(a) Mr. B (49 years), a resident individual, furnishes the following particulars pertaining to the year ending 31st March, 2021:

Analysis of his bank account in his ledger reveals the under-mentioned data—(₹)
• Rent received for a vacant plot of lan

Question

(a) Mr. B (49 years), a resident individual, furnishes the following particulars pertaining to the year ending 31st March, 2021:

Analysis of his bank account in his ledger reveals the under-mentioned data—(₹)
• Rent received for a vacant plot of land 4,00,000
• Amount received from X (P) Ltd. for a house at Pune for which he had been in negotiation for rent enhancement since last 4 years (this has not been taxed in any earlier year. However, this house is transferred during March, 2020) 3,00,000
• Gift received from Alekhyo, his best friend 1,20,000
• Gift received from mother's father 1,60,000
• Winning from a TV game show (net) 1,40,000
• Amount forfeited (initially paid by a buyer of his vacant plot, since the buyer could not finalise the deal as per agreement) 6,20,000
• Amount received under Keyman Insurance Policy 4,40,000

Other information:
(i) Donation given in cash to a charitable trust registered under Section 12AA 24,000
(ii) Interest credited in the Public Provident Fund (PPF) account during the year 17,800
(iii) Public Provident Fund paid in the name of his minor daughter 1,50,000
(iv) He owns agricultural lands at Malaysia. He has derived agricultural income therefrom 3,60,000

Compute the taxable income of Mr. B for the assessment year 2021–22. (20 marks)

(b) What is right share? Explain its advantages. (15 marks)

(c) In a factory, the product passes through two processes, A and B. Loss of 5% is allowed in process A and 2% in process B. Nothing being realised by disposal of the wastage. During July, 2021, 10000 units of material costing ₹6 each were introduced in process A. The other costs were as follows:

Process A Process B
(₹) (₹)
Materials — 6,140
Labour 10,000 6,000
Overheads 6,000 4,600

The output was 9300 units from process A. The output of process B was 9200 units.

Prepare Process Accounts and Abnormal Loss/Gain Accounts. (15 marks)

UPSC Answer Check · Accepted Answer

The question demands precise calculation for part (a), conceptual explanation for part (b), and process costing computation for part (c). Allocate approximately 40% time to part (a) given its 20 marks weightage, 30% each to parts (b) and (c). Structure: begin with clear headings for each part, show all working notes for computations, cite relevant sections of Income Tax Act 1961 for (a), define and elaborate advantages systematically for (b), and prepare T-accounts with proper narration for (c).
- Part (a): Correct classification of each receipt under appropriate heads of income (house property, capital gains, other sources, exempt income); proper treatment of arrear rent u/s 25B despite transfer; gift from friend taxable u/s 56(2)(x) exceeding ₹50,000; grandfather's gift exempt as relative; TV game show winnings taxable at special rate u/s 115BB; forfeiture of advance taxable as capital receipt; Keyman insurance taxable u/s 10(10D) exception; PPF interest exempt u/s 10(11); minor daughter's PPF eligible for deduction u/s 80C; foreign agricultural income exempt u/s 10(1); cash donation ineligible u/s 80G; correct computation of total and taxable income
- Part (b): Clear definition of right shares as shares offered to existing shareholders in proportion to holdings; distinction from bonus shares; advantages: maintenance of control, preservation of preemptive rights, lower cost of capital, favorable market signal, equitable distribution, compliance with SEBI regulations, protection against dilution
- Part (c): Calculation of normal loss (500 units in A, 186 units in B), abnormal loss in A (200 units), abnormal gain in B (86 units); preparation of Process A Account, Process B Account, Abnormal Loss Account and Abnormal Gain Account with correct cost per unit computations; proper treatment of scrap value (nil)
- Working notes showing step-by-step calculations for all three parts with clear labeling
- Correct application of income tax provisions: Section 25B for arrears of rent, Section 56(2)(x) for gifts, Section 115BB for winnings, Section 10(10D) exception for Keyman policy, Section 80C limits, Section 80G conditions
- Process costing methodology: equivalent unit calculations, apportionment of costs between normal loss, abnormal loss/gain and output
- Presentation: neat tabular format for income computation, proper ledger account format for process accounts, clear narration for each entry

Dimension	Weight	Max marks	Excellent	Average	Poor
Demand-directive understanding	15%	7.5	Demonstrates clear understanding that part (a) requires comprehensive income computation with multiple heads, part (b) demands conceptual explanation with advantages, and part (c) needs process costing with abnormal loss/gain treatment; correctly interprets 'compute,' 'explain,' and 'prepare' directives appropriately for each sub-part	Addresses all three parts but may misinterpret one directive (e.g., merely listing instead of explaining advantages in part b, or showing only final figures without process accounts in part c)	Fundamentally misunderstands directives—treats computational parts as descriptive or vice versa; misses that part (a) requires section-wise working, part (b) needs elaboration not just definition, part (c) demands full ledger accounts
Content depth & accuracy	35%	17.5	Part (a): All 7 receipts correctly classified with accurate tax treatment, proper grossing up of net winnings, correct application of Section 25B for arrears despite transfer, correct exemption for grandfather's gift, proper 80C computation with minor child inclusion; Part (b): Comprehensive definition with 5-6 well-explained advantages covering control, cost, market signaling; Part (c): Accurate normal loss (5% of 10,000=500; 2% of 9,300=186), abnormal loss 200 units, abnormal gain 86 units, correct cost per unit (₹2.20 for A, ₹3.50 for B), all accounts balanced	Part (a): Minor errors in 1-2 items (e.g., treating arrear rent as house property income instead of other sources u/s 25B, or missing Keyman insurance taxability); Part (b): Basic definition with 3-4 advantages lacking depth; Part (c): Correct methodology but arithmetic errors in cost per unit or abnormal loss/gain identification	Part (a): Major classification errors (taxing exempt items like PPF interest or grandfather's gift, missing taxable items); Part (b): Confuses right shares with bonus shares, superficial advantages; Part (c): Fundamental errors in normal loss calculation, missing abnormal gain/loss concept entirely, unbalanced accounts
Structure & flow	20%	10	Clear tripartite structure with distinct headings; part (a) shows systematic computation from gross total income to taxable income with proper grouping of incomes and deductions; part (b) has definition followed by enumerated advantages; part (c) presents four well-formatted ledger accounts with debit-credit alignment, working notes preceding final accounts, logical sequencing from Process A to Process B	All parts addressed but structure lacks clarity—working notes mixed with final answers, advantages in paragraph form without numbering, process accounts without proper narration or alignment	Disorganized presentation; parts not clearly demarcated; no working notes shown; accounts prepared as statements rather than T-accounts; calculations scattered without logical flow
Examples / case-law / data	15%	7.5	Cites specific Income Tax Act sections for each treatment in part (a)—Section 25B, 56(2)(x), 115BB, 10(10D), 10(11), 80C, 80G; references SEBI ICDR Regulations for rights issue in part (b); shows complete numerical working with units and costs for part (c)	Mentions some sections in part (a) but not comprehensively; part (b) lacks regulatory reference; part (c) has calculations but incomplete working notes	No statutory references; no section citations; part (c) shows only final figures without supporting data or unit calculations
Conclusion & analytical edge	15%	7.5	Part (a): Clear final taxable income figure with tax liability computation at applicable rates; analytical note on why foreign agricultural income is exempt despite Malaysia not being notified; Part (b): Critical comparison with public issue and bonus issue; Part (c): Summary statement reconciling total costs with output plus losses, analytical observation on cost per unit increase due to abnormal loss in Process A	Final answers provided for all parts but lacks analytical observations; no comparative analysis or critical evaluation of the methods used	Missing final computed figures; no conclusion or summary; purely mechanical presentation without any analytical insight on inter-part relationships or implications

(a) Mr. B (49 years), a resident individual, furnishes the following particulars pertaining to the year ending 31st March…

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