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B.A. LL.B. (Five Years) Sem 7 Law of Taxation 2014 Jun Question Paper with Solutions

KSLU Solved Question Papers

Law of Taxation

Previous Year Question Paper with Solution

B.A. LL.B. (Five Years) · Sem 7

2014 Jun Examination

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Mumbai

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First published on munotes.in on 21 October 2026.

Published by munotes.in, Mumbai.

Model answers written and edited by the munotes.in editorial desk.

Passages from this volume may be quoted, in print, online or by an AI system, with credit: name munotes.in and link to this volume's page. The volume may not be reproduced as a whole. Full terms at munotes.in/content-license.

munotes.in is an independent study resource for students of Karnataka State Law University. It is not affiliated with Karnataka State Law University, and is not endorsed by it.

The University does not publish an official answer key for this paper. The answers in this volume are model answers, written to show how a full-mark answer is built. They are a study aid, not an authority on what an examiner marked.

The question paper reproduced here is the paper as set by Karnataka State Law University at the 2014 Jun examination.

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Contents

The questions below are the paper as Karnataka State Law University set it at the 2014 Jun examination, in the order it was set.

MarksPage

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MarksPage

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The Paper as Set

The questions in this volume are the questions asked at the 2014 Jun examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.

Duration 3 hours  ·  Total marks 100  ·  20 questions answered

How to use this volume

Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.

Read the original question paper

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Q1

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(a)State the incomes which are wholly exempt from Income Tax u/ss 10 and 10 AA.[15]

Answer

For full marks, cover: what section 10 of the Income-tax Act, 1961 does and how exemptions are read (Dilip Kumar); the exempt incomes grouped: agricultural and family incomes (clauses (1), (2), (2A), with R.M. Chidambaram Pillai); salary and retirement receipts (clauses (5), (7), (10), (10A), (10AA), (10B), (10C), (10CC), (13A), (14)); insurance, provident fund and pension (clauses (10D), (11), (12), (12A), (12B)); investments (clause (15)); awards, scholarships and allowances of legislators (clauses (16), (17), (17A), (18), (19)); special persons and funds (clauses (6), (21), (23C), (23D), (26), (26AAA)); capital gains (clause (37)); exemptions withdrawn (clauses (34), (38)), with Walfort; section 14A; the Income-tax Act, 2025.

What section 10 does

Section 10 lists incomes that shall not be included in the total income of a person. Such income is not taxed at all, though some of it, like agricultural income, may be used to fix the rate on other income. Expenditure incurred to earn exempt income is not deductible (section 14A).

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How exemptions are read. Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company, AIR 2018 SC 3606, decided on 30 July 2018. A Constitution Bench held that every taxing provision, including an exemption, is read strictly. The person claiming an exemption must prove that he falls within it, and an ambiguity in an exemption goes to the Revenue. So each condition in a clause of section 10 must be met.

1. Agricultural and family incomes

  1. Agricultural income (clause (1)). Wholly exempt, because List II entry 46 leaves its taxation to the States.
  2. Sums from a Hindu undivided family (clause (2)). Amounts received by a member out of the family's income, which the family itself pays tax on.
  3. Partner's share of profit (clause (2A)). A partner's share in the total income of a firm assessed as such.

Commissioner of Income-Tax, Madras v. R.M. Chidambaram Pillai, AIR 1977 SC 489, decided on 17 November 1976. Partners of tea firms drew "salaries" from firms whose income was 60 per cent agricultural. The Supreme Court held a partner's salary to be a share of the firm's profits. So 60 per cent of it was agricultural income and exempt. An exemption follows the true character and source of the income.

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2. Salary and retirement receipts

  1. Leave travel concession (clause (5)). The value of travel within India on leave, for the employee and family, within prescribed limits.
  2. Allowances abroad (clause (7)). Allowances and perquisites paid outside India by the Government to an Indian citizen serving outside India.
  3. Gratuity (clause (10)). Wholly exempt for Government employees. For employees covered by the Payment of Gratuity Act, 1972, it is exempt up to the amount computed under that Act. That Act's provisions are now in the Code on Social Security, 2020, in force from 21 November 2025. For others, the limit is half a month's average salary for each completed year of service, subject to a notified ceiling.
  4. Commuted pension (clause (10A)). Wholly exempt for Government employees. For others, the commuted value of one-third of the pension if gratuity is also received, otherwise one-half.
  5. Leave encashment (clause (10AA)). Wholly exempt for Government employees on retirement, and within limits for others.
  6. Retrenchment compensation (clause (10B)), within the limits linked to the industrial disputes law.
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  1. Voluntary retirement compensation (clause (10C)), up to Rs 5 lakh.
  2. Tax on perquisites paid by the employer (clause (10CC)).
  3. House rent allowance (clause (13A)) and special allowances for duties (clause (14)), to the extent prescribed.

3. Insurance, provident fund and pension

  1. Life insurance proceeds (clause (10D)), subject to conditions on premium. For non-ULIP policies issued from 1 April 2023, the exemption is lost if the yearly premium exceeds Rs 5 lakh.
  2. Statutory and notified provident funds (clause (11)) and recognised provident funds (clause (12)), within the conditions.
  3. National Pension System (clauses (12A), (12B)). Up to 60 per cent of the amount paid on closure or opting out is exempt. Partial withdrawals are exempt up to 25 per cent of the employee's own contributions.
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4. Investments

Interest on notified securities (clause (15)). Interest, premium on redemption and other payments on securities, bonds, certificates and deposits notified by the Central Government, within the conditions notified.

5. Awards, scholarships and allowances

  1. Scholarships (clause (16)) granted to meet the cost of education.
  2. Allowances of legislators (clause (17)), such as the daily allowance of members of Parliament and State Legislatures.
  3. Awards and rewards (clause (17A)) instituted by or approved by the Government in the public interest.
  4. Gallantry pensions (clause (18)) to holders of the Param Vir Chakra, Maha Vir Chakra, Vir Chakra and other notified awards.
  5. Family pension of armed forces (clause (19)) where the member died in the course of operational duties.

6. Special persons and funds

  1. Foreign diplomats (clause (6)). Remuneration of officials of foreign embassies and consulates who are not Indian citizens, on conditions.
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  1. Research associations (clause (21)) approved under section 35.
  2. Funds and institutions (clause (23C)), such as the Prime Minister's National Relief Fund and PM CARES, and notified educational and medical institutions.
  3. Mutual funds (clause (23D)) registered with SEBI.
  4. Scheduled Tribes (clause (26)) residing in specified areas, on income from sources there, and Sikkimese individuals (clause (26AAA)) on income from Sikkim.

7. Capital gains

Compulsory acquisition of urban agricultural land (clause (37)). The gain of an individual or Hindu undivided family on compulsory acquisition of urban agricultural land is exempt. The land must have been used for agriculture by the family, or by the individual or a parent, for two years before.

8. Exemptions withdrawn

  1. Dividends (clause (34)). Exempt in the shareholder's hands while companies paid dividend distribution tax. Dividends received on or after 1 April 2020 are taxable.
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  1. Long-term gains on listed equity (clause (38)). Exempt where securities transaction tax was paid, but not for transfers on or after 1 April 2018.

Commissioner of Income Tax, Mumbai v. Walfort Share and Stock Brokers Pvt Ltd, (2010) 8 SCC 137, decided on 6 July 2010. A broker bought mutual fund units just before the record date, collected a tax-free dividend and sold the units at a loss. The Supreme Court allowed the loss for years before section 94(7). It held that using an exemption the Act grants is not abuse. Section 14A did not apply, because no expenditure had been incurred to earn the dividend.

Worked example

Leela retires from a private company after 20 completed years. She is not covered by the gratuity law. Her average salary for the last ten months is Rs 50,000.

  1. Gratuity of Rs 6,00,000. Exempt: half a month's salary for each year, that is Rs 25,000 × 20 = Rs 5,00,000, within the notified ceiling. Taxable: Rs 1,00,000.
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  1. Commuted pension. Since she also received gratuity, the commuted value of one-third of her pension is exempt under clause (10A)(ii). Any amount above that is taxable as salary in the year she receives it.
  2. Voluntary retirement. Had she retired under an approved scheme, compensation up to Rs 5 lakh would have been exempt under clause (10C).

Exemption, not deduction

An exempt income never enters total income. A deduction under Chapter VI-A, such as section 80C, is subtracted from gross total income that is otherwise taxable. Exemptions also differ in reach: some, like agricultural income, are absolute, while others, like gratuity, are limited by formula or ceiling.

The Income-tax Act, 2025

From 1 April 2026, exempt incomes are listed in Schedules II to VI of the 2025 Act, given effect by section 11. Exempt persons are in Schedule VII. Political parties are dealt with in section 12.

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Conclusion. Section 10 keeps a long list of incomes out of total income. They include agricultural and family incomes, retirement benefits within limits, insurance and provident fund receipts and notified interest. Scholarships, awards and the income of special persons and funds are also exempt. Each exemption is read strictly, as Dilip Kumar holds, and follows the true source of the income, as R.M. Chidambaram Pillai shows. Some exemptions, such as those for dividends and listed equity gains, have been withdrawn. Walfort shows how an exemption can be used, until Parliament closes a loophole.

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