CAINTER_FOR 46" SESSION REGULAR BATCHES_BOOKNO.133 INCOME TAX_47E_PART 2_5 CHAPTERS PROBLEMS & SOLUTIONS IN INCOME TAX (BASED ON FINANCE ACT 2021) INDEX ae CHAPTER NAME PAGE NO. 2._ | TAXABILITY OF DEEMED INCOME & MISCELLANEOUS TOPIC NIL. 11, | INCOME OF OTHER PERSONS INCLUDED IN ASSESSEE'S TOTAL INCOME (OLD NAME:| 11 4 14 45 CLUBBING PROVISIONS) 12, |SET OFF AND CARRY FORWARD OF LOSSES 14. [COMPUTATION OF TOTAL INCOME AND TAX LIABILITY ; 16. | TAX DEDUCTED AT SOURCE & TAX COLLECTED AT SOURCE (TDS&TCS) 16.1- 16.21 MASTER MINDS" COMMERCE INSTITUTE PVT. LTD. e HYDERABAD | VUAYAWADA | TIRUPATHT Cell: 98851 25025 / 26 Visit us @ www.mastermindsindia.com Mail: [email protected] Facebook Page: MASTERMINDS For CA You tube Channel: MASTERMINDS FOR CARCMA Android App: Masterminds online classes | iOS App: Classplus (Organisation code is MZGUN) ISSUE DATE: 11-03-2022 MRP: RS.700MASTE! INDSINDI (MASTER (OM | 98851 25025 / 26 11. INCOME OF OTHER PERSONS INCLUDED IN ASSESSEE’S TOTAL INCOME 3S COMMERCE INSTITUTE PVT. LTD. 1) _ | PROBLEMS FOR CLASSROOM DISCUSSION (INCLUDING SOLUTIONS) 2) __ [ASSIGNMENT PROBLEMS (INCLUDING SOLUTIONS) DIVISION 1: PROBLEMS FOR CLASSROOM DISCUSSION (CRD) ORD 4: Mr. A, a widower, has 3 children of 19 yrs, 15 yrs and 5 yrs respectively. The first child derives 1,00,000 income every year. The income details of Mr. A, his second and third child are as follows: aus atuSSELERIAES (G0 GETETET Ga fog thea utea aEH TREE TETETETEd aL ETTLEEaE WG AETEyET BecoOn | The On siSussy seus sussuasanstassesstussesusstsscssenssesiansetsesterssars pests lO) seeejsa@H IMU U@)sj;se1s Meese Business income 50,000) = a Interest on FD invested out of gifts 15,000 Bank interest 7,000) 8,000 1,000 Salary eamed on application of skils 48,000] 24,000 = Interest on salary income saved and invested 8,000| 2,000 Determine the Gross total income. SOLUTION ; Computation of Gross Total Income of Mr.A and second child for the AY 2022-23 1) Salary 48,000| 24,000 2) Income from business 50,000 '3)_Income from other sources Bank interest 7,000 Interest on investment 8,000 [4) Income to be clubbed ‘a) Second child's income Interest on FD 15,000) Bank interest 8,000 Interest on investment 2,000 25,000 Less: Exempt uis. 10(32) 7,500| 23,500 b) Third child's income Bank interest 4,000) Less: Exempt u/s. 10(32) (restricted to € 1000) 1,000) Nil Gross Total income. 1,36,500| 24,000) 1) NOTE: Income of minor child is clubbed even ifit is earned on investment made out of salary earned on application of special skills. 2) NOTE: First child is a major and thus, income not clubbed. CAINTER | INCOME TAX | 47E qaPIONEER FOR MEC / CEC TO CA/ CMA FINAL CONCEPT QUESTION (SP): Will your answer change if income is generated through manual skill of ANS: Such income shall not be subject to clubbing ORD 2: During the previous year 2021-22, the following transactions occurred in respect of Mr. A. a) Mr. Ahad a fixed deposit of ® 5,00,000 in Bank of India. He instructed the bank to credit the interest on the deposit @ 9% from 01-04-2021 to 31-03-2022 to the savings bank account of Mr. B, son of his brother, to help him in his education. b) Mr. A holds 75% share in a partnership firm. Mrs. A received a commission of & 25,000 from the firm for promoting the sales of the firm. Mrs. A possesses no technical or professional qualification ©) Mr. A gifted a flat to Mrs. A on 1® April, 2021. A During the previous year 2021-22, Mrs. A’s “Income from house property” (computed) was % 52,000. d) Mr. A gifted %2,00,000 to his minor son who invested the same in a business and he derived income of 20,000 from the investment. e) Mr. A’s minor son derived an income of @ 20,000 through a business activity involving application of his skill and talent. During the year, Mr. A got a monthly pension of € 10,000. He had no other income. Mrs. A received salary of & 20,000 per month from a part time job. Discuss the tax implications of each transaction and compute the total income of Mr. A, Mrs. A and their minor child, SOLUTION: Computation of total income of Mr. A, Mrs. A and their minor son for the A.Y. 2022-23 Salary inoome (of Mrs. A) -|__2,40,000 | Pension income (of Mr. A) (® 10,000*12) 1,20,000| Less: Standard deduction u/s 16 (ia) {50,000}| (50,000 70,000| _1,90,000 Income from House Property [See Note (3) below) 52,000) | -| Income from other sources: Interest on Mr. A’s fixed deposit with Bank of India ease (&5,00,000 = 9%) [See Note (1)] : ‘Commission received by Mrs. A from a partnership firm, in which Mr. A has substantial interest [See Note (2) ] 25,000 |_ 70,000 5 -| Income before including income of minor son under sec. i 64 (1A) 1,92,000| _1,90,000 Income of the minor son from the investment made in fanaa al q the business out of the amount gifted by Mr. A [See Note (4) ] : Income of the minor son through a business activity involving | ape application of his skill and talent [See Note (5)] : Total Income 2,10,500| —1,90,000| 20,000) NOTES: 1) As per section 60, in case there is a transfer of income without transfer of asset from which such income is derived, such income shall be treated as income of the transferor. 2) As per section 64(1)(i), in case the spouse of the individual receives any amount by way of remuneration from any concern in which the individual has substantial interest, then, such income shall be included in the total income of the individual. ‘CH.11 | INCOME OF OTHER PERSONS INCLUDED IN ASSESSEE’S TOTAL INCOME | 47E 11.2os) (OM | 98851 25025 / 26 3S COMMERCE INSTITUTE PVT. LTD. ‘WWW. MASTERMINDSINDI 3) According to section 27(), an individual who transfers any house property to his or her spouse otherwise than for adequate consideration or in connection with an agreement to live apart, shall be deemed to be the owner of the house property so transferred, NOTE: The provisions of section 56(2)(x) would not be attracted in the hands of Mrs. A, since she has received immovable property without consideration from a relative i.e., her husband. 4) As per section 64(1A), the income of the minor child is to be included in the total income of the parent whose total income (excluding the income of minor child to be so clubbed) is greater. Further, as per section 10(32), income of a minor child which is includible in the income of the parent shall be exempt to the extent of & 1,500 per child. NOTE: The provisions of section 56(2)(x) would not be attracted in the hands of the minor son, since he has received a sum of money exceeding ® 50,000 without consideration from a relative i.e., his father. 5) In case the income earned by the minor child is on account of any activity involving application of any skill or talent, then, such income of the minor child shall not be included in the income of the parent, CONCEPT QUESTION(SP): Will your answer change if Mrs.A possess technical skills and holds MBA qualification? ANS: Such income shall not be clubbed inthe hands of Mr, A and will be taxed separately in the hands of Mrs. A CRD 3: Mr. Mahadev a noted bhajan singer of Rajasthan and his wife Mrs. Dariya furnish the following formation relating to the Assessment Year 2022-23. 41) [Income of Mr. Mahadev ~ professional bhajan singer (computed) 5,65,000 2) [Salary income of Mrs. Dariya (computed) 3,80,000) 3) | Loan received by Mrs. Daria from Ramu & Jay (Pvt) Ltd. (Mrs. Dariya holds 35% 2,50,000 shares of the Co. The Co. has incurred losses since its inception 2 years back) 4) [income of their minor son Golu from winning singing reality show on T.V. 2,50,000 '5) [Cash gift received by Golu from friend of Mr. Mahadev on winning the show 21,000) 9g) | terest income received by minor married daughter Gudia from deposit with Ramu & 40,000 Jay Pvt Lt Compute total taxable income of Mr. Mahadev & Mrs. Dariya for the Assessment year 2022-23. SOLUTION: Computation of Taxable income of Mr. Mahadev for A.Y. 2022-23 Professional income (bhajan singer) 5,65,000| Income of minor son - Golu + Income from winning singing reality show on T.V.Show Nil + Cash gift received by Golu from friend of Mr. Mahadev on winning the show Nil Income of minor married daughter - Gudia + Interest income on deposit with Ramu & Jay Pvt. Ltd 40,000 Less: Exempt under section 10(32) 1,500 38,500| Taxable Income| _6,03,500 Computation of Taxable income of Mrs. Dariya for A.Y. 2022-23 Salary income (computed) 3,80,000 Income from other sources (Loan received from Ramu & Jay (Pvt) Ltd) Nil Taxable Income] _ 3,80,000 CAINTER | INCOME TAX | 47E 11.3PIONEER FOR MEC / CEC TO CA/ CMA FINAL NOTES: 4) Income derived by a minor child from any activity involving application of his/her skill, talent, specialized knowledge and experience is not to be included in the hands of parent, but taxable in the hands of minor child. 2) The cash gift received by his minor son Golu (not on account of her skill) from his friends would not be taxable, since its value does not exceed 250,000. 3) Income of minor daughter would be included in the hands of Mr. Mahadev, since his income, before including minor daughter's income, is higher than his wife's income. 4) Loan amount would not be considered as deemed dividend under section 2(22)(e), even though Mrs. Dariya has substantial interest (holding 20% shares or more) in the Ramu & Jay (Pvt) Ltd., a closely held company, since the company does not have any accumulated profits on account of losses incurred in last 2 years from inception. CONCEPT QUESTION (SPI: What will be the consequence if Cash gift received by Golu is 865,000? ANS: Since the cash gift is above €50,000 entire gif is taxable RD 4: Mr. Dharmesh who is 45 years old and his wife Mrs. Anandi who is 42 years old furnished the following information: 1) [Salary Income (computed) of Mrs. Anandi 9,60,000 2) [Income of minor Son “A” who suffers from disability specified in Section 80U 3,08,000 3)_|Income of minor daughter °C" from script writing for Television Serials 7,86,000) [4) [income from garment trading business of Mr. Dharmesh 17,50,000) 5) | Cash gift received by minor daughter °C” on 02-10-2021 rom friend of Mrs. Anandi, on 45,000) ‘winning of a story writing competition 6) Income of minor son=B" form scholarship received from government. 7,00,000) 7) [Income of minor son “B" from fixed deposit with Punjab National Bank, made out of| 5,000] income earned from Scholarship. Compute the total income of Mr. Dharmesh and his wife Mrs. Anandi for Assessment Year 2022-23 assuming that they have not opted to be taxed under section 115 BAC. SOLUTION: Computation of total income of Mr. Dharmesh and Mrs. Anandi for the A.Y 2022-23 Income from garment trading business Salary Income (computed) of Mrs. Anandi -|9,60,000) Total] _17,50,000| _9,60,000 Add: Income of minor child U/S 64(1A): Income of minor son "B" from fixed deposit(5000-1500) 3,500 | Totalincome| _17,53,500| _9,60,000 NOTES: 1) Income of minor son “A” is not eligible for clubbing, because he is suffering with disability u/s 80U (Exception to sec 64(1A)). 2) Income of minor daughter °C’ from script writing is not eligible for clubbing, because she accrued such income by application of skill and talent. (Exception to sec 64(1A)). ‘CH.11 | INCOME OF OTHER PERSONS INCLUDED IN ASSESSEE’S TOTAL INCOME | 47E 114os) 3S COMMERCE INSTITUTE PVT. LTD. ‘WWW. MASTERMINDSINDI (OM | 98851 25025 / 26 3) Cash gift received by minor daughter "C” is not taxable, because the value of benefit not exceeding 50,000, hence not eligible for clubbing, 4) Scholarship received from government is exempt from tax, hence not eli le for clubbing. CONCEPT QUESTION (SP): What will be the consequence if Cash gift received by minor daughter ANS: Since the cash gift is above 850,000 entire gif is taxable ‘Cis ®75,0007 RD 5: Determine the Gross Total Income of Mr. Ram and his wife: a) Ram & his wife are partners in a firm, their shares of profit: 45,000 & 50,000. b) Their 17 years old son has been admitted to the benefits of another firm, from which he received 226,000 as his share of profit and 224,000 as interest on capital. The capital was invested out of the minor's own funds amounting to €2,50,000 €) A house property in the name of Ram was transferred to his wife on 30" Nov, 2021 for adequate consideration. The property has been let at a rent of 24,000 per month. d) 14% Debentures of 22,00,000 & 21,00,000 purchased 2 years ago are in the names of Ram & his wife. His wife had in the past transferred %1,00,000 out of her income to Ram for the purchase of the debentures in Ram's name e) Ram had transferred 760,000 to his wife in 2001 without any consideration which was given as a loan by her to Sumitra, She eamed 215,000 as interest during the earlier years which was also given on loan to Sumitra. During the previous year 2021-22, she received interest at 10% p.a. on 275,000. f) Ram transferred 60,000 to a trust, the income accruing from its investment amounted to 29,000, out of which %6,000 shall be utilised for the benefit of his son's wife and %3,000 for the benefit of his son's minor Child. 4g) Ram transferred to his wife 2,400 shares in 1998 without consideration. The co. issued 600 bonus shares to Mrs. Ram in 1998. On 01-01-2022 the co. paid dividend @ 5 per share. Mrs. Ram sold entire holdings on 01-03-2022 and made a gain of 50,000 & 90,000 on original & bonus shares. SOLUTION: Computation of total Income of Mr. Ram and Mrs. Ram for the A.Y.2022-23 Share of Profits [ Exempt U/S10 (2A)} Exempted] Exempted Income from house property (W.N.) 22,400| 11,200) Interest on debentures (1L x 14%) (1L + 4L x 14%) 74,000| 28,000] Interest on loan given by Mrs. Ram to Sumitra (Sec.64(1)(iv)) note.4 6,000] 7,500 Income derived by trust [As per Sec.64 (1)(VIll (Note.3)] note. 6,000) | Income from shares (Dividends) (2,400 x 5) (600 x 5) 12,000 3,000) Income from sale of original shares [U/s 64 (1)(IV)] note.2 50,000] 90,000] Gross Total Income| _1,10,400| _ 1,33,700 Add: Income of minor children U/S 64{1A): note.3 Share of profit received from P. Firm (Exempt U/S 10(2A)) note.5 E | Interest received from Partnership firm (24,000 -1,500) -|___22,500 Total income| 1,10,400| _ 1,56,200 NOTES: 1) Income derived by the son's minor child will not be subject to clubbing in the absence of specific provision. CAINTER | INCOME TAX | 47E 15PIONEER FOR MEC / CEC TO CA/ CMA FINAL 2) Income arising out of additions made to assets given will not be subject to clubbing. 3) Income of the minor child will be added to either of parents whose total income is higher excluding the income eligible for clubbing, 4) Income on income not subject to clubbing. 5) Share of profits earned by the minor child will not be subject to clubbing as the same was exempted U/S 10(2A) WN: Income from House Property: In the absence of information actual rent is taken as G.A.V Gross Annual Value (4,000 x 8) (4000 x 4) '32,000| 16,000) Less: Municipal Taxes paid Nil Nil Net Annual value '32,000[ 16,000) Less: Deductions U/s 24 Repairs & Maintenance (30% of 32,000) (30% of 16,000) (9,600) 4,800) Taxable Income] _22,400[ __11,200) CRD 6: Mr. Madhav made a gift of €2,50,000 to his handicapped son, Master Tapan who was aged 12 years as on 31% March 2022. which he deposited in a fixed deposit account in a Nationalised bank at 10% interest a. ‘compounded ‘annually. The balance in this account as on 1% April 2021 was ® 2,75,000 and the bank credited a sum of % 27,500 as interest on 31st March 2022 Madhav's father gifted equity shares worth 250,000 of an Indian company to Master Manan, another son of Mr. Madhav (Date of birth 10" April 2012) in July 2012 which were purchased by him on 8" December 2008 for 280,000. Manan received a dividend of 25,000 on these shares in October 2021. He sold these shares on 1% November 2021 for ®5,00,000 and deposited 23,00,000 in a company at 15% interest per annum Cost Inflation Index 2006-07 122 2012-13 200 2017-18 272 2021-22 317 Mr. Madhav has a taxable income of %3,50,000 from his profession during the financial year 2021-22 Compute his Gross Total Income for the A.Y. 2022-23, SOLUTION: Computation of gross total income of Mr. Madhav for AY 2022-23 [ESEEEEEE SEP ar Fyre ery reg TET [TAG] vs [eae ee] Income from profession '3,50,000 Income of minor son Manan Capital gains Full value of consideration '5,00,000 Less: Indexed Cost of Acquisition [%80,000 x 317/200] 7,26,800| _3,73,200 Income from Other Sources Dividends on equity shares 5,000) Interest on company deposit [23,00,000 x 15% x 5/12] 48,750| 23,750 3,96,950 Less: Exemption u/s 10(32) in respect of income of minor child 7,500] 3,95,450) Gross total income 7,485,450 ‘CH.11 | INCOME OF OTHER PERSONS INCLUDED IN ASSESSEE’S TOTAL INCOME | 47E 11.6os) NOT! 1) As per section 64(1 A), in computing the total income of an individual, all such income accruing or arising to.a minor child shall be included. However, income of a minor child suffering from disability specified under section 80U would not be included in the income of the parent but would be taxable in the hands of the minor child. Therefore, in this case, interest income of 227,500 arising to handicapped son, Master Tapan, would not be clubbed with the income of Mr. Madhav 2) Income of the other minor child, Master Manan, is includible in the hands of Mr. Madhav, assuming that Mr. Madhav's income is higher than that of his wife. (OM | 98851 25025 / 26 3S COMMERCE INSTITUTE PVT. LTD. 3) In the above solution, the indexed cost of acquisition has been computed by taking into consideration the first year in which Master Manan held the asset, ie., F.Y.2012-13, as per the definition given in clause (i) of Explanation below section 48. However, as per the view expressed by Bombay High Court in CIT v. Manjula J. Shah 16 Taxman 42, in case the cost of acquisition of the capital asset in the hands of the assessee is taken to be cost of such asset in the hands of the previous owner, the indexation benefit would be available from the year in which the capital asset is acquired by the previous owner. If this view is considered, the indexed cost of acquisition would have to be calculated by considering the Cost Inflation Index of F.Y.2006-07. The solution based on alternate view is given as under. ‘Computation of gross total income of Mr. Madhav for the A.Y. 2022-23 iibEUEDEE REISE EEnETEETIEnT Particubartfushistsiisusistisisiistininpars(@pmnjunt (pe tee (@jitte Income from profession 350,000 Income of minor son Manan Capital gains Full value of consideration 5,00,000 Less: Indexed Cost of Acquisition [280,000 x 317/122] 2,07,869| 2,92,131 Income from Other Sources Dividend on equity shares 5,000] Interest on company deposit [23,00,000 x 15% x 5/12] 18,750| 23,750 3,15,881 Less: Exemption u/s 10(82) in respect of income of minor child 4,500] _3,14,381 Gross Total Income 6,64,381 CRD 7: A proprietary business was started by Smt. Rani in the year 2019. As on 01.04.2020 her capital in business was @ 3,00,000 Her husband gifted 22,00,000 on 10.04.2020, which amount Smt. Rani invested in her business on the same date. Smt. Rani eamed profits from her proprietary business for the financial year 2020-21, 21,50,000 and financial year 2021-22 %3,90,000. Compute the income, to be clubbed in the hands of Rani’s husband for the Assessment year 2022-23 with reasons. SOLUTION: Section 64(1) of the Income-tax Act, 1961 provides for the clubbing of income in the hands of the individual, if the income earned is from the assets transferred directly or indirectly to the spouse of the individual, otherwise than for adequate consideration. In this case Smt. Rani received a gift of %2,00,000 from her husband which she invested in her business. The income to be clubbed in the hands of Smt. Rani's husband for A.Y, 2022-23 is computed as under: Capital as at 01.04.2020 3,00,000 3,00,000 Investment on 10.04,2020 out of gift received from her husband a 2,00,000| 2,00,000) 3,00,000) 2,00,000| 5,00,000) CAINTER | INCOME TAX | 47E 1.7PIONEER FOR MEC / CEC TO CA/ CMA FINAL Profit for F.Y. 2020-24 to be apportioned on the basis| of capital employed on the first day of the previous. 1,50,000 1,50,000 year ie. on 01.04.2020 Capital employed as at 01.04.2021 4,50,000 2,00,000| 6,50,000 Profit for F.Y.2021-22 to be apportioned on the basis | of capital employed as at 01.04.2021 (i.e., 45:20) Therefore, the income to be clubbed in the hands of Smt. Rani’s husband for A. Y.2022-23 is 21,20,000. 2,70,000 4,20,000| 3,90,000) CRD 8: Mr. Ramesh gifted a sum of 8 5 lacs to his brother's minor son on 16-04-2021. On 18-04-2021, his brother gifted debentures worth 2 6 lacs to Mrs. Ramesh. Son of Mr. Ramesh’s brother invested the amount in fixed deposit with Bank of India @ 9% p.a. interest and Mrs. Ramesh received interest of % 45,000 on debentures received by her. Discuss the implications under the provisions of the Income-tax Act, 1961 SOLUTION: These transfers are in the nature of cross transfers. a) As per section 64(1A), all income of a minor child is includible in the hands of the parent whose total income, before including minor's income is higher. Accordingly, the interest income arising to Mr.Ramesh’s brother's son from fixed deposits would be included in the total income of Mr. Ramesh’s brother, assuming that Mr. Ramesh’s brother's total income is higher than his wife's total income, before including minor's income. Mr. Ramesh’s brother can claim exemption of & 1,500 under section 10(32). ') Interest on debentures arising in the hands of Mrs, Ramesh would be taxable in the hands of Mr. Ramesh as per section 64(1)(iv). In the hands of Mr. Ramesh, interest received by his spouse on debentures of € 5 lacs alone would be included and not the entire interest income on the debentures of &6 lacs, since the cross transfer is only to the extent of @ 5 lacs. Hence, only proportional interest (i.e., 5/6" of interest on debentures received) 37,500 would be includible in the hands of Mr. Ramesh, NOTE: The provisions of section 56(2)(x) are not attracted in respect of sum of money transferred or value of debentures transferred, since in both the cases, the transfer is from a relative. ERD 9: State in whose income, the following incomes will be included: a) R transferred his self-acquired property to the HUF, of which he is a member. During the previous year 2021-22 the HUF eamed an income of 242,000 from this property. b) R transferred his self-acquired property to the HUF of which he is a member. The HUF earns an income of 242,000 per annum. During the previous year 2021-22 the HUF is partitioned, and the property sis divided as under: R 115th of share R's minor son 115th of share R's major son 116th of share Mrs. R 105th of share R's Brother 115th of share SOLUTION a) Income from house property shall be taxable in the hands of R b) Amount to be taxed in the hands of R R's own share 1/5 8,400 Mrs. R's Share 1/5" 8,400 ‘CH.11 | INCOME OF OTHER PERSONS INCLUDED IN ASSESSEE’S TOTAL INCOME | 47E 11.8MASTER MINDS COMMERCE STITUTE PVT. {TD OM | 98851 25025 / 26 R's Minor son share 1/5" 8,400 Less: Exempt u/s 10(32) (1,500) 6,900 Total income 23,700 [ DIVISION 2: ASSIGNMENT PROBLEMS (AP) ASSIGN 1: Mrs. and Mr. Vinod Amin have two minor children M and N. The following are the receipts in the hands of M and N during the year ended 31-3-2022 a) M received a gift of 870,000 from her friend's father on the occasion of her birthday, b) Mwon a prize money of 23,00,000 in National Quiz competition. This was invested in debentures of a company, from which interest of 19,000 (gross) accrued during the year. ¢) N.won prize in a lottery. The net amount received after deduction of tax at source was 21,058,000. Mr. Vinod Amin’s income before considering clubbing provisions is higher than that of his wife. Discuss how these items will be considered for taxation under the provisions of the Income Tax Act, 1961. Detailed computation of income is not required. SOLUTION: a) Gift received from non-relative by minor daughter M: Gift of 270,000 received by minor daughter M, from non-relative would be taxable, since the amount of gift exceeds 250,000. It would be included in the hands of her father, Mr. Vinod Amin, since his income before considering clubbing provisions is higher than that of his wife. b) Prize money of 2 3,00,000 in national Quiz Competition! Interest on debentures received by minor daughter M: Income derived by a minor child from any activity involving application of his/her skill, talent, specialized knowledge, and experience is not to be included in the hands of parent. Hence, the prize money of 23,00,000 won in National Quiz Competition by minor daughter M from exercise of special talent would not be included in the income of either parent. However, interest of 219,000 on debentures has to be included in the hands of her father, Mr. Vinod Amin, even if the investment is made out of income arising from application of special talent. Exemption of 21,500 would be allowed in respect of the aggregate income of minor daughter M so included in the hands of Mr. Vinod Amin under section 10(32) ¢) Winning from lottery by minor child M: Winnings of €1,50,000 (1,05,000 x 100/70) from lotteries by minor child N is includible in the hands of his father, Mr. Vinod Amin. Mr. Vinod Amin can claim credit of tax of 245,000 deducted at source from such lottery income. Note: As regards availability of exemption under section 10(32) in respect of lottery income of minor child N includible in the hands of his father, there are two possible views. Since exemption of upto 21,500 under section 10(32) is available in respect of any income of minor child includible in the total income of parent, fone view is that such exemption would also be available in respect of lottery income of a minor child includible in the hands of parent. ASSIGN 2: The following are the details of the transactions pertaining to Mr. Sangram, Mrs. Sangeeta (wife) and their two minor sons Master Aayu and Avi for the previous year 2021-22. a) Master Aayu eamed @ 51,000 by investing % 3,25,000 in a business. The said amount ie., ® 3,25,000, was received as a gift from his father Mr. Sangram. b) Mr. Sangram had a fixed deposit of 2 2,00,000 in Canara Bank. He instructed the bank to credit the interest on the deposit @ 9% from 01-04-2021 to 31-03-2022 to the savings bank account of Mr. Babloo, son of his brother, to help him in his education. CAINTER | INCOME TAX | 47E 11.9PIONEER FOR MEC / CEC TO CA/ CMA FINAL ) Master Avi derived an income of @ 35,000 through an activity involving apy d) Mr. Sangram gifted a flat to Mrs. Sangeeta on 1* April, 2021. During the previous year 2021-22, Mrs. ‘Sangeeta “Income from house property” (computed) was € 5,12,000. e) Mr. Sangram holds 75% share in a partnership firm. Mrs. Sangeeta received a remuneration of & 32,500 from the firm for designing the webpage of the firm. Mrs. Sangeeta possesses no technical or professional qualification. f) During the year, Mr. Sangram got a monthly pension of % 50,000. He had no other income. Mrs. ‘Sangeeta received salary of ® 12,000 per month from a part time job Discuss the tax implications of each transaction and compute the total income of Mr. Sangram, Mrs. ‘Sangeeta and their minor sons ‘SOLUTION: Computation of Total Income of Mr. Sangram, Mrs. Sangeeta and their Minor son for the A.Y. 2022-23 Salary income (of Mrs. Sangeeta) - 1,44,000 - Pension income (of Mr. Sangram) (® 50,000 * 12) 600,000 Income from House Property [See Note (3) below] 5,12,000 | = Income from other sources Interest on Mr. Sangram’s fixed deposit with Canara Bank (& 2,00,000 x 9%) [See Note (1) below] Remuneration received by Mrs. Sangeeta from a partnership firm, in which Mr. Sangram has substantial 32,500] 50,500 | - interest [See Note (2) below] Income before including income of minor son under section 64(1A) Income of the Master Aayu from the investment made in the business out of the amount gifted by Mr 49,500 : : ‘Sangram [See Note (4) below] Income of the Master Avi through an activity involving ‘application of his skill and talent [See Note (5) below] Total Income 12,12,000 1,44,000| 35,000) NOTES: 1) As per section 60, in case there is a transfer of income without transfer of asset from which such income is derived, such income shall be treated as income of the transferor. Therefore, the fixed deposit interest of @ 18,000 transferred by Mr. Sangram to Mr. Babloo shall be included in the total income of Mr. Sangram. 2) As per section 64(1)(i), in case the spouse of the individual receives any amount by way of income from any concern in which the individual has substantial interest (i.e., holding shares carrying at least 20% voting power or entitled to at least 20% of the profits of the concern), then, such income shall be included in the total income of the individual, 11,62,500 1,44,000 : 35,000 3) According to section 27(), an individual who transfers any house property to his or her spouse otherwise than for adequate consideration or in connection with an agreement to live apart, shall be deemed to be the owner of the house property so transferred. Hence, Mr. Sangram shall be deemed to be the owner of the flat gifted to Mrs. Sangeeta and hence, the income arising from the same shall be computed in the hands of Mr. Sangram. NOTE: The provisions of section 56(2)(x) would not be attracted in the hands of Mrs. Sangeeta, since she has received immovable property without consideration from a relative i.e., her husband ‘CH.11 | INCOME OF OTHER PERSONS INCLUDED IN ASSESSEE’S TOTAL INCOME | 47E 11.10(MASTER (OM | 98851 25025 / 26 4) As per section 64(1A), the income of the minor child is to be included in the total income of the parent ‘whose total income (excluding the income of minor child to be So clubbed) is greater. Further, as per section 10(32), income of a minor child which is includible in the income of the parent shall be exempt to the extent of ® 1,500 per child, but this exemptions is not available if Assessee opts the provisions u/s 115BAC. NOTE: The provisions of section 56(2)(x) would not be attracted in the hands of the Master Aayu, since he has received a sum of money exceeding @ 50,000 without consideration from a relative i... his father. INDS COMMERCE INSTITUTE PVT. LTD. ‘WWW. MASTERMINDSINDI 5) In case the income earned by the minor child is on account of any activity involving application of any skill or talent, then, such income of the minor child shall not be included in the income of the parent, but shall be taxable in the hands of the minor child. Therefore, the income of & 35,000 derived by Master Avi through an activity involving application of his skill and talent shall not be clubbed in the hands of the parent. Such income shall be taxable in the hands of the minor son ASSIGN 3: Mr. B is the Karta of a HUF, whose members derive income as given below a)_|Income from B' s profession 45,000 b)_[Mrs. B's salary as fashion designer 76,000| ¢)_|Minor son D (interest on fixed deposits with a bank which were gifted to him by his uncle)| 10,000 4) _[Minor daughter P's earnings from sports 95,000| e)_[D's winnings from lottery (gross) 7,95,000) Discuss the tax implications in the hands of Mr. and Mrs. B. SOLUTION: Clubbing of income and other tax implications: As per the provisions of section 64(1A), in case the mariage of the parents subsist, the income of a minor child shall be clubbed in the hands of the parent ‘whose total income, excluding the income of the minor child to be clubbed, is greater. In this problem, it has been assumed that the marriage of Mr. B and Mrs. B subsists. Further, in case the income arises to the minor child on account of any manual work done by the child or as a result of any activity involving application of skill, talent, specialized knowledge or experience of the child, then, the same shall not be clubbed in the hands of the parent. ‘Tax implications: a) Income of 2 45,000 from Mr. B's profession shall be taxable in the hands of Mr. B under the head “Profits and gains of business or profession”. b) Salary of 26,000 (2 76,000 less standard deduction under section 16(ia) of 50,000) shall be taxable as "Salaries" in the hands of Mrs. B. ¢)_ Income from fixed deposit of 2 10,000 arising to the minor son D, shall be clubbed in the hands of the father, Mr. B as “Income from other sources’, since his income is greater than income of Mrs. B before including the income of the minor child. As per section 10(32), income of a minor child which is includible in the income of the parent shall be exempt to the extent of & 1,500 per child, The balance income would be clubbed in the hands of the parent as “Income from other sources’. ) Income of & 95,000 arising to the minor daughter P from sports shall not be included in the hands of the arent, since such income has arisen to the minor daughter on account of an activity involving application of her skill e) Income of 2 1,95,000 arising to minor son D from lottery shall be included in the hands of Mr. B as “Income from other sources’, since his income is greater than the income of Mrs. B before including the income of minor child, Note - Mr. B can reduce the tax deducted at source from such lottery income ‘while computing his net tax liability, CAINTER | INCOME TAX | 47E 141PIONEER FOR MEC / CEC TO CA/ CMA FINAL ASSIGN 4: Compute the gross total income of Mr. & Mrs. A from the followin [:SEEESESSSSSSESESSEEE SSEESEESESSS eae ASE SESE SST AourieT)] Salary income (computed) of Mrs. A 2,30,000 Income from profession of Mr. A '3,90,000 Income of minor son B from company deposit 15,000) Income of minor daughter C from special talent 32,000| Interest from bank received by C on deposit made out of her special talent 3,000) Gift received by C on 30.09.2020 from friend of Mrs. A 2,500) Brief working is sufficient. Detailed computation under various heads of income is NOT required. SOLUTION: As per the provisions of section 64(1A) of the Income-tax Act, 1961, all the income of a minor child has to be clubbed in the hands of that parent whose total income (excluding the income of the minor) is greater. The income of Mr. A is ® 3,90,000 and income of Mrs. A is & 2,30,000. Since the income of Mr. Ais greater than that of Mrs. A, the income of the minor children have to be clubbed in the hands of Mr. A. itis assumed that this is the first year when clubbing provisions are attracted Income derived by a minor child from any activity involving application of his/her skill, talent, specialised knowledge and experience is not to be clubbed. Hence, the income of minor child C from exercise of special talent will not be clubbed However, interest from bank deposit has to be clubbed even when deposit is made out of income arising from application of special talent. The Gross Total Income of Mrs. A is 2 2,30,000. The total income of Mr. A giving effect to the provisions of section 64(1A) is a follows: ‘Computation of gross total income of Mr. A for the A.Y. 2022-23 Income from profession 3,90,000 Income of minor son B from company deposit 15,000 Less: Exemption under section 10(32) 41,500 13,500| Income of minor daughter © From special talent - not to be clubbed : Interest from bank 3,000 Gift of ® 2,500 received from a non-relative is not taxable under section 56(2)(x) being less than the aggregate limit of € 50,000 Nil 3,000 Less: Exemption under section 10(32) 4,500 7,500 Gross Total Income 4,085,000 ASSIGN 5: Mr. Shashank is an employee of KML (P) Ltd. drawing a monthly salary of 2 30,000. He provides you the following information for the previous year 2021-22: a) He hada fixed deposit of % 4,00,000 with State Bank of India with interest @10%. He instructed bank to credit such interest on deposit to the saving account of Mr. Ram, his sister's son, to help him in his higher education. b) He gifted a flat to Mrs. Kajal (wife of Mr. Shashank) on April 1, 2021. During the previous year 2021-22, she received a rent of & 20,000 p.m. from letting out the fiat. ¢) He gifted % 10,00,000 to Mrs. Kajal on 1* April, 2021 which Mrs. Kajal invested in her business on the same day. Capital in the business before such investment was % 20,00,000. She eamed profits from business for the financial year 2021-22 of % 9,00,000. ‘CH.11 | INCOME OF OTHER PERSONS INCLUDED IN ASSESSEE’S TOTAL INCOME | 47E 11.12(MASTER (OM | 98851 25025 / 26 ) His minor son Sandeep earned income from company deposit of & 1,50,000. Mr. Shashank and Mrs. Kajal do not have any other income during the P.Y, 2021-22. Compute the total income of Mr. Shashank and Mrs. Kajal for A.Y. 2022-23, 3S COMMERCE INSTITUTE PVT. LTD. ‘WWW. MASTERMINDSINDI SOLUTION: Computation of Total income of Mr. Shashank and Mrs. Kajal for the A.Y. 2022-23, Salary Income (& 30,000 x 12) 3,860,000 Income from house property [® 2,40,000 (® 20,000 x 12) less a standard deduction of 30%] (Note 1) ca Income from other sources Interest on fixed deposit with State bank of India (& 4,00,000 x cana 10%) (Note 2) Profits and gains from business or profession Profits eamed by Mrs. Kajal from her business (Note 3) 3,00,000 6,00,000 Income before including income of minor child under sec. 64(1A) 8,68,000 6,00,000 Income from other sources Minor son Sandeep - Income from company deposit (Note 4) 1,48,500 Gross Total Income 10,16,500 6,00,000 NOTES: 1) According to section 27(), an individual who transfers any house property to his or her spouse otherwise than for adequate consideration or in connection with an agreement to live apart, shall be deemed to be the owner of the house property so transferred. Hence, Mr. Shashank shall be deemed to be the owner of the fiat gifted to Mrs. Kajal and hence, the income arising from the same shall be computed in the hands of Mr. Shashank, NOTE: The provisions of section 56(2)(x) would not be attracted in the hands of Mrs. Kajal, since she has received immovable property without consideration from a relative i.e., her husband, 2) As per section 60, in case there is a transfer of income without transfer of asset from which such income is derived, such income shall be treated as income of the transferor. 3) Section 64(1)(iv) provides for the clubbing of income in the hands of the individual, if the income earned is from the assets transferred directly or indirectly to the spouse of the individual, otherwise than for adequate consideration or in connection with an agreement to live apart. In this case Mrs. Kajal received a gift of 2 10,00,000 on 01.04.2021 from her husband which she invested in her business on the same day. The income to be clubbed in the hands of Mr. Shashank for the A. Y, 2022-23 is computed as under. Capital as on 01.04.2021 20,00,000 10,00,000| 30,00,000 Profit for P.Y. 2021-22 to be| apportioned on the basis of capital femployed on the first day of the previous year i.e., as on 01.04.2021 (2:1) Therefore, the income to be clubbed in the hands of Mr. Shashank for the A.Y.2022-23 is % 3,00,000. NOTE: The provisions of section 56(2)(x) would not be attracted in the hands of Mrs. Kajal, since she has received a sum of money exceeding % 50,000 without consideration from a relative ie., her husband 6,00,000 3,00,000 (9,00,000 x 2/3) (9,00,000 x 1/3)| 00,000 CAINTER | INCOME TAX | 47E 11.13PIONEER FOR MEC / CEC TO CA/ CMA FINAL 4) As per section 64(1A), the income of the minor child is to be included in the total income of the parent ‘whose total income (excluding the income of minor child to be so clubbed) is greater. Further, as per section 10(32), income of a minor child which is includible in the income of the parent shall be exempt to the extent of & 1,500 per child. Therefore, the income of ® 1,50,000 received by minor son Sandeep from company deposit shall, after providing for exemption of 2 1,500 under section 10(32), be included in the income of Mr. Shashank, since Mr. Shashank’s income of % 8,68,000 (before including the income of the minor child) is greater than Mrs. Kajal’s income of % 6,00,000. Therefore, % 1,48,500 (i.e., % 1,50,000 - % 1,500) shall be included in Mr. Shashank's income, It is assumed that this is the first year in which clubbing provisions are attracted ASSIGN 6: On 31-03-2020, Mr. Rajesh gifted to his wife Mrs. Laxmi 300 listed shares, which had been bought by him on 30-04-2019 at & 3,000 per share. On 01-10-2021, bonus shares were allotted in the ratio of 1:1. All these shares were sold by Mrs. Laxmi as under: 41.05.2021 _| Sold in recognized stock exchange, STT paid 200 5,00,000 31.12.2021 | Private sale to an outsider All bonus shares | 3,00,000 Private sale to her friend Mrs. Jhansi (Market value on 31.03.2022 | this date was 22, 10,000) 100 2,90,000 Briefly state the income-tax consequences in respect of the sale of the shares by Mrs. Laxmi, showing clearly the person in whose hands the same is chargeable, the quantum and the head of income in respect of the above transactions. Detailed computation of total income is not required Net sales value represents the amount credited after all taxes, levies, brokerage, etc., and the same may be adopted for computing the capital gains. SOLUTION: a) Income/loss to be clubbed in the hands of Mr. Rajes! Computation of capital gains on original shares for the A.Y 2022-23 1) | Sale of 200 shares on 1,05.2024 (STT Paid): ‘Sale consideration 5,00,000 Less: Cost of acquisition (3,000 x 200) 8,00,000) Long term capital losss u/s 112A (NOTE) 4,00,000 2) 2,90,000 Less: Indexed cost of acquisition (@ 3,000 x 100 x 301/289) 3.12,457 Long term capital loss u/s 112 (22,457) Note: Both the Long term capital losss u/s 112A and u/s 112 are eligible for clubbing in the hands of Mr-Rajesh, 'b) Income taxable in the hands of Mrs. Laxmi: Computation of capital gains on sale of 100 bonus shares for the A.Y 2022-23 ‘Sale consideration 3,00,000 Less: Cost of acquisition of bonus shares Nil [Short-term capital gains (other than Sec.111A) 3,00,000 Note: Income arising out of additions made to assets given will not be subject to clubbing ‘CH.11 | INCOME OF OTHER PERSONS INCLUDED IN ASSESSEE’S TOTAL INCOME | 47E 11.44EQ MINDS COMMERCE INSTITUTE PYT. LTD. WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 °) Taxability in the hands of Mrs. Jhansi under the head “income from other sources”: Mrs. Jhansi hnas received shares from her friend, Mrs. Laxmi, for inadequate consideration. The provisions of section 56(2)(x) would be attracted in the hands of Mrs, Jhansi, hence the taxable value of gift is 80,000 (2,90,000 - 2,10,000), ASSIGN 7: Mr. Vaibhav started a proprietary business on 01.04.2020 with a capital of ® 5,00,000. He jcurred a loss of % 2,00,000 during the year 2020-21. To overcome the financial position, his wife Mrs. Vaishali, a software Engineer, gave a gift of ® 5,00,000 on 01.04.2021, which was immediately invested in the business by Mr. Vaibhav. He earned a profit of @ 4,00,000 during the year 2021-22. Compute the amount to be clubbed in the hands of Mrs. Vaishali for the Assessment Year 2022-23. If Mrs. Vaishali gave the said amount as loan, what would be the amount to be clubbed? SOLUTION: Section 64(1)(iv) of the Income-tax Act, 1961 provides for the clubbing of income in the hands of the individual, if the income eamed is from the assets (other than house property) transferred directly or indirectly to the spouse of the individual, otherwise than for adequate consideration or in connection with an agreement to live apart. In this case, Mr. Vaibhav received a gift of € 5,00,000 on 01.04.2021 from his wife Mrs. Vaishali, which he invested in his business immediately. The income to be clubbed in the hands of Mrs. Vaishali for the A.Y 2022-23 is computed as under: Capital as on 01.04.2021 1 0 one +,00,000 '8,00,000 Profit for P.Y. 2021-22 to be apportioned a es on the basis of capital employed on the 5 first day ofthe previous year ie., as on] (4,00,000 x 3) (400,000 x 2) ee 01.04.2021 (3:5) . 2 Therefore, the income to be clubbed in the hands of Mrs. Vaishali for the A.Y.2022-23 is 2 2,50,000. In case Mrs. Vaishali gave the said amount of % 5,00,000 as a bona fide loan, then, clubbing provisions ‘would not be attracted, NOTE: The provisions of section 56(2)(x) would not be attracted in the hands of Mr. Vaibhav, since he has received a sum of money exceeding @ 50,000 without consideration from a relative ie., his wife. ASSIGN 8: Mr. X gifted a sum of & 8 lacs to his brother's minor son on 25-08-2021. On 28-08-2021, his brother gifted debentures worth % 10 lacs to Mrs. X. Son of Mr. X’ brother invested the amount in fixed deposit with Bank of India @ 10% p.a. interest and Mrs.X received interest of % 60,000 on debentures received by her. Discuss the implications under the provisions of the Income-tax Act, 1961 SOLUTION: These transfers are in the nature of cross transfers. a) As per section 64(1A), all income of a minor child is includible in the hands of the parent whose total income, before including minor's income is higher. Accordingly, the interest income arising to Mr. X brother's son from fixed deposits would be included in the total income of Mr. X's brother, assuming that Mr. X's brother's total income is higher than his wife's total income, before including minor's income. Mr. X's brother can claim exemption of & 1,500 under section 10(32). 'b) Interest on debentures arising in the hands of Mrs. X would be taxable in the hands of Mr. X as per section 64(1)(iv). In the hands of Mr. X, interest received by his spouse on debentures of ® & lacs alone ‘would be included and not the entire interest income on the debentures of & 10 lacs, since the cross transfer is only to the extent of @ 8 lacs. Hence, only proportional interest (i.e., 8/10" of interest on debentures received) & 48,000 would be includibie in the hands of Mr. X. Note: The provisions of section 56(2)(x) are not attracted in respect of sum of money transferred or value of debentures transferred, since in both the cases, the transfer is from a relative. CAINTER | INCOME TAX | 47E 11.15PIONEER FOR MEC / CEC TO CA/ CMA FINAL ASSIGN 9: State in whose income, the following incomes will be included: a) X transfers his self-acquired property yielding an annual income of ® 60,000 to his Hindu undivided family, consisting of X, Mrs. X, his major son Y and minor son Z. b) Assume in the example given above , that the property is partitioned equally among the family members, discuss the clubbing provisions. SOLUTION: a) Income of % 60,000 will be included in the income of X (and not of the HUF). b) Computation of total income of members. ‘Own share out of converted property 15,000 =| 15,000 = ‘Share of Mrs. X junder section 64(2)] 15,000 7 = | ‘Share of minor child under section 64(1A) 13,500 = = =| after exemption of 2 1,500° Total 43,500) =| 15,000| =| THE END COPYRIGHTS RESERVED TO MASTERMINDS COMMERCE INSTITUTE PVT. LTD., GUNTUR. UNAUTHORISED COPYING OF ANY PORTION OF THIS MATERIAL BY USING PHOTOCOPYING OR ANY OTHER MEANS OR UNAUTHORISED USAGE OF THIS MATERIAL IS A PUNISHABLE OFFENSE (MAY ATTRACT IMPRISONMENT OR PENALTY OR BOTH) ‘CH.11 | INCOME OF OTHER PERSONS INCLUDED IN ASSESSEE’S TOTAL INCOME | 47E 11.1612, SET OFF AND CARRY FORWARD OF LOSSES 1) _ | PROBLEMS FOR CLASSROOM DISCUSSION (INCLUDING SOLUTIONS) 2)__ [ASSIGNMENT PROBLEMS (INCLUDING SOLUTIONS) [___DISIONT PROBLEMS FOR CLASSROOM UIScUSsION(cR) =| CRD 4: Mr. Rajat submits the following information for the financial year ending 31% March 2022. He desires that you should 1) Compute the total income and. 2) Ascertain the amount of losses that can be carried forward. ja) [HOUSE PROPERTY i) House No. |- Income afer all statutory deductions 72,000 ii) House No. Il - Current year loss (80,000) b) [HE HAS THREE PROPRIETARY BUSINESSES. i) Textile Business: ‘+ Discontinued from 31% October 2021 - Current year loss 40,000 + _ Brought forward business loss of A.Y.2017-18 95,000 Chemical Business: ‘+ Discontinued from 1* March 2019 - hence no profitfoss Nil + Bad debts allowed in earlier years recovered during this year 35,000 ‘+ _ Brought forward business loss of AY. 2018-19 50,000 ) Leather Business: Profit for the current year 7,00,000 Iv) Share of profit in a firm in which he is partner since 2005) 16,550 [c) [CAPITAL GAINS: i) Short-term capital gain 60,000 Long-term capital loss 35,000 'd) [OTHER POINTS: Contribution to LIC towards premium’ 10,000 SOLUTION: Computation of Total Income of Mr. Rajat for the A.Y. 2022-23 a)_Income from house property House No. 1 72,000) House No. 2 (30,000! 42,000 b) Profits and gains of business or profession Profit from leather business 7,00,000) ‘CAINTER | INCOME TAX | 47€ RaPIONEER FOR MEC / CEC TO CA/ CMA FINAL Less: Current year loss of textile business (40,000! 60,000) Bad debts recovered taxable under section 41(4) 35,000| Less: Brought forward business loss of textile business for AY 2017-18 set off against the business income of current year 95,000| Nil ¢) Capital Gains Short-term capital gain 60,000) Gross Total Income 1,02,000 Less: Deduction under Chapter VI-A Under section 80C - LIC premium paid 10,000| Total Income 92,000) ‘Statement of losses to be carried forward to A.Y. 2022-23 Brought forward chemical business loss of A.Y. 2018-19 to be carried forward u/s 72 0,000 Long term capital loss of A.Y. 2022-23 to be carried forward under section 74 35,000 NOTES: 41) Share of profit from firm of Rs. 16,550 is exempt under section 10(2A). forward to the next year to be set-off against long-term capital gains of that year. 31.03.2022 2) Long-term capital loss cannot be set-off against short-term capital gains. Therefore, it has to be carried ERD 2: The following are the details relating to Mr. Raju; a resident Indian, relating to the year ended sya sunu aaron signees sdsusssdeusss¥aysd@enTICOMasustessusnissniarsusnasl vane nianTTIEE ‘Amount (@) Short term capital gain 1,40,000 Income from salaries 2,50,000 Loss from house property 2,20,000 Loss from card games 20,000| Brought forward Long term capital loss of AY. 2017-18 86,000| Dividend from Malpani Ltd. 11,00,000) Loss from tea business 96,000 | losses which can be carried forward, SOLUTION: Computation of Taxable Income of Mr. Raju for the A.Y. 2022-23 Mr. Raju's wife, Ishita is employed with Chander Ltd, at a monthly salary of & 15,000, where Mr. Raju holds 21% of the shares of the company. Ishita is not adequately qualified for the post held by her in Chander Ltd You are required to compute taxable income of Mr. Raju for the A.Y. 2022-23. Ascertain the amount of EEE Particutars amount (ey [Amount (| Salaries Income from Salary 2,50,000 Ishita’s salary (@ 15,000 x 12) [See Note 1] 7,80,000 4,30,000 Less: Loss from house property set off against salary income as per section | 2,00,000] —2,30,000 74(3A) [See Note 2] (CH. 12 | SET-OFF AND CARRY FORWARD OF LOSSES | 47E 12.2EU Luce ue WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 Capital Gains Short term capital gain 1,40,000 Less: Loss from tea business ( 96,000 x 40%) [See Note 3 & 4] 38,400[ _7,01,600) Income from Other Sources Dividend income [See Note 5] 7,00,000) Taxable Income 4,31,600 The following losses can be carried forward for subsequent assessment years: 1a) Loss from house property to be carried forward and set-off against income from house| property 'b) Long-term capital loss of AY. 2017-18 can be carried forward and set-off against long- term capital gains NOTES: 41) As per section 64(1)(ii), all the income which arises directly or indirectly, to the spouse of any individual by way of salary, commission, fees or any other form of remuneration from a concem in which such individual has a substantial interest shall be included in the total income of such individual. 2) As per section 71(3A), loss from house property can be set off against any other head of income to the extent of @ 2,00,000 only 3) 60% of the losses from tea business is treated as agricultural income and therefore exempt. Loss from an exempt source cannot be set off against profits from a taxable source. 4) As per section 71(2A), business loss cannot be set off against salary income. Hence, 40% of the losses from tea business i.e., € 38,400 set off against short term capital gains. 5) Loss from Card games can neither be set off against any other income, nor can it be carried forward, 6) As per section 74(1), brought forward Long-term capital loss can be set-off only against long-term capital gain 20,000 86,000 CRD 3: Mr. P, a resident individual, fumishes the following particulars of his income and other details for the previous year 2021-22: 1) _|Income from salary 18,000| 2) [Net Annual Value of house property 70,000) 3)_|Income from business 80,000| 4) [Income from speculative business 42,000| 5) _|Long term capital gain on sale of Urban land 15,800) 6) _|Loss on maintenance of racehorse 9,000] 7) [Loss on gambling 8,000) Depreciation allowable under the Income-tax Act, 1961, comes to Rs.8,000, for which no treatment is given above. The other details of unabsorbed depreciation and brought forward losses (pertaining to AY. 2021- 22) are: 1) _|Unabsorbed depreciation 9,000) 2) |Loss from speculative business 76,000| 3)_[Short term capital loss 7,800} Compute the gross total income of Mr. P for the Assessment year 2022-23, and the amount of loss that can or cannot be carried forward. ‘CAINTER | INCOME TAX | 47€ 23PIONEER FOR MEC / CEC TO CA/ CMA FINAL SOLUTION: Computation of Gross Total Income of Mr. P for the A.Y. 2022 - 23 a) Income from salary 48,000] b) Income from House Property Net Annual Value 70,000 Less: Deduction under section 24 (30% of Rs. 70,000) 21,000| 49,000] ¢) Income from business and profession i) Income from business 80,000 Less: Current year depreciation 8,000 72,000 Less: Unabsorbed depreciation 9,000[ 63,000) Income from speculative business 12,000 Less: Brought forward loss from speculative business 12,000 Nil (Balance loss of Rs. 4,000 (i.e., Rs. 16,000 - Rs. 12,000) can be carried) forward to the next year) d) Income from capital gain Long-term capital gain on sale of Urban land 15,800 Less: Brought forward short-term capital loss 7,800 8,000 Gross total income 1,38,000/ Amount of loss to be carried forward to the next year fei Loss from speculative business (to be carried forward as per section 73) 4,000) Loss on maintenance of racehorses (to be carried forward as per section 74A) 9,000) NOTES: 4) Loss on gambling can neither be set-off nor be cartied forward. 2) As per section 74A(3), the loss incurred on maintenance of racehorses cannot be set-off against income from any other source other than the activity of owning and maintaining racehorses. Such loss can be carried forward for a maximum period of 4 assessment years. 3) Speculative business loss can set off only against income from speculative business of the current year and the balance loss can be carried forward to A.Y. 2023-24. It may be noted that speculative business loss can be carried forward for a maximum of four years. GRD 4: From the following information of Ms. Kareena, born on 16th August 1975, an Indian resident, you are required to compute total income and tax payable by Ms. Kareena for the Assessment Year 2022-22 Sebstasesesseietetetesenstessiseteesttig-1c-1[- jestestistestistenstensnsseesteseteneisted eT 4g) Long-term capital gains on sale of house 1,50,000 ‘Short-term capital gains on sale of shares in B Pvt. Ltd 50,000| Loss from house property '3,50,000 Interest from saving account in post office 15,000) Prize winning from a T.V. show (Gross) 20,000| Business income 5,50,000) Net agricultural income 4,10,000) LIC premium for self and husband 70,000) [Tuition fees to university for full time education of her daughter 50,000| (CH. 12 | SET-OFF AND CARRY FORWARD OF LOSSES | 47E 12.4EU Luce ue WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 SOLUTION: ‘Computation of total income of Ms. Kareena for the A.Y.2022-23, Particulars @ @ Profits and gains from business or profession Business income 5,50,000 Less: Loss from house property of RS. 3,50,000 to be restricted to Rs. 2,00,000! by virtue of section 71 (3A) [Note 2] 2,00,000| _ 3,50,000] Capital Gains Long term capital gains on sale of house 7,50,000 ‘Short term capital gains on sale of shares in B Pvt. Ltd '50,000| __2,00,000) Income from other sources Interest from saving account in post office 15,000 Less: Exempt under section 10(15) to the extent of Rs. 3,500 3,500 11,500 Prize winnings from a T.V. show 20,000| 31,500) Gross Total Income 5,81,500 Less: Deduction under Chapter VFA ‘Section 80C Life insurance premium for self and husband 70,000 Tuition fees to University for full time education 50,000 Section BOTTA - Interest on saving account in post office 10,000] 1,30,000) Total Income 4,51,500 Computation of tax payable by Ms. Kareena for the A.Y.2022-23 Particulars: ‘Amount (%) | Amount (2) Step 1: Tax on Agricultural income and Non-agricultural income (Rs. 1,10,000 + Rs. 4,51,500 = ,61,500) Tax on the above income. [Tax on long-term capital gain of Rs. 1,50,000 @ 20% 30,000 [Tax on winnings of Rs. 20,000 from a T.V. show @ 30% 6,000 [Tax on balance income of Rs. 3,971,500 7,075 Total tax on Rs. 5,61,500 43,075 Step 2: Tax on basic exemption limit and agricultural income (Rs. 2,50,000 + Rs. 1,10,000 = 3,60,000) [Tax on RS. 3,60,000 (As per slab rates) 5,500) Step 3: Tax on non-agricultural income (step 1 - step 2) 37,575 (Rs. 43,075 - Rs. 5,500) [Add: Health and Education cess @ 4% 1,503 Tax payable by Ms. Kareena 39,078 | [Tax payable (Rounded off) 39,080| NOTES: 4), Short-term capital gains on sale of shares in B Pvt. Ltd. is taxable at normal rates. 2) The balance loss of Rs. 1,50,000 from house property to be carried forward to next assessment year for set-off against income from house property of that year. ‘CAINTER | INCOME TAX | 47€ 2sPIONEER FOR MEC / CEC TO CA/ CMA FINAL CRD 5: Mr. A furnishes you the following information for the year ended 31.03.2022) a) Income from plying of vehicles (computed as per books) ® (He owned 5 light goods vehicles throughout the year) 3,20,000 b) Income from retail trade of garments (Computed as per books) (Sales turnover Rs. 1,21,70,000) 7,50,000 ¢) He has brought forward depreciation relating to A.Y. 2020-21 4,00,000 Mr. A wants to declared income on presumptive basis under section 44AD for the first time in A.Y. 2021-22. Compute taxable income of Mr. A and his tax liability for the assessment year 2022-23 with reasons for your computation, SOLUTION: ‘Computation of total income and tax liability of Mr. A for the A.Y. 2022-23(Actual basis) Income from retail trade — as per books (See Note 1 below) 7,50,000 Income from plying of vehicles — as per books (See Note 2 below) 3,20,000 10,70,000 Less: Set off of brought forward depreciation relating to AY. 2020-21 7,00,000) Total income 9,70,000 Tax liability 1,06,500 Add: Health and Education cess @4% 4,260) Total tax liability 4,410,760 Computation of total income and tax liability of Mr. A for the A.Y. 2022-23(presumptive basis) Income from retail trade under section 4AD IRs. 1.21,70,000 @ 8%] 9,73,600 Income from plying of light goods vehicles under section 44AE [Rs. 7,500 x 12 x 5] 4,50,000 14,23,600 Less: Set off of brought forward depreciation - not possible as it is deemed that it has been allowed and set off Nil Total income 14,23,600 Tax thereon 2,39,580 |Add: Health and Education cess @ 4% 9,583] Total tax liability 2,49,163 Total tax liability (rounded off) 2,49,160 CONCLUSION: a) INCOME FROM RETAIL TRADE: Presumptive business income under section 44AD is Rs. 9,73,600 i.e., 8% of tumover of Rs. 1,21,70,000 assuming the amount of sales turnover was received in cash. However, the income computed as per books is Rs. 7,50,000 which is to be further reduced by the amount of unabsorbed depreciation of Rs. 1,00,000, Since the income computed as per books is lower than the income deemed under section 44AD, the assessee can adopt the income as per books. However, if he does not opt for presumptive taxation under section 44AD, he has to get his books of accounts audited under section 44AB, since his tumover exceeds Rs. 1 crore. Also, his case would be falling under section 44AD (4) and hence tax audit is mandatory. ‘CH. 12 | SET-OFF AND CARRY FORWARD OF LOSSES | 47E 26EU Luce ue WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 b) INCOME FROM PLYING OF LIGHT GOODS VEHICLES: Income calculated under section 44AE(1) would be Rs. 7,500 x 12 x5 which is equal to Rs. 4,50,000. However, the income from plying of vehicles as per books is Rs. 3,20,000, which is lower than the presumptive income of Rs. 4,50,000 calculated as per section 44AE(1). Hence, the assessee can adopt the income as per books i.¢., RS. 3,20,000, provided he maintains books of account as per section 44AA and gets his accounts audited and furnishes an audit report as required under section 44AB. €) tis to be further noted that in both the above cases, had presumptive income provisions been opted, all deductions under sections 30 to 38, including depreciation would have been deemed to have been given full effect to and no further deduction under those sections would be allowable. CRD 6: Mr. Aditya furnishes the following details for the year ended 31-03-2022 Loss from speculative business A 25,000) Income from speculative business B 5,000) Loss from specified business covered under section 35AD 20,000) Income from salary '3,00,000 Loss from house property 2,50,000 Income from trading business 45,000) Long-term capital gain from sale of urban 2,00,000 Long-term capital loss on sale of shares (STT not paid) 75,000) Long-term capital loss on sale of listed shares in recognized stock exchange (ST paid) 7,02,000) Following are the brought forward losses: a) Losses from owning and maintaining of racehorses pertaining to AY. 2020-21 Rs.2,000. Brought forward loss from trading business Rs. 5,000 relating to A.Y.2017-18. Compute the total income of Mr. Aditya and show the items eligible for carry forward. SOLUTION: Computation of total income of Mr. Aditya for the A.Y.2022- 23 [___ Particutars Amount (&) [Amount ()] Salaries: Income from Salary 3,00,000 Less: Loss from house property set-off against salary income as per sec. 71(1)| _(2,00,000)| _1,00,000 Profits and gains of business or profession: Income from trading business 45,000 Less: Brought forward loss from trading business of AY. 2017-18 (6,000)[ 40,000) Income from speculative business B 5,000 Less: Loss from speculative business A set-off as per section 73(1) (25,000) Loss from speculative business A to be carried forward to A.Y.2023-24 as per| section 73(2) (20,000) Loss from specified business covered under section 35AD to be carried forward for set-off against income from specified business as per section 73A. 20,000 Capital Gains: Long term capital gain on sale of urban land. 2,00,000 Less: Long term capital loss on sale of shares (STT not paid) set-off as per| section 74(1)] (75,000) Less: Long-term capital loss on sale of listed shares on which STT is paid can also be set-off as per section 74(1), since long-term capital arising on sale of| such shares is taxable under section 112A (1,02,000)| __23,000 Total Income| 1,63,000 ‘CAINTER | INCOME TAX | 47€ 27PIONEER FOR MEC / CEC TO CA/ CMA FINAL Items eligible for carried forward to A.Y.2023-24 Loss from House property 50,000| Loss from speculative business A: 20,000) Loss from specified business: 20,000) Loss from the activity of owning and maintaining racehorses: 2,000) RD 7: Ms. Geeta, A resident individual provides the following details of her income/losses for the year ended 31.03.2022 4) [Income from salary (computed) 41,20,000 2) [Rent received from house property situated in Delhi '5,00,000 3) [Interest on loan taken for purchase of above property. Loan was taken from a friend 7,50,000 4) [Rent received from house property situated in Jaipur 3,20,000) 5) | Interest on loan taken for house property in Mumbai, which is self occupied. Loan was taken from PNB on 01.01.1999 for purchase of this property. 1,57,000) Interest on loan taken for repair of house properties situated in Mumbai and Delhi. Loan 6) |was taken on 01.04.18 and was utilized in 50:50 ratio for house properties situated in Mumbai and Delhi, respectively. 1,50,000) 77) | Long-term capital gains on sale of equity shares computed in accordance with section 1128 8,95,000 8) [Interest on fixed deposit 73,000) 9) [Loss from textile business 7,50,000 10)| Speculation profit 2,30,000| 411)|Lottery income 75,000) 42)|Loss incurred by a firm in which Ms, X is a partner (7,60,000)| 49)| Salary received as a partner from the above firm (the same is allowed as deduction to the firm) 50,000| 14)| Brought forward short-term capital loss on sale of gold (2,75,000)| 46)| Bought forward loss on transfer of equity shares of the nature specified under section 111A (25,000) 16) [Life insurance premium paid for her son who is 30 years of age and is working in USA 15,000| Amount of repayment of loan during the previous year 2021-22 is as follows - a) Repayment of loan taken for purchase of house property in Delhi: Rs. 2,50,000 b) Repayment of loan taken for purchase of house property in Mumbai: Rs. 50,000. ¢) Repayment of loan taken for repair of house properties in Delhi and Mumbai: Rs. 75,000. Compute the total income of Ms. Geetha for the assessment year 2022-23 and the amount of loss that can be carryforward. SOLUTION: Computation of house property income of Ms. X Gross annual value 5,00,000| _3,20,000 Nil Less: Municipal tax Nil Nil Nil ‘CH. 12 | SET-OFF AND CARRY FORWARD OF LOSSES | 47E 28