Analysis of the November 2008 CA (Final) paper on direct taxes [published in The Hindu]

A tax paper of the right standard

V. K. Subramani

The Final examination of the chartered accountancy course is a stern test of conceptual understanding and perseverance of the students. The direct taxes paper has always been a challenge — testing not only the conceptual skills but also the knowledge of the dynamic provisions of law — and the November 2008 paper is a testimony of the high standard set by the ICAI.

The question paper has no choice and the candidates have to attempt all the questions , displaying their understanding and, if necessary, by making permissible assumptions as well.

The first question tests the students’ knowledge of taxability of income from purchase and sale of shares vis-À-vis the expenses incurred thereon. Also, the subtle distinction between Sections 10(35) and 10(38) in the context of book profit tax and provision for wealth tax and income-tax have to be decided.

The recent amendment relates to units eligible for exemption under Sections 10A and 10B and the relevance of depreciation on re-valued fixed assets and set off of depreciation and losses under the Act vis-À-vis the books of account. The way the question has been drafted and presented is praiseworthy.

The second question is meant to test the candidate’s knowledge of Sections 80CCD, 80E, 80D, 80C and sale of sweat equity shares by the employee. This question, on the recent amendments, is direct and simple .

The other part of the second question is also simple, seeking allocation of written-down value (WDV) of block of assets on demerger of company and allocation of unabsorbed depreciation between demerged company and resulting company.

The third question again is a test on the changes in law brought in recently, such as withdrawal of power for granting retrospective registration to charitable entities by the Commissioner. The other part of the question is on dividend distribution tax which would not apply on redemption of shares or any deemed dividend taxable under Section 2(22)(e).

The fourth question seeks the correctness of certain propositions based on court decisions and the students have to support their answer based on decided case laws.

The fifth question is on the power of Commissioner in issuing second notice for revision and admission of additional evidence for the first time before the Commissioner of Income Tax (Appeals). Students have to answer as regards additional evidence based on rule 46A of the IT Rules and this could pose difficulty to some of the candidates.

The sixth question concentrates on application of tax deduction at source provisions in real-life situations.

While the part on non-resident agent booking orders outside India being not chargeable to tax based on the old CBDT circular is easy to answer, the other part of the question, on application of TDS on payment of service and call charges for mobile phones, might have been dicey for the students.

The seventh question tests the candidate’s overall knowledge on fringe benefit tax. Yet another sub-part deals with the issue of giving a certificate by the assessing officer (AO) to the TRO. Students may not find a direct answer from the statute, and it requires some practical experience and exposure.

The eighth question on wealth tax could have been answered comfortably notwithstanding the fact that it also tests at every point the sound understanding of the subject.

The question paper is a treatise on direct tax laws, as it educates any student or professional whoever desires to understand the recent developments in this facet of law. This question paper has set the benchmark and, more importantly, there is no repetition or adaptation from previous examinations and, being original, it can be called a “connoisseurs’ delight”.