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CMA Intermediate · Direct and Indirect Taxation · Agricultural Income

Nilgiri Rubber Co. grows rubber plants and manufactures rubber from the latex of those plants. The business income computed for this activity, after all allowable expenses, is Rs 12,00,000. It also earns Rs 3,00,000 from trading unrelated goods. What is its non-agricultural business income from both activities together?

Rs 7,20,000. Only 35% of the rubber income, Rs 4,20,000, is business income because 65% is agricultural. Adding the fully taxable Rs 3,00,000 trading profit gives non-agricultural business income of Rs 7,20,000.

  1. ARs 10,80,000
  2. BRs 7,20,000Correct
  3. CRs 4,20,000
  4. DRs 15,00,000

Explanation

For rubber manufactured from the seller's own latex, 65% is agricultural and 35% is business income. 35% of Rs 12,00,000 is Rs 4,20,000. Adding the Rs 3,00,000 trading income gives Rs 7,20,000. Rs 10,80,000 results from taking 65% instead of 35%.

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