The subject of Direct Tax laws has always posed a challenge to students of the Chartered Accountancy course. The May 2012 examination was no exception. The question paper tested students on a wide gamut of legal provisions, court decisions, latest amendments, circulars and practical working knowledge.
Tests of computation
A question on computation of deduction under section 10AA by giving two units of which only one unit is eligible for the deduction, tested many aspects, such as computation of depreciation, determination of total turnover vis a vis export turnover and quantum of deduction. The recent amendment of computing the deduction based on the turnover of eligible undertaking is one more test to the examinees.
A question on computation of total income of a company is perhaps intended to test knowledge of recent court decisions in addition to recent amendment, by way of insertion of section 115BBD applicable for dividend income from foreign companies earned by an Indian company having more than 26 per cent of share capital in the foreign company. The final adjustment with caption ‘additional information' might have confused the students a bit.
A question on computation of net wealth of partners of a firm was easy with no conceptual application therein. Queries on wealth tax were routine, meant to test on the basic provisions of law. One seeking the circumstances in which Schedule III shall not apply seems poorly worded.
Disallowance under section 14A
A question on the application of disallowance under section 14A is from any standard text book. However, information about investment in partnership firm was missing and this might have confused the students.
Questions such as taxation of gain from sale of shares under the head ‘business income' or ‘capital gain', power of settlement commission for rectifying the mistake do not show any originality.
Applying recent case law on mandatory levy of interest under section 234B, deductibility of tax at source on commission paid to booking agents and cancellation of recognition to educational institutions for contravening legal provisions are standard questions. Yet another question on furnishing of information to tax authorities by banks in the absence of pending proceedings and treating an advance as deemed dividend might not have posed any challenge.
The question on Notified Jurisdictional Area covered by section 94A of the Act, and powers of authority for advancing ruling, add colour to international taxation along with other questions, such as whether a web site on Indian soil tantamounts to existence of permanent establishment and a test on recent circular for mitigating the rigours in respect of withholding tax.
Questions on the requirement of filing return and computation of income under the head ‘other sources' were bonus to the students for securing full marks. Questions on transfer pricing, assessment, penalties and other procedural aspects of taxation are conspicuously absent.
(The author is an Erode-based chartered accountant)