M. V. Kali Prasad

THE direct taxes paper for CA (Final) and the income-tax and Central sales tax (CST) paper for PE II pose quite a few problems for students. Though covered at the PE II level, candidates often falter in the direct taxes exam in the Final.

In the May 2005 (Final) exam, for instance, there was a straightforward question on Section 44AD, where 8 per cent of contract receipts could have been taken as profits. But most candidates were done in by some of the irrelevant information in the question. While the questions have to be read carefully before attempting to answer them, the candidates should be able to identify and ignore the unnecessary details. Else, they would only end up wasting precious time in the examination.

What students learn during their articles will come in handy in the direct taxes and auditing papers. They would also be familiar with pre- and post- assessment taxes, penal provisions, appeals, revisions, filing of returns of income, and interests to and by the government. Taxation is a core subject of the ICAI. Candidates are, therefore, expected to have thorough knowledge of the subject before taking the examination. The question papers are based on provisions of law, recent amendments and judgments, testing the students' general understanding of the subject.

Therefore, candidates would do well to keep abreast of the latest provisions of law as enacted by the Finance Act year after year. For those taking the November 2005 examination, Finance Act 2005 would be relevant. They should get hold of textbooks for the relevant assessment year and not the older editions. The study material of the ICAI again applies only to the relevant year.

The provisions on capital gains, particularly on securities, are tricky. One should go through these provisions carefully. Since Section 80 is on its way out, questions on this section are likely.

Conceptual understanding of the subject is crucial, especially the principles behind the provisions. This will help students come to logical conclusions.The ICAI's journal of, say, the last one year, would also be a good study source. For that matter, even the newsletters of the branches and regional councils are useful. These contain certain landmark judgments. One must go through them carefully, grasping the principle on which the judgment is delivered rather than the judgment itself. Being a professional examination, there is no scope for guesswork. Candidate often falter by indulging in selective study, ignoring generally the topics covered in the previous examination. The concept of `something of everything' must be borne in mind.

Gauging the depth of the subject is also important. For instance, tax audit provisions are quite complex and candidates can expect questions on this in the auditing paper as well. The principle laid down in ALOO Supply Co. case, for example, has far-reaching implications.

Focus areas

a) Reassessment provisions (GKN Drive Shafts case); b) Section 80 (on rural hospitals with 100 beds) and Section 80 QQB (royalty incomes); c) power of tribunal to amend its own order; d) Section 112 read with Section 88E; e) Section 88 D (rebates); f) Section 139A (filing by employer) and Section 139 B (e-filing of returns); g) search and seizure; h) Section 285 BA, annual information statements; i) Section 277A; j) exemptions on Sections 10 (34) to 10(38); k) transfer pricing; l) business connection (Section 9); and m) corporatisation of stock exchange members.

Candidates taking CA (Final) would do well to devote time on wealth tax as well. The topic is small and less complicated.

While most of the suggestions made apply to PE II candidates as well, they are on a different wicket. Under the present set-up, they get no practical exposure to the subject. At the graduate level, the subject is not dealt with in-depth. A professional approach is required to tackle this paper. Topics such as `profits and gains of profession' are too complex for a beginner. It is better not to spend too much time on this topic.

In the previous examinations, there appears to have been a change in the question paper pattern. There were several questions on the basics. One should take note of this and prepare accordingly.

Pay attention to small but important areas such as interest under Sections 234 A, B, C, TDS provisions under various heads, time limits for completion of assessments, appeals, and so on.

For PE II candidates, CST is a favourite. Twenty-five marks are allotted for this topic, which runs to a mere 25 pages. Some of the oft-asked questions on this topic are: a) sale in the course of inter-State sale; b) crossing the Customs frontiers; c) various forms (C, D, and so on) to be used in the course of inter-State sale; d) sale in transit and forms to be used (C, E1, E2, and so on); e) inter-State transfer of goods from one branch to the other; f) registration, assessment, collection of taxes; and g) appeals and revisions.

The CST Act is simple, interesting and has practical implications. Do not look at VAT just yet; it is still a State subject. CST continues to be in force.

The tax paper should not be that difficult if the suggestions discussed are implemented.

Wishing you all the best.

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