cheque to the designated bank, subject to realization is the date of payment. Thus, in
this case, the date of payment will be 5th July, 2009 as the cheque has been realized on
7th July, 2009.
Since, the service tax has been paid on the due date, no interest and penalty is
chargeable as there is no delay in payment of service tax.
23. Procedure for claiming the exemption of service tax paid on the services provided in
relation to the authorized operations in a Special Economic Zone (SEZ), and received by
a developer or units of a SEZ:-
(a) the developer or units of SEZ shall be eligible to claim exemption for the services
provided to the developer or units of SEZ and used in relation to the authorised
operations in the SEZ, and not the person liable to pay service tax.
However, where the developer or units of SEZ and the person liable to pay service tax
under sub-section (2) of section 68 for the said services are the same person, then in
such cases, exemption for the specified services shall be claimed by such person;
(b) the exemption shall be claimed by filing a claim for refund of service tax paid to the
jurisdictional Assistant Commissioner/Deputy Commissioner of Central Excise, as
the case may be, within six months from the date of actual payment of service tax
by such developer or unit to service provider or, such extended period as may be
permitted;
(c) the unregistered developer or units of SEZ, shall, prior to filing a claim for refund of
service tax under this notification, file a declaration in the prescribed form with the
respective jurisdictional Assistant Commissioner/ Deputy Commissioner of Central
Excise, as the case may be;
(d) the refund claim shall be accompanied by the following documents, namely:-
(i) a copy of the list of specified services required in relation to the authorised
operations in the SEZ, as approved by the Approval Committee;
(ii) documents for having paid service tax;
(iii) a declaration by the SEZ developer or unit, claiming such exemption, to the
effect that such service is received by him in relation to authorised operation in
SEZ;
(e) the jurisdictional Assistant Commissioner/ Deputy Commissioner of Central Excise,
as the case may be, shall, after due verification, allot a service tax code (STC)
number to the developer or units of SEZ within seven days from the date of receipt
of the said form;
(f) the Assistant Commissioner/ Deputy Commissioner of Central Excise, as the case
may be, shall, after satisfying himself that the said services have been actually used
81
in relation to the authorised operations in the SEZ, refund the service tax paid on
the specified services used in relation to the authorised operations in the SEZ;
(g) where any refund of service tax paid on specified services is erroneously refunded
for any reasons whatsoever, such service tax refunded shall be recoverable under
the provisions of the Finance Act, 1994 and the rules made there under, as if it is a
recovery of service tax erroneously refunded.
24. VAT has three variants, viz., (a) gross product variant, (b) income variant, and (c)
consumption variant. These variants are presented in a schematic diagram given below:
Different variants of VAT
Gross product variant Income variant Consumption variant

1. Gross product variant: Tax is levied on all sales and deduction for tax paid on
inputs excluding capital inputs is allowed.
2. Income variant: Tax is levied on all sales with set-off for tax paid on inputs and
only depreciation on capital goods.
3. Consumption variant: Tax is levied on all sales with deduction for tax paid on all
business inputs (including capital goods).
Among the three variants of VAT, the consumption variant is most widely used.
Reasons for preference of consumption variant:
(1) It does not affect decisions regarding investment because the tax on capital goods
is also set-off against the VAT liability. Hence, the system is tax neutral in respect
of techniques of production (labour or capital-intensive).
(2) The consumption variant is convenient from the point of administrative expediency
as it simplifies tax administration by obviating the need to distinguish between
purchases of intermediate and capital goods on the one hand and consumption
goods on the other hand.
25. Computation of VAT liability of Mr. S. Banerjee for the month of January, 2009
using ‘invoice method’ of computation of VAT:-
Particulars Amount (Rs.)
Purchase price of the inputs (inclusive of VAT) 26,000.00
Rs.26,000  4
Less :VAT paid on purchases @ 4% = 1,000.00
104
Purchase price of the inputs (excluding VAT) 25,000.00
Add: Storage cost 250.00
82
Add: Transportation cost 950.00
Cost price of the goods 26,200.00
Add: Profit @ 5% of Cost Price (Rs. 26,200 × 5%) 1,310.00
Sale price before VAT 27,510.00
VAT @ 12.5% (Rs. 27,510 × 12.5%) 3,438.75
Less: VAT paid on purchases 1,000.00
VAT liability of Mr. S. Banerjee 2,438.75
IMPORTANT CIRCULARS / NOTIFICATIONS ISSUED BETWEEN 1.5.08 and 30.4.09

Students may note that the Study Material for Taxation contains all the relevant amendments
made by the Finance Act, 2008 and significant notifications, circulars and legislative
amendments made upto 30.4.2008. It may carefully be noted that for the students appearing
in November 2009 examination, the amendments made by Notifications, Circulars etc. up to
30.04.2009 are relevant. The following are the amendments which have been made between
1.05.2008 and 30.04.2009 -
A. INCOME TAX
I. CIRCULARS
1. Circular No. 5/2008 dated 14.7.2008
The CBDT has, vide notification S.O. No. 493(E), dated 13.3.2008 notified the categories
of taxpayers who are mandatorily required to electronically pay taxes on or after 1st April,
2008. The taxpayers who are required to pay taxes by the prescribed mode are - (i) a
company; and (ii) a person (other than a company), to whom the provisions of section
44AB of the Income-tax Act, 1961 are applicable. Further, payment of tax electronically
has been defined to mean payment of tax by way of - (i) internet banking facility of the
authorised bank or (ii) credit or debit cards.
Consequent to issue of the notification, foreign assessees have been facing difficulties in
complying with the provisions with regard to mandatory e-payment of taxes. Since they
do not have a presence in India, they are not able to meet the 'know your customer
norms' of the banks. This has resulted in their inability to open bank accounts and make
payment of taxes through the electronic mode. Also, the resident taxpayers have been
facing difficulties in availing internet banking facilities of the authorized banks. A
clarification has also been sought as to whether payment of tax deducted at source by a
deductor will fall within the meaning of 'tax' for the purpose of the impugned notification.
83
Therefore, with a view to facilitating electronic payment of taxes by different categories of
taxpayers, CBDT has issued Circular No.5/2008 dated 14.7.2008 to clarify that an
assessee can make electronic payment of taxes also from the account of any other person.
However, the challan for making such payment must clearly indicate the Permanent
Account Number (PAN) of the assessee on whose behalf the payment is made. It is not
necessary for the assessee to make payment of taxes from his own account in an
authorized bank. Further, it is also clarified that payment of any amount by a deductor by
way of Tax Deducted at Source (TDS) or Tax Collected at Source (TCS) shall fall within the
meaning of 'tax' for the purpose of Rule 125 of the Income-tax Rules, 1962.
2. Circular No.7/2008 dated 1.8.2008
Order under section 119(1) of the Income-tax Act, 1961 regarding exemption from the
TDS provisions under section 197 read in conjunction with section 10(26BBB) of the
Income-tax Act, 1961
The CBDT has, in exercise of the powers conferred under section 119(1) of the Income-
tax Act, 1961, directed that corporations which are established by a Central, State or
Provincial Act for the welfare and economic upliftment of ex-servicemen and whose
income qualifies for exemption from income-tax under section 10(26BBB) would also be
exempt from tax deduction/collection at source on their receipts. This exemption shall be
valid for 3 years from the date of issue of this order. However, this exemption shall not
absolve such organisation from their statutory obligation of deducting TDS on all
contractual payments made by them to other parties including sub-contractors etc.
Clarification regarding the meaning of the expression 'fish or fish products' used in
Rule 6DD(e)(iii) of the Income-tax Rules, 1962
Under section 40A(3), disallowance is attracted in the computation of income in a case
where a payment or aggregate of payments exceeding twenty thousand rupees is made
to a person in a day, otherwise than by an account payee cheque drawn on a bank or an
account payee bank draft. However, payment otherwise than by an account payee
cheque drawn on a bank or by an account payee bank draft exceeding twenty thousand
rupees does not attract the aforesaid disallowance in certain circumstances as
prescribed under Rule 6DD of the Income-tax Rules, 1962. Such exceptions, inter-alia,
refer to payment made to the producer for the purchase of fish or fish products under
sub-clause (iii) of clause (e) of rule 6DD.
In regard to this sub-clause, the following clarifications have been issued for proper
implementation of Rule 6DD -
(i) The expression ‘fish or fish products’ used in rule 6DD(e)(iii) would include ‘other
marine products such as shrimp, prawn, cuttlefish, squid, crab, lobster etc.’.
84
(ii) The 'producers' of fish or fish products for the purpose of rule 6DD(e) would include,
besides the fishermen, any headman of fishermen, who sorts the catch of fish
brought by fishermen from the sea, at the sea shore itself and then sells the fish or
fish products to traders, exporters etc.
However, the above exception will not be available on the payment for the purchase of
fish or fish products from a person who is not proved to be a 'producer' of these goods
and is only a trader, broker or any other middleman, by whatever name called.

Exemption under section 11 in case of an assessee claiming both to be a charitable
institution as well as a mutual organisation
Section 2(15) defines charitable purpose to include the following:-
(i) Relief of the poor
(ii) Education
(iii) Medical relief, and
(iv) the advancement of any other object of general public utility.
An entity with a charitable object of the above nature was eligible for exemption from tax
under section 11 or alternatively under section 10(23C) of the Act. However, it was seen
that a number of entities who were engaged in commercial activities were also claiming
exemption on the ground that such activities were for the advancement of objects of
general public utility in terms of the fourth limb of the definition of charitable purpose.
Therefore, section 2(15) was amended vide Finance Act, 2008 by adding a proviso which
states that the advancement of any other object of general public utility shall not be a
charitable purpose if it involves the carrying on of -
(a) any activity in the nature of trade, commerce or business; or
(b) any activity of rendering any service in relation to any trade, commerce or business;
for a cess or fee or any other consideration, irrespective of the nature of use or
application, or retention of the income from such activity.
The following implications arise from this amendment -
(1) The newly inserted proviso to section 2(15) will not apply in respect of the first three
limbs of section 2(15), i.e., relief of the poor, education or medical relief.
Consequently, where the purpose of a trust or institution is relief of the poor,
education or medical relief, it will constitute charitable purpose even if it incidentally
involves the carrying on of commercial activities.
(2) Relief of the poor encompasses a wide range of objects for the welfare of the
economically and socially disadvantaged or needy. It will, therefore, include within
its ambit purposes such as relief to destitute, orphans or the handicapped,
85
disadvantaged women or children, small and marginal farmers, indigent artisans or
senior citizens in need of aid. Entities who have these objects will continue to be
eligible for exemption even if they incidentally carry on a commercial activity,
subject, however, to the conditions stipulated under section 11(4A) or the seventh
proviso to section 10(23C) which are that -
(i) the business should be incidental to the attainment of the objectives of the
entity, and
(ii) separate books of account should be maintained in respect of such business.
Similarly, entities whose object is education or medical relief would also continue to
be eligible for exemption as charitable institutions even if they incidentally carry on a
commercial activity subject to the conditions mentioned above.
The newly inserted proviso to section 2(15) will apply only to entities whose purpose is
advancement of any other object of general public utility i.e. the fourth limb of the
definition of charitable purpose contained in section 2(15). Hence, such entities will not
be eligible for exemption under section 11 or under section 10(23C) of the Act if they
carry on commercial activities. Whether such an entity is carrying on an activity in the
nature of trade, commerce or business is a question of fact which will be decided based
on the nature, scope, extent and frequency of the activity.
There are industry and trade associations who claim exemption from tax u/s 11 on the
ground that their objects are for charitable purpose as these are covered under any other
object of general public utility. Under the principle of mutuality, if trading takes place
between persons who are associated together and contribute to a common fund for the
financing of some venture or object and in this respect have no dealings or relations with
any outside body, then any surplus returned to the persons forming such association is
not chargeable to tax. In such cases, there must be complete identity between the
contributors and the participants.
Therefore, where industry or trade associations claim both to be charitable institutions as
well as mutual organizations and their activities are restricted to contributions from and
participation of only their members, these would not fall under the purview of the proviso
to section 2(15) owing to the principle of mutuality. However, if such organizations have
dealings with non-members, their claim to be charitable organizations would now be
governed by the additional conditions stipulated in the proviso to section 2(15).
In the final analysis, however, whether the assessee has for its object the advancement
of any other object of general public utility is a question of fact. If such assessee is
engaged in any activity in the nature of trade, commerce or business or renders any
service in relation to trade, commerce or business, it would not be entitled to claim that
its object is charitable purpose. In such a case, the object of general public utility will be
only a mask or a device to hide the true purpose which is trade, commerce or business or
86
the rendering of any service in relation to trade, commerce or business. Each case
would, therefore, be decided on its own facts and no generalization is possible.
II NOTIFICATIONS
1. Notification No. 86/2008 dated 13.8.2008
The Central Government has, vide notification no.86/2008 dated 13.8.2008 specified
the cost inflation index for the financial year 2008-09. The CII for F.Y. 2008-09 is
582.
S. No. Financial Year Cost Inflation Index
1. 1981-82 100
2. 1982-83 109
3. 1983-84 116
4. 1984-85 125
5. 1985-86 133
6. 1986-87 140
7. 1987-88 150
8. 1988-89 161
9. 1989-90 172
10. 1990-91 182
11. 1991-92 199
12. 1992-93 223
13. 1993-94 244
14. 1994-95 259
15. 1995-96 281
16. 1996-97 305
17. 1997-98 331
18. 1998-99 351
19. 1999-2000 389
20. 2000-01 406
21. 2001-02 426
22. 2002-03 447
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23. 2003-04 463
24. 2004-05 480
25. 2005-06 497
26. 2006-07 519
27. 2007-08 551
28. 2008-09 582
2. Notification No. 88/2008/F.NO. 275/43/2008-IT(B), dated 21.8.2008
The CBDT has, in exercise of the powers conferred by clause (a) of the Explanation to
section 194J, notified the services rendered by following persons in relation to the sports
activities as Professional Services for the purpose of the section 194J:
a. Sports Persons,
b. Umpires and Referees,
c. Coaches and Trainers,
d. Team Physicians and Physiotherapists,
e. Event Managers,
f. Commentators,
g. Anchors and
h. Sports Columnists.
3. Notification No.97/2008 dated 10.10.2008

Rule 6DD of the Income-tax Rules has been substituted. This Rule now provides for
cases and circumstances in which a payment or aggregate of payments exceeding
twenty thousand rupees may be made to a person in a day, otherwise than by an account
payee cheque drawn on a bank or account payee bank draft.
As per this rule, no disallowance under sub-section (3) of section 40A shall be made and
no payment shall be deemed to be the profits and gains of business or profession under
sub-section (3A) of section 40A where a payment or aggregate of payments made to a
person in a day, otherwise than by an account payee cheque drawn on a bank or
account payee bank draft, exceeds twenty thousand rupees in the cases and
circumstances specified hereunder, namely:
(a) where the payment is made to -
(i) the Reserve Bank of India or any banking company;
(ii) the State Bank of India or any subsidiary bank;
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(iii) any co-operative bank or land mortgage bank;
(iv) any primary agricultural credit society or any primary credit society;
(v) the Life Insurance Corporation of India;
(b) where the payment is made to the Government and, under the rules framed by
it, such payment is required to be made in legal tender;
(c) where the payment is made by -
(i) any letter of credit arrangements through a bank;
(ii) a mail or telegraphic transfer through a bank;
(iii) a book adjustment from any account in a bank to any other account in that or
any other bank;
(iv) a bill of exchange made payable only to a bank;
(v) the use of electronic clearing system through a bank account;
(vi) a credit card;
(vii) a debit card.
(d) where the payment is made by way of adjustment against the amount of any
liability incurred by the payee for any goods supplied or services rendered by
the assessee to such payee;
(e) where the payment is made for the purchase of -
(i) agricultural or forest produce; or
(ii) the produce of animal husbandry (including livestock, meat, hides and skins)
or dairy or poultry farming; or
(iii) fish or fish products; or
(iv) the products of horticulture or apiculture,
to the cultivator, grower or producer of such articles, produce or products;
(f) where the payment is made for the purchase of the products manufactured or
processed without the aid of power in a cottage industry, to the producer of such
products;
(g) where the payment is made in a village or town, which on the date of such
payment is not served by any bank, to any person who ordinarily resides, or is
carrying on any business, profession or vocation, in any such village or town;
(h) where any payment is made to an employee of the assessee or the heir of any such
employee, on or in connection with the retirement, retrenchment, resignation,
discharge or death of such employee, on account of gratuity, retrenchment
compensation or similar terminal benefit and the aggregate of such sums payable to
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the employee or his heir does not exceed fifty thousand rupees;
(i) where the payment is made by an assessee by way of salary to his employee
after deducting the income-tax from salary in accordance with the provisions of
section 192 of the Act, and when such employee -
(i) is temporarily posted for a continuous period of fifteen days or more in a place
other than his normal place of duty or on a ship; and
(ii) does not maintain any account in any bank at such place or ship;
(j) where the payment was required to be made on a day on which the banks were
closed either on account of holiday or strike;
(k) where the payment is made by any person to his agent who is required to make
payment in cash for goods or services on behalf of such person;
(l) where the payment is made by an authorised dealer or a money changer against
purchase of foreign currency or travellers cheques in the normal course of his
business.

Clause (xv) of section 80C(2) provides that the subscription to any such deposit scheme of
the National Housing Bank as the Central Government may notify in this behalf would
qualify for deduction under section 80C. Accordingly, in exercise of the powers conferred
in section 80C(2)(xv), the Central Government has specified the National Housing Bank
(Tax Saving) Term Deposit Scheme, 2008, the subscription to which would qualify for
deduction under section 80C.

Section 10(15)(iv)(h) exempts interest payable by any public sector company in respect
of such bonds or debentures specified by the Central Government by notification in the
Official Gazette. The notification would also specify the conditions subject to which the
exemption would be available. Accordingly, in exercise of the powers conferred in
section 10(15)(iv)(h), the Central Government has specified the issue of tax free bonds
by India Infrastructure Finance Company Limited during the financial year 2008-09, the
interest on which would be exempt under the said section. Further, it has been provided
that such benefit shall be admissible only if the holder of such bonds registers his or her
name and the holding with the said Corporation.
6. Notification No. 28/2009, dated 16.3.2009

Rule 37BA providing for credit for tax deducted at source for the purposes of section 199
has been inserted with effect from 1.4.2009.
Sub-rule (1) provides that credit for tax deducted at source and paid to the Central
Government in accordance with the provisions of Chapter XVII, shall be given to the
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person to whom payment has been made or credit has been given (i.e., the deductee) on
the basis of information relating to deduction of tax furnished by the deductor to the
income-tax authority or the person authorised by such authority.
Sub-rule (2) provides that if the income on which tax has been deducted at source is
assessable in the hands of a person other than the deductee, credit for tax deducted at
source shall be given to the other person in cases where-
(a) the income of the deductee is included in the total income of another person under
the provisions of section 60, section 61, section 64, section 93 or section 94;
(b) the income of a deductee being an association of persons or a trust is assessable in
the hands of members of the association of persons, or in the hands of trustees, as
the case may be;
(c) the income from an asset held in the name of a deductee, being a partner of a firm
or a karta of a Hindu undivided family, is assessable as the income of the firm, or
Hindu undivided family, as the case may be;
(d) the income from a property, deposit, security, unit or share held in the name of a
deductee is owned jointly by the deductee and other persons and the income is
assessable in their hands in the same proportion as their ownership of the asset:
However, in such cases, the deductee should file a declaration with the deductor. Such
declaration filed by the deductee should contain the name, address, permanent account
number of the person to whom credit is to be given, payment or credit in relation to which
credit is to be given and reasons for giving credit to such person.
Also, the deductor should report the tax deduction in the name of the other person in the
information relating to deduction of tax referred to in sub-rule (1). The deductor should
issue the certificate for deduction of tax at source in the name of the person in whose
name credit is shown in the information relating to deduction of tax referred to in sub-rule
(1) and should keep the declaration in his safe custody.
Sub-rule (3) provides that the credit for tax deducted at source and paid to the Central
Government, shall be given for the assessment year for which such income is
assessable. Where tax has been deducted at source and paid to the Central Government
and the income is assessable over a number of years, credit for tax deducted at source
shall be allowed across those years in the same proportion in which the income is
assessable to tax.
Sub-rule (4) provides that credit for tax deducted at source and paid to the account of the
Central Government shall be granted on the basis of -
(i) the information relating to deduction of tax furnished by the deductor to the income-
tax authority or the person authorized by such authority; and
(ii) the information in the return of income in respect of the claim for the credit,
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subject to verification in accordance with the risk management strategy formulated by the
Board from time to time.

The CBDT has, through Notification No.10/2009 dated 19.1.09, notified the Income-tax
(Third Amendment) Rules, 2009 which came into force from 1.4.2009. This notification
had inserted “new commercial vehicles acquired on or after 1.1.2009 but before 1.4.2009
and put to use before 1.4.2009 for the purposes of business or profession” under the
head MACHINERY AND PLANT, which would be eligible for depreciation at the rate of
50%.
Subsequently, the CBDT has, through this notification notified that the benefit of
increased depreciation of 50% on commercial vehicles be extended to such vehicles
acquired and put to use before 1st October 2009. Therefore, the commercial vehicles
acquired on or after 1.1.2009 but before 1.10.2009 and put to use before 1.10.2009 will
be eligible for depreciation at the rate of 50%.
B. SERVICE TAX
Notification No. 18/2008 ST dated 10.05.2008 has notified 16.05.2008 as the date on which
the services introduced by the Finance Act, 2008 have become effective. Further, the
amendments made in the existing service vide the Finance Act, 2008 have also become
effective from 16.05.2008.
Exemptions:
1. Amendments in Notification No.41/2007 ST dated 06.10.2007 which exempts certain
specified taxable services received by an exporter and used for export of goods
(a) Insertion of four more services
Notification No. 24/2008 ST dated 10.05.2008 (with effect from 16.05.2008) and
Notification No. 33/2008 ST dated 07.12.2008 (with effect from 18.11.2008) have
amended Notification No.41/2007 ST dated 06.10.2007 which exempts certain specified
taxable services received by an exporter and used for export of goods. The following
services received by an exporter and used for export of goods have also been exempted
vide these notifications subject to fulfillment of conditions specified therein:-
S.No. Sub-clause of Description of taxable Conditions
clause service
(105) of section 65
1 Section 65(105)(zm) services of purchase or exporter shall produce
sale of foreign currency, evidence to prove that
including money changing the services specified in
provided to an exporter in column (3) are in relation
relation to export goods. to goods exported.
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clause service
(105) of section 65
2 Section 65(105)(zzk) services of purchase or exporter shall produce

sale of foreign currency, evidence to prove that
including money changing the services specified in
provided to an exporter in column (3) are in relation
relation to export goods. to goods exported.
3 Section services of supply of exporter shall produce

65(105)(zzzzj) tangible goods for use, evidence to prove that
without transferring right of the services specified in
possession and effective column (3) are used in
control of tangible goods, relation to export of
provided to an exporter in goods.
relation to goods exported
by the exporter.
4. Section 65(105)(j) services provided by a exporter shall produce,-
clearing and forwarding (i) invoice issued by
agent in relation to export clearing and forwarding
goods exported by the agent for providing
exporter. services specified in
column (3) specifying:
(a) number and date of
shipping bill,
(b) description of export
goods,
(c) number and date of
the invoice issued by the
exporter relating to export
goods,
(d) details of all the
charges, whether or not
reimbursable, collected
by the clearing and
forwarding agent from the
exporter in relation to
export goods,
(ii) details of other

taxable services provided
by the said clearing and
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clause service
(105) of section 65
forwarding agent and
received by the exporter,
whether or not relatable
to export goods.
(b) Condition of not availing the drawback of service tax paid relaxed
As per Notification No.41/2007 ST dated 06.10.2007, the exporter can claim the refund of
the service tax paid during the course of export of goods provided that the said goods have
been exported without availing drawback of service tax paid under the Customs, Central
Excise Duties and Service Tax Drawback Rules, 1995.
However, now the condition of not availing the drawback of service tax paid has been
relaxed. Consequently, now the exporter, who is availing drawback of service tax paid, can
also claim the refund of the service tax paid during the course of export of goods.
Moreover, the form prescribed for claiming the refund has also been suitably amended to
give effect to the above amendment.
[Notification No. 33/2008 ST dated 07.12.2008]
(c) Time Limit for filing the refund claim extended
The time-limit for filing the refund claim has been extended from sixty days to six months
from the end of the relevant quarter during which the said goods have been exported.
(d) Clarification/amendment in the conditions for two services
S.No Sub-clause Description of taxable Conditions
. of clause service
(105) of
section 65
1. Section Services provided by a (i) the exporter furnishes a
65(105)(zzh) technical testing and copy of the written agreement
analysis agency in relation entered into with the buyer of
to technical testing and the said goods requiring
analysis of said goods testing and analysis of the said
where such technical testing goods;
and analysis is required to In this regard, Notification
be undertaken as per the No. 32/2008 ST dated
written agreement between 18.11.2008 has clarified that
the exporter and the buyer where the buyer of the said
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of the said goods goods does not require testing
and analysis of the said goods,
but testing is statutorily
stipulated by domestic rules
and regulations, the exporter
shall furnish copy of such rules
or regulations stipulating
testing and analysis of the said
goods.
2. Section Services provided by a (vi) earlier condition:-
65(105)(zzb) commission agent, located the refund of service tax shall
outside India, and engaged be restricted to:-
under a contract or
agreement or any other (i) actual amount of service
document by the exporter in tax paid
India, to act on behalf of the
or
exporter, to cause sale of
goods exported by him. (ii) service tax calculated on
two per cent of FOB value of
export goods,
whichever is less.
Notification No. 33/2008 ST
dated 07.12.2008 has
modified the above condition
as follows:-
The refund of service tax shall
be restricted to:-
(i) actual amount of service
tax paid
Or
(ii) service tax calculated on
ten per cent of FOB value of
export goods,
whichever is less.
2. Abatement of 30% from the gross amount charged in case of services in relation to
chit
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Notification No. 27/2008 ST dated 27.05.2008 has amended Notification No. 1/2006 ST
dated 01.03.2006 so as to provide an abatement of 30% in case of services provided in
relation to chit from the gross amount charged for such service.
“Chit” has been defined to mean a transaction whether called chit, chit fund, chitty, kuri,
or by any other name by or under which a person enters into an agreement with a
specified number of persons that every one of them shall subscribe a certain sum of
money (or a certain quantity of grain instead) by way of periodical installments over a
definite period and that each subscriber shall, in his turn, as determined by lot or by
auction or by tender or in such other manner as may be specified in the chit agreement,
be entitled to the prize amount.
3. Exemption from service tax leviable on services taxable provided to GTA for use in
transportation of goods by road
Notification No. 29/2008 ST dated 26.06.2008 has exempted from the whole of the
service tax, the service of supply of a goods carriage [taxable under section
65(105)(zzzzj)], (without transferring right of possession and effective control of such
goods carriage), provided by any person to a goods transport agency for transportation of
goods by road in the said goods carriage.
Notification No. 1/2009 ST dated 05.01.2009 has exempted from the whole of the
service tax, the following mentioned services, provided to a goods transport agency for
transportation of goods by road in the said goods carriage,
subject to the condition
that the invoice issued by such service provider, providing services should mention the
name and address of the goods transport agency and also the name and date of the
consignment note, by whatever name called, issued in his behalf:-
(a) Services provided by a clearing and forwarding agent in relation to clearing and
forwarding operations,
(b) Services provided by a manpower recruitment or supply agency in relation to the
recruitment or supply of manpower, temporarily or otherwise
(c) Services provided by a cargo handling agency in relation to cargo handling services
(d) Services provided by a storage or warehouse keeper in relation to storage and
warehousing of goods
(e) Services provided by any person in relation to business auxiliary service
(f) Services provided by any other person, in relation to packaging activity
(g) Services provided by any other person, in relation to support services of business or
commerce, in any manner
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(h) Services provided by a processing and clearing house in relation to processing,
clearing and settlement of transactions in securities, goods or forward contracts
including any other matter incidental to, or connected with, such securities, goods
and forward contracts
Others:
4. Following amendments have been made in the Service Tax Rules, 1994:
(i) Amendments in rule 6
(a) Explanation to third proviso to rule 6(1)
For the removal of doubts, it is hereby declared that where the transaction of
taxable service is with any associated enterprise, any payment received
towards the value of taxable service, in such case shall include any amount
credited or debited, as the case may be, to any account, whether called
‘Suspense account’ or by any other name, in the books of account of a person
liable to pay service tax.
(b) Rule 6(7B) - option to pay 0.25% of the gross amount in case of services
provided in relation to purchase or sale of foreign currency
The person liable to pay service tax in relation to purchase or sale of foreign
currency, including money changing, provided by a foreign exchange broker,
including an authorised dealer in foreign exchange or an authorized money
changer, referred to in sub-clauses (zm) and (zzk) of clause (105) of section 65
of the Act, shall have the option to pay an amount calculated at the rate of
0.25% of the gross amount of currency exchanged towards discharge of his
service tax liability instead of paying service tax at the rate specified in section
66 of Chapter V of the Act.
However, such option shall not be available in cases where the consideration
for the service provided or to be provided is shown separately in the invoice,
bill or, as the case may be, challan issued by the service provider.
Illustration
Buying rate $US 1 = Rs.38, selling rate $US 1 = Rs.40
(i) Person exchanged $100 for equivalent rupees
Transaction value = Rs.3800 (Rs.38 x 100)
Service tax payable =Rs.9.5 (0.25% x 3800)
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(ii) Person exchanged equivalent rupees for $100
Transaction value = Rs.4000 (40 x 100)
Service tax payable =Rs.10 (0.25% x 4000).
(c) Rule 6(1A) - amendment of Form ST-3

Notification No. 31/2008 ST dated 02.09.2008 has amended service tax return
Form ST-3. Sub-rule (1A) empowers the assessee to pay advance service tax on
his own volition and adjust the amount so paid against the service tax which he is
liable to pay for the subsequent period.
(ii) Amendment in rule 4A
With effect from 16.05.2008, in rule 4A, the words “to a customer” have been
substituted by the words “to any person”.
(iii) Amendment in rule 4B
With effect from 16.05.2008, in rule 4B, the words “to the customer” have been
substituted by the words “to the recipient of service”.
5. Amendments to abatement notification
With effect from 16.05.2008, Notification No. 22/2008 ST dated 10.05.2008 has made
the following amendments in Notification No.1/2006 ST dated 01.03.2006 which
prescribes various abatements in respect of certain taxable services specified therein:
In the said notification,
S.no. in case of for the words the words that have
been substituted are
1 mandap keeper to the client to any person
services
2 convention services client recipient of service
3 erection, customer recipient of service
commissioning or
installation service
6. With effect from 16.05.2008, Notification No. 23/2008 ST dated 10.05.2008 has
amended the following notifications in the manner given below:
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S.No. In Notification No. for the words the words that
have been
substituted are
1 18/2002 ST dated 16.12.2002: It to a client to any person
exempts the taxable services provided
by a consulting engineer to a client on
transfer of technology from so much of
the service tax leviable thereon as is
equivalent to the amount of cess paid
on the said transfer of technology
under the provisions of section 3 of the
Research and Development Cess Act,
1986.
2 33/2004 ST dated 03.12.2004: It to a customer to any person
exempts the taxable service provided
by a goods transport agency to a
customer, in relation to transport of
fruits, vegetables, eggs or milk by road
in a goods carriage, from the whole of
service tax leviable thereon.
3 34/2004 ST dated 03.12.2004: It to a customer to any person
exempts the taxable service provided
by a goods transport agency to a
customer, in relation to transport of
goods by road in a goods carriage,
from the whole of service tax where-
(i) the gross amount charged on
consignments transported in a goods
carriage does not exceed rupees one
thousand five hundred; or
(ii) the gross amount charged on an
individual consignment transported in
a goods carriage does not exceed
rupees seven hundred fifty.
7. Form No. ST-3 amended for the returns prepared by SRTPs
Notification No. 10 / 2009-ST dated 17.03.2009 has amended Form No. ST-3 in Service
Tax Rules, 1994 to furnish the details of name and identification of Service Tax Return
Preparers in case the return has been prepared by them.
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8. Conditions specified for exemption to services provided to a developer or units of
special economic zone-Notification No. 4/2004 dated 31.03.2004 superseded
Notification No.9/2009-Service Tax dated 03.03.2009 has exempted service tax paid on the
services provided in relation to the authorized operations in a Special Economic Zone, and
received by a developer or units of a Special Economic Zone, whether or not the said taxable
services are provided inside the Special Economic Zone.
Provided that
(a) Approval of list of services
The developer or units of Special Economic Zone shall get the services required in
relation to the authorised operations in the Special Economic Zone approved from
the Approval Committee (hereinafter referred to as the specified services);
(b) Actual use of specified services
The developer or units of Special Economic Zone claiming the exemption actually
uses the specified services in relation to the authorised operations in the Special
Economic Zone;
(c) Exemption in the form of refund
The exemption claimed by the developer or units of Special Economic Zone shall be
provided by way of refund of service tax paid on the specified services used in
relation to the authorised operations in the Special Economic Zone;
(d) Actual payment of service tax
The developer or units of Special Economic Zone claiming the exemption has
actually paid the service tax on the specified services;
(e) No CENVAT credit of service tax paid on specified services
No CENVAT credit of service tax paid on the specified services used in relation to
the authorised operations in the Special Economic Zone has been taken under the
CENVAT Credit Rules, 2004;
(f) Exemption under no other notification claimed
Exemption or refund of service tax paid on the specified services used in relation to
the authorised operations in the Special Economic Zone shall not be claimed except
under this notification.
Conditions to be satisfied:-
(a) the person liable to pay service tax under sub-section (1) or sub-section (2) of
section 68 of the said Finance Act shall pay service tax as applicable on the
specified services provided to the developer or units of Special Economic Zone and
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used in relation to the authorised operations in the Special Economic Zone, and
such person shall not be eligible to claim exemption for the specified services:
Provided that where the developer or units of Special Economic Zone and the
person liable to pay service tax under sub-section (2) of section 68 for the said
services are the same person, then in such cases exemption for the specified
services shall be claimed by that person;
(b) the developer or units of Special Economic Zone shall claim the exemption by filing
a claim for refund of service tax paid on specified services;
(c) the developer or units of Special Economic Zone shall file the claim for refund to the
jurisdictional Assistant Commissioner of Central Excise or the Deputy Commissioner
of Central Excise, as the case may be;
(d) the developer or units of Special Economic Zone who is not registered as an
assessee under the Central Excise Act, 1944 (1 of 1944) or the rules made
thereunder, or the said Finance Act or the rules made thereunder, shall, prior to
filing a claim for refund of service tax under this notification, file a declaration in the
Form annexed hereto with the respective jurisdictional Assistant Commissioner of
Central Excise or the Deputy Commissioner of Central Excise, as the case may be;
(e) the jurisdictional Assistant Commissioner of Central Excise or the Deputy
Commissioner of Central Excise, as the case may be, shall, after due verification,
allot a service tax code (STC) number to the developer or units of Special Economic
Zone within seven days from the date of receipt of the said Form;
(f) the claim for refund shall be filed, within six months or such extended period as the
Assistant Commissioner of Central Excise or the Deputy Commissioner of Central
Excise, as the case may be, shall permit, from the date of actual payment of service
tax by such developer or unit to service provider;
(g) the refund claim shall be accompanied by the following documents, namely:-
(i) a copy of the list of specified services required in relation to the authorised
operations in the Special Economic Zone, as approved by the Approval
Committee;
(ii) documents for having paid service tax;
(iii) a declaration by the Special Economic Zone developer or unit, claiming such
exemption, to the effect that such service is received by him in relation to
authorised operation in Special Economic Zone.
(h) the Assistant Commissioner of Central Excise or the Deputy Commissioner of
Central Excise, as the case may be, shall, after satisfying himself that the said
services have been actually used in relation to the authorised operations in the
Special Economic Zone, refund the service tax paid on the specified services used
in relation to the authorised operations in the Special Economic Zone;
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(i) where any refund of service tax paid on specified services is erroneously refunded
for any reasons whatsoever, such service tax refunded shall be recoverable under
the provisions of the said Finance Act and the rules made thereunder, as if it is a
recovery of service tax erroneously refunded.
9. Service Tax (Provisional Attachment of Property) Rules, 2008
These rules introduced by Notification No.30/2008 ST dated 01.07.2008 with effect
from 01.07.2008 provide as follows:-
Rule 3 - Procedure for provisional attachment of property
(a) The Assistant or the Deputy Commissioner of Central Excise, after due verification
of the facts and circumstances of the case, for the purpose of protecting the interest
of revenue, during the pendency of any proceeding under section 73/73A of the
Finance Act, 1994, may forward a proposal for provisional attachment of property
belonging to a person on whom a notice has been served under section
73(1)/73A(3) of the Act, to the Commissioner in the format prescribed in these
Rules.
(b) The Commissioner may cause service of a notice on such person who can make a
submission in this regard within 15 days of service of the notice.
(c) Upon consideration of submission, the Commissioner may pass an order to attach
the property provisionally.
Rule 4 - The property that can be attached
(1) Value of property attached shall be of value as nearly as may be equivalent to that
of the amount of pending revenue against such person.
(2) The movable property of such person shall be attached only if the immovable
property available for attachment is not sufficient to protect the interest of revenue.
Rule 5 - Obligations of person whose property has been attached provisionally

The said person or his representative shall not mortgage, lease, transfer, deliver or deal
with the attached property in any manner except with the previous approval of the
Commissioner of Central Excise.
Rule 6 - Period for which order of provisional attachment of property remains in
force
Every such provisional attachment shall cease to have effect after the expiry of a period
of six months from the date of the service of the order passed.
However, Chief Commissioner of Central Excise may grant an extension for a maximum
period of two years.
10. Guidelines in respect of provisional attachment of property
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Circular No. 103/06/2008 ST dated 01.07.2008 has issued the following guidelines in
respect of provisional attachment of property for the purposes of protecting the interests
of revenue during the pendency of any proceedings under section 73 or section 73A of
the Act:
1. The following types of offences committed by a service provider or an exporter may
be considered for provisional attachment of property:-
(a) Provision of a taxable service without the cover of an invoice or any other
document, as prescribed, and without payment of tax;
(b) Provision of a taxable service without declaring the correct value for payment
of service tax, where a portion of value of taxable service, in excess of invoice
price, is received by him or on his behalf but not accounted for in the books of
account.
(c) Taking of CENVAT credit without the receipt of goods or services specified in
the document based on which the said credit has been taken;
(d) Taking of CENVAT credit on invoices or other documents which a person has
reasons to believe as not genuine;
(e) Issue of service tax invoice or any other document, without providing or to be
providing a taxable service, as specified in the said invoice or other document;
(f) Claiming of refund or rebate in a fraudulent manner such as on invoice or other
documents which a person has reason to believe as not genuine.
2. The provisional attachment of property shall be resorted only in a case where the
service tax or CENVAT credit alleged to be involved is more than Rs.25 lakh.
3. Personal property of a sole proprietor or partners shall not be attached. Personal
property means any movable or immovable property which is in personal use of the
sole proprietor or partner. However, immovable property/ properties which is/ are
used for commercial purpose may be provisionally attached. Movable property
should be attached only if the immovable property available for attachment is not
sufficient to protect the interests of revenue.
It should also be ensured that such attachment does not hamper the normal
business of the assessees. This would mean that inputs required for provision of a
service should not be attached by the department.
4. Provisional attachment of the property shall not be excessive, that is to say, the
property provisionally attached shall be of value as nearly as may be equivalent to
that of the amount demanded in the proceedings under section 73 or section 73A of
the Act.
5. The provisional attachment of the property of the concerned person shall be made
after sunrise and before sunset and not otherwise.
6. After provisional attachment of the property, the Central Excise Officer shall prepare
an inventory of the property attached and specify in it the place where it is lodged or
103
kept and shall hand over a copy of the same to defaulter or the person from whose
charge the property is distrained.
7. All such property as is by the Code of Civil Procedure, 1908 exempted from
attachment and sale for execution of a decree of a Civil Court shall be exempt from
provisional attachment. The decision of the Commissioner of Central Excise in this
regard shall be final.
11. Clarification of issues relating to service tax levy on goods transport road services
Circular No. 104/07/2008-ST dated 06.08.2008 has clarified the following issues relating
to service tax levy on goods transport by road services:
(i) Issue: GTA provides service to a person in relation to transportation of goods by
road in a goods carriage. The service provided is a single composite service which
may include various intermediary and ancillary services such as loading/unloading,
packing/unpacking, transshipment, temporary warehousing. For the service
provided, GTA issues a consignment note and the invoice issued by the GTA for
providing the said service includes the value of intermediary and ancillary services.
In such a case, whether the intermediary or ancillary activities is to be treated as
part of GTA service and the abatement should be extended to the charges for such
intermediary or ancillary service?
Clarification: GTA provides a service in relation to transportation of goods by road
which is a single composite service. GTA also issues consignment note. The
composite service may include various intermediate and ancillary services provided
in relation to the principal service of the road transport of goods. Such intermediate
and ancillary services may include services like loading/unloading,
packing/unpacking, transshipment, temporary warehousing etc., which are provided
in the course of transportation by road. These services are not provided as
independent activities but are the means for successful provision of the principal
service, namely, the transportation of goods by road. The contention that a single
composite service should not be broken into its components and classified as
separate services is a well-accepted principle of classification. As clarified earlier
vide F.No. 334/4/2006-TRU dated 28.2.2006 (para 3.2 and 3.3) and F. No.
334.1/2008-TRU dated 29.2.2008 (para 3.2 and 3.3), a composite service, even if it
consists of more than one service, should be treated as a single service based on
the main or principal service and accordingly classified. While taking a view, both
the form and substance of the transaction are to be taken into account. The guiding
principle is to identify the essential features of the transaction. The method of
invoicing does not alter the single composite nature of the service and classification
in such cases is based on essential character by applying the principle of
classification enumerated in section 65A. Thus, if any ancillary/intermediate service
is provided in relation to transportation of goods, and the charges, if any, for such
services are included in the invoice issued by the GTA, and not by any other
104
person, such service would form part of GTA service and, therefore, the abatement
of 75% would be available on it.
(ii) Issue: GTA providing service in relation to transportation of goods by road in a
goods carriage also undertakes packing as an integral part of the service provided.
It may be clarified whether in such cases service provided is to be classified under
GTA service.
Clarification: Cargo handling service [Section 65(105)(zr)] means loading,
unloading, packing or unpacking of cargo and includes the service of packing
together with transportation of cargo with or without loading, unloading and
unpacking. Transportation is not the essential character of cargo handling service
but only incidental to the cargo handling service. Where service is provided by a
person who is registered as GTA service provider and issues consignment note for
transportation of goods by road in a goods carriage and the amount charged for the
service provided is inclusive of packing, then the service shall be treated as GTA
service and not cargo handling service.
(iii) Issue: Whether time sensitive transportation of goods by road in a goods carriage
by a GTA shall be classified under courier service and not GTA service?
Clarification: On this issue, it is clarified that so long as, (a) the entire
transportation of goods is by road; and (b) the person transporting the goods issues
a consignment note, it would be classified as ‘GTA Service’.
12. Clarifications of service tax issues relating to units in SEZ
Circular No. 105/08/2008 -ST dated 16.09 2008 has clarified the service tax issues
relating to units in Special Economic Zones. It has been observed that there has been
lack of clarity in the field formations administering service tax as regards the applicability
of service tax levy on units located in SEZ. This lack of clarity has resulted in certain
problems especially with respect to service tax administration. The issues and the
proposed actions are mentioned below:
(i) Non-payment of service tax by SEZ units providing taxable service outside
SEZ
There is no exclusion to SEZs in the Chapter V of the Finance Act, 1994 Taxable
services received by SEZ units and SEZ developers for consumption within the SEZ
are exempt for service tax under notification No. 4/2004-ST, dated 31.3.2004.
However, service tax is applicable on taxable services provided by SEZ units,
except such services which are exempt by notification No. 4/2004-ST. The C &AG,
has pointed out instances, where SEZ units in Chennai & Cochin were providing
taxable services like manpower supply service, technical testing and analysis
service etc., to units / persons outside SEZ, without payment of service tax. In this
regard the Ministry of Commerce (MOC) has observed that monitoring and
collection of service tax does not come under the jurisdiction of the Development
Commissioner and that such responsibility rests with the jurisdictional service tax
(or CX & ST) authorities under the Central Board of Excise and Customs. Therefore,
105
field formations should ensure that SEZs units, providing taxable services to any
person for consumption in DTA (or providing any taxable service which is otherwise
not exempt), or is otherwise liable to pay service tax under the service tax law, take
registration with the jurisdictional service tax authorities and discharge their service
tax liability in terms of the Finance Act, 1994.
(ii) Refund of Service Tax on taxable services used for the purposes of exports of
goods by SEZ units
Refund of service tax paid on certain taxable services used in export of goods is
permitted under notification 41/2007-ST. This notification prescribes that the refund
would be allowed by the jurisdictional Deputy Commissioner/Assistant
Commissioner of Central Excise. Doubts have arisen as to the authority that would
process these claims when made by SEZ, i.e., the SEZ authorities or jurisdictional
service tax authorities. As stated above, the Ministry of Commerce has already
opined that administering the service tax law is responsibility of CBEC. Refund of
service tax is to be processed by the respective jurisdictional authority administering
service tax law. Accordingly, it is clarified that the SEZ units, claiming refund of
service tax, should take registration with the jurisdictional ST authorities and file
their claims there.
RECENT AMENDMENTS IN TAXATION

Students are advised to study thoroughly the Supplementary Study Paper-2008 on Taxation
for the Professional Competence Course. The Supplementary Study Paper-2008 contains the
amendments made by the Finance Act, 2008 as well as the important notifications and
circulars issued between 1.5.07 and 30.4.08. The Supplementary Study Paper would be
available at the branches and regional sales counters of the Institute.
This RTP contains the significant amendments made between 1.5.08 and 30.04.09 through
notifications and circulars. It is very important to have good knowledge of the latest
amendments since considerable weightage is being given to the latest amendments in the
examination.
106

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PAPER – 5: TAXATION

Residential Status and Scope of total income

Incomes which do not form part of total income

Incomes which do not form part of total income

Income from house property

Profits and gains of business or profession

Profits and gains of business or profession

Deductions from Gross Total Income

Computation of total income and tax liability of an individual

Computation of Total Income

Tax deducted at source

Levy of service tax

Due date for payment of service tax

Exemption to services provided to a developer or units of SEZ in relation to authorized

In case such a property is acquired or constructed out of loan borrowed on or after 1- 4 - 99

Exemption under section 54F

2. Income from House Property

III Capital gains

Computation of total income and tax liability of members

(ii) Total income of Siya

(iii) Total income of Tina

(iv) Total income of Uday Nil

Gross product variant Income variant Consumption variant

IMPORTANT CIRCULARS / NOTIFICATIONS ISSUED BETWEEN 1.5.08 and 30.4.09

4. Circular No.11/2008 dated 19.12.2008

3. Notification No.97/2008 dated 10.10.2008

4. Notification No. 3/2009 dated 5.1.2009

5. Notification No. 9/2009 dated 7.1.2009

6. Notification No. 28/2009, dated 16.3.2009

7. Notification No. 37/2009 dated 21.4.2009

2 Section 65(105)(zzk) services of purchase or exporter shall produce

3 Section services of supply of exporter shall produce

(ii) details of other

(c) Rule 6(1A) - amendment of Form ST-3

Rule 5 - Obligations of person whose property has been attached provisionally

RECENT AMENDMENTS IN TAXATION

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