KSLU Solved Question Papers
Law of Taxation
Previous Year Question Paper with Solution
B.A. LL.B. (Five Years) · Sem 7
2024 Aug Examination
munotes.in
Mumbai
B.A. LL.B. (Five Years) Sem 7 Law of Taxation 2024 Aug Question Paper with Solutions
First published on munotes.in on 21 October 2026.
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The question paper reproduced here is the paper as set by Karnataka State Law University at the 2024 Aug examination.
Contents
The questions below are the paper as Karnataka State Law University set it at the 2024 Aug examination, in the order it was set.
MarksPage
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2024 Aug 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 80 · 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.
Q1
Unit I
(a)Define Tax. What are the differences between direct and indirect tax.[10]
Answer
For full marks, cover: the definition of tax (article 366(28); Shirur Mutt; "tax" in the Income-tax Acts); the test that separates direct from indirect taxes (impact and incidence); the differences point by point: burden, base, ability to pay, visibility, collection, evasion, effect on prices, administration and constitutional source; examples of each; merits of each in short; Shirur Mutt, Moopil Nair and Hoechst Pharmaceuticals.
Definition of tax
The Constitution does not define "tax" fully. Article 366(28) only says that "taxation" includes the imposition of any tax or impost, whether general, local or special.
The accepted definition comes from Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt, AIR 1954 SC 282, decided on 16 April 1954. A State law made every religious institution pay up to 5 per cent of its income, said to be for services of the endowments department. Seven judges held the levy a tax, not a fee, and void for want of legislative power. They described a tax as "a compulsory exaction of money by public authority for public purposes enforceable by law". It is "not payment for services rendered".
The Income-tax Acts use "tax" in a narrower sense. Section 2(43) of the 1961 Act, and section 2(106) of the 2025 Act, define it as income-tax chargeable under the Act.
The test: impact and incidence
Impact is on the person from whom the Government collects the tax. Incidence is on the person who finally bears its cost.
- If impact and incidence fall on one person, the tax is direct. Income tax is the example.
- If the person who pays it passes the burden on to another, usually through the price, the tax is indirect. GST and customs duty are examples.
Differences between direct and indirect tax
1. Who bears it. A direct tax is borne by the taxpayer himself. An indirect tax is paid by a seller or importer but borne by the consumer.
2. What it falls on. A direct tax falls on income, profits or wealth. An indirect tax falls on goods, services, imports and transactions.
3. Ability to pay. A direct tax can be graded to the taxpayer's means, with slabs, exemptions and deductions. An indirect tax charges rich and poor the same rate on the same article, so it can be regressive.
4. Visibility. The taxpayer knows exactly how much direct tax he pays. An indirect tax is usually hidden in the price, so the buyer may not notice it.
5. Collection. Direct tax is collected from the taxpayer, by deduction at source, advance tax and self-assessment. Indirect tax is collected at each sale or at the border, by the seller or the importer.
6. Evasion. Direct tax is easier to evade by hiding income. Indirect tax is collected with the price at the point of sale, which makes evasion harder, though false invoices remain a risk.
7. Effect on prices. A direct tax does not raise prices directly. An indirect tax adds to prices and can feed inflation.
8. Administration. Direct taxes are run by the Central Board of Direct Taxes. Indirect taxes are run by the Central Board of Indirect Taxes and Customs and the State tax departments.
9. Constitutional source. Income tax rests on entry 82 of the Union List. GST rests on article 246A and customs duty on entry 83 of the Union List. State excise on liquor rests on entry 51 of the State List.
| Point | Direct tax | Indirect tax |
|---|---|---|
| Burden | stays with the payer | passed to the buyer |
| Base | income, profits | goods, services, imports |
| Equity | can be progressive | same rate for all buyers |
| Visibility | felt and known | hidden in price |
| Evasion | easier | harder |
| Prices | not directly affected | raised |
| Examples | income tax | GST, customs duty |
Merits in short
A direct tax is fair, because it follows ability to pay, and certain, because the taxpayer knows his liability. An indirect tax is convenient, wide in reach, and hard to escape. A sound system uses both.
Cases on the two kinds
Kunnathat Thathunni Moopil Nair v. State of Kerala, AIR 1961 SC 552, decided on 9 December 1960. A State taxed all land at a flat Rs 2 an acre, whatever its yield. The Supreme Court struck it down under article 14. A direct tax that ignores the payer's capacity can be arbitrary.
Hoechst Pharmaceuticals Ltd v. State of Bihar, (1983) 4 SCC 45, decided on 6 May 1983. Bihar levied a surcharge on large dealers' sales tax and forbade them to pass it on to buyers. The Supreme Court upheld the law. So an indirect tax is normally shifted, but the legislature may stop the shifting.
Conclusion. As Shirur Mutt holds, a tax is a compulsory exaction by a public authority, under law, for public purposes. The payer gets no special return. A direct tax is borne by the person who pays it, and an indirect tax is passed on to the consumer. The two differ in base, fairness, visibility, collection and administration. Moopil Nair shows the limits on a direct tax, and Hoechst shows that shifting can be barred by law.
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