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B.A. LL.B. (Five Years) Sem 7 Law of Taxation 2017 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

2017 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 2017 Jun examination.

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Contents

The questions below are the paper as Karnataka State Law University set it at the 2017 Jun examination, in the order it was set.

MarksPage

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The Paper as Set

The questions in this volume are the questions asked at the 2017 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  ·  13 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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Q1Explain the concept of income and mention any ten incomes that are exempted from tax liability.[16]

Answer

For full marks, cover: the charge on "total income" (section 4 of the Income-tax Act, 1961); the inclusive definition of income in section 2(24), with its main items; the meaning the courts give the word: widest sense (Navinchandra Mafatlal, G.R. Karthikeyan), revenue and capital receipts, money's worth, diversion by overriding title (Sitaldas Tirathdas); the five heads (section 14); exempt incomes: what an exemption is and the main ones in section 10, with section 11 (charitable trusts) and section 13A (political parties); the difference between exempt income and a deduction; Bacha F. Guzdar; the Income-tax Act, 2025.

The charge

Section 4 of the Income-tax Act, 1961 charges income-tax on the total income of every person for each previous year. Total income is defined by section 2(45) and its scope fixed by section 5. So everything turns on the word "income". The Act does not give a complete definition of it. It only says what income includes.

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Income under section 2(24)

Section 2(24) says "income" includes, among other things:

  1. profits and gains of business or profession;
  2. dividend;
  3. voluntary contributions received by a charitable or religious trust or institution, or by an electoral trust;
  4. the value of perquisites and profits in lieu of salary, and certain special allowances;
  5. benefits obtained by a director or a person with a substantial interest from his company;
  6. capital gains chargeable under section 45;
  7. winnings from lotteries, crossword puzzles, races, card games and other games, gambling or betting;
  8. sums received under a Keyman insurance policy;
  9. gifts of money or property above the limits of section 56(2), and share premium above fair market value.

The list is inclusive. It adds to the ordinary meaning of income, and does not cut it down.

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What the courts mean by income

1. The widest meaning. Navinchandra Mafatlal v. Commissioner of Income-tax, Bombay City, AIR 1955 SC 58, decided on 1 November 1954. Section 12-B of the 1922 Act taxed capital gains, and the assessee said "income" in the legislative entry could not cover capital. A five-judge Bench held the tax valid. Words conferring legislative power are read in their widest amplitude, so capital gains are income.

Commissioner of Income Tax, Madras v. G.R. Karthikeyan, AIR 1993 SC 1671, decided on 22 April 1993. The assessee won Rs 22,000 in a motor car rally, a test of skill and endurance. The High Court held it was not "winnings" from a race and so a casual receipt outside the charge. The Supreme Court reversed this. Income is read in its widest sense, and section 2(24) is inclusive. A receipt may be income even if it fits no listed sub-clause.

2. Revenue, not capital. Ordinarily income is a revenue receipt, such as salary, rent, interest or trading profit. A capital receipt, such as money from selling a capital asset, is taxed only where the Act says so, as with capital gains.

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3. Money or money's worth. Income may be received in kind. Rent-free housing given to an employee is a perquisite, valued and taxed as salary.

4. Diversion and application. Income that never reaches the assessee, because a prior obligation diverts it at source, is not his income. But income that reaches him and is then paid away is still his.

Commissioner of Income-tax v. Sitaldas Tirathdas, AIR 1961 SC 728, decided on 24 November 1960. A consent decree ordered the assessee to pay maintenance to his wife and children, without creating a charge on his income. He claimed a deduction for the payments. The Court refused it. The income reached him first and was then applied to his obligation. Only a diversion by overriding title, before the income reaches the assessee, takes it out of his income.

The five heads

Under section 14, all income is classified under five heads for computation:

  1. salaries;
  2. income from house property;
  3. profits and gains of business or profession;
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  1. capital gains; and
  2. income from other sources.

A receipt that is income must fall under one of these heads. Each head has its own rules for deductions.

Exempt incomes

An exempt income is income that the Act keeps out of total income altogether. It is not taxed and is not counted in total income, though some of it is used to fix the rate. The main exemptions are in section 10:

  1. Agricultural income (section 10(1)). Taxing it belongs to the States, under State List entry 46.
  2. Receipts by a member of a Hindu undivided family (section 10(2)), paid out of the family's income, which is taxed in the family's hands.
  3. A partner's share in a firm's total income (section 10(2A)), since the firm is taxed separately.
  4. Leave travel concession (section 10(5)), for travel in India, within the limits prescribed.
  5. Retirement benefits. Gratuity (section 10(10)), commuted pension (section 10(10A)) and leave encashment (section 10(10AA)) are exempt for Government employees, and up to set limits for others.
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  1. Voluntary retirement compensation (section 10(10C)), up to Rs 5 lakh, under a scheme that meets the prescribed guidelines.
  2. Life insurance proceeds (section 10(10D)), subject to conditions. For policies issued from 1 April 2023, other than unit linked policies, the exemption is lost where the yearly premium exceeds Rs 5 lakh.
  3. Payments from a statutory or notified provident fund (section 10(11)).
  4. House rent allowance (section 10(13A)), to the extent prescribed.
  5. Scholarships (section 10(16)) granted to meet the cost of education.
  6. Daily allowances of members of Parliament and State Legislatures (section 10(17)).
  7. Public awards and rewards (section 10(17A)), instituted or approved by Government.
  8. Income of members of Scheduled Tribes (section 10(26)) residing in specified areas, from sources there.

Besides section 10:

  • Section 11. Income from property held under trust wholly for charitable or religious purposes is exempt, to the extent it is applied to those purposes.
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  • Section 13A. Most income of a registered political party, including voluntary contributions, is exempt, if it keeps accounts and meets the other conditions.

Exemptions withdrawn. Dividends were exempt under section 10(34), but not those received on or after 1 April 2020, which are taxed in the shareholder's hands. Long-term gains on listed equity were exempt under section 10(38) until 31 March 2018.

Example. In a year, Asha earns a salary of Rs 9 lakh. She also gets Rs 1 lakh of agricultural income, a Rs 2 lakh share of profit from a firm, and a Rs 50,000 scholarship. Only the salary enters her total income. The farm income, the firm's profit share and the scholarship are exempt under section 10(1), 10(2A) and 10(16). The farm income is still used to fix the rate on her salary, under partial integration.

Exempt income is not a deduction

An exemption keeps income out of total income from the start. A deduction under Chapter VI-A, such as section 80C, is subtracted from gross total income that is taxable. The distinction matters, because expenses incurred for earning exempt income are not allowed (section 14A).

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Bacha F. Guzdar v. Commissioner of Income-Tax, Bombay, AIR 1955 SC 74. A shareholder of tea companies, whose income was 60 per cent agricultural, claimed the same share of her dividends as exempt agricultural income. The Court rejected the claim. A shareholder has no interest in the company's assets, only a right to dividends when declared. So an exemption belongs only to income that is truly of the exempt kind in the assessee's own hands.

The Income-tax Act, 2025

From 1 April 2026, "income" is defined inclusively in section 2(49) of the 2025 Act. Exempt incomes are listed in Schedules II to VI, given effect by section 11, and exempt persons in Schedule VII. Political parties are covered by section 12.

Conclusion. Income is charged under section 4 on total income, and section 2(24) defines it inclusively. The courts give the word its widest meaning, as Navinchandra Mafatlal and G.R. Karthikeyan hold. But only what reaches the assessee as his own is his income (Sitaldas Tirathdas). Certain incomes are wholly exempt, chiefly under section 10, and charitable trusts and political parties under sections 11 and 13A. Bacha F. Guzdar shows that an exemption is confined to income truly of the exempt kind.

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