Q. 1 what is the rule of double derivation of income and double deduction of expense also write section? Mark5 Answer
Rules to Prevent Double Derivation of Income and
Double Deductions (Section 73) Where:
Any amount chargeable to tax on the basis that
it is receivable, the amount shall not be charged that it is received;
Or
Any amount is chargeable to tax on the basis
that it is received the amount shall not be chargeable to tax again on the
basis that it is receivable.
With regard to expenditure, where:
Any expenditure is deductible on the basis
that it is payable, the expenditure shall not be deductible again on the basis
that it is paid;
Or
Any expenditure is deductible on the basis
that it is paid, the expenditure shall not be deductible again on the basis
that it is payable.
See answer page 90 above question
Rules to prevent double Derivation and double Deductions: Section
73
Sec 73 (1) Where:
a.any amount is chargeable to tax under this ordinance on the basis
that it is receivable, the amount shall not be chargeable again on the basis
that it is received; or
b.Any amount is chargeable to tax under this ordinance on the basis
that it is received, the amount shall not be chargeable again on the basis that
it is receivable; or
(2) For the purposes of this Ordinance, Where:
(a)Any expenditure is deductible under this Ordinance on the basis
that it is payable, the expenditure shall not be deductible again on the basis
that it is paid; or (b) Any expenditure is deductible under this Ordinance on
the basis that it is paid, the expenditure shall not be deductible again on the
basis that it is payable.
What is the non resident status of Pakistan source
income? Marks 5
Answer
Business
income of a non- resident person shall be Pakistan- source income to the extent
to which it is directly or indirectly attributable to-
• A
permanent establishment of the non-resident person in Pakistan
• Sales
in Pakistan of goods or merchandise of the same or similar kind as those sold
by the person through a permanent establishment in Pakistan
• Other
business activities carried on in Pakistan of the same or similar kind as those
effected by the non-resident through a permanent establishment in Pakistan (or)
• Any
business connection in Pakistan
2. Income of
Non-Residents Chargeable to Tax
All "Pakistan – source" incomes
of non-residents are taxable under
Pakistan
Tax Law, including:-
·Business
Income. ·Business incomes attributable to PEs. ·Business incomes from
activities similar to those carried on through
PEs.
·Business incomes from rendering services ·Gains from disposal of any asset
used in deriving business income in Pakistan. ·Profits on debts. ·Pensions or
annuities. Technical Fees ·Dividends paid by a resident company ·Royalty or
Rental Income ·Gain from alienation of any property or right. ·Salaries
·Execution of Contracts ·any other amount:
Mr. sohail going come in Pakistan 1st march 2008
to attend marriage ceremony and he is going back to Singapore 22nd march 2008
however he extend his visit and going back 30th may 2009. What is residential
status of Mr. Sohail in tax year
2009? Marks 3
Answer
Resident
Define section 47 and Section 48? Mark 3 Answer
Section 47 Scholarships
• Any scholarship granted to a person
to meet the cost of person’s education shall be exempt from tax.
Section 48 Support Payments under an Agreement
to Live Apart
Any income received by a spouse as support payment under an
agreement to live apart shall be exempt from tax under this Ordinance.
Another Paper:
Q.! Define employment & also mention
section? Answer
Employment Sec. 2(22) Employment includes:
•A
directorship or any other office involved in the management of a company; •A
position entitling the holder to fixed or ascertainable remuneration; or
•Holding or acting in any public office.
Q2: profit on debt in which conditions will be
Pakistan source of income.
1. Resident
person (25) page
2-Non Resident
Person (25) page. Answer
Profit on debt shall be Pakistan-source income if it is-
(1) Paid by a resident person, except where the
profit is payable in respect of any debt used for the purposes of a business
carried on by the resident outside Pakistan through a permanent establishment;
or
(2) Borne by a permanent establishment in Pakistan of
a non-resident person.
Q.3: define section 49(23page) Answer
Section 49 Federal & Provincial Govt. and Local Authority
Income
• Income
of Federal Government exempt from tax
• Income
of Provincial Government or a Local Authority in Pakistan shall be exempt under
all heads of income other than income from Business, derived outside its
jurisdictional area, which shall be taxable.
• Federal
Government, a Provincial Government or a Local Authority shall not be liable to
any collection or deduction of advance tax.
Another Paper:
1) Define these sections section 47, section
48 under the IT ordinance 2001 (3 marks) Answer
Section 47 Scholarships
• Any scholarship granted to a person
to meet the cost of person’s education shall be exempt from tax.
Section 48 Support Payments under an Agreement to Live Apart
Any income received by a spouse as support payment under an
agreement to live apart shall be exempt from tax under this Ordinance
2)
Mr. Ali is a resident of Pakistan, 1000
salary received in UK paid by the UK Company; he paid the income tax on his
salary in UK. The tax treatment of Mr.ali s income in Pakistan with IT
ordinance 2001, also mention the section that is applicable (3) Ans:
Handouts (22, 23) I think no.
3)
Explain
the two terms with their relevant sections (5 marks)
Resident individual (page 23,26,27)
Resident AOP(27,36,) Answer
Resident
Individual (Section 82)
•
An individual shall be a resident individual for
a tax year if the individual:
•
is present in Pakistan for a period of, or
periods amounting in aggregate to, one hundred and [eighty-three] days or more
in the tax year;
or
•
is an employee or official of the Federal
Government or a Provincial Government posted abroad in the tax year.
Resident
Association of Persons Sec. 84
An association of persons
shall be a resident association of persons for a tax year if the control and
management of the affairs of the association is situated wholly or partly in
Pakistan at any time in the year.
4)
If
the utility bills are paid by the employer to an employee, give the rational
with the applicable section (5 marks)
5)
Why
the government imposes the taxes to its citizens, what element should be taken
into account while formation of the tax laws (5 marks)
Another Paper:
Q: what is meant by reduction in tax liability?
Give an example from Income Tax Ordinance 2001? 3 marks
Answer
Reduction in Tax Liability under Second Schedule Part 3
•
Any amount received as flying allowance by pilots
etc. and junior commissioned officers or other ranks shall be taxed @2.5% as
separate block.
•
Senior citizen-age 60 years &above where
taxable income not exceeding Rs. 500,000/- tax liability reduced by 50%
Q: what does Bench Mark rate means? Also
mention which section describe bench mark rate? 3 marks Answer
Sub Sec. (14) in this section “Benchmark rate” means:
For the tax year commencing on the first day
of July 2002, a rate of 5% per annum; and
For the tax year next following the tax year
refer to in sub clause (i), the rate for each successive year taken as 1% above
the rate applicable for the immediately preceding tax year but not exceeding
such rate, if any, as the federal Govt., may, by notification, specified in
respect of any tax year.
“Services” includes the provision of any
facility; and
“Utilities” includes electricity, gas, water,
and telephone.
Benchmark rate for the tax year 2009 is 11 %.
Q: list down the examples of Income from
Agriculture under section 41 of the ordinance (any five) 5 marks Answer
1.
Income from growing flowers
and creepers
2.
Interest on capital received
by a partner from a firm engaged in agricultural operation.
3.
Profit on sale of standing
crops or the produce after harvest by a cultivating owner or tenant of land.
4.
The fees collected from owners
of cattle (normally used for agricultural purpose) for allowing them to graze
on forest lands covered by jungle and grass grown spontaneously
5.
Compensation received from an
insurance company for danger caused by hailstorm or another natural calamity to
crops or agricultural produce.
6.
Share of profit of a partner
from a firm engaged in agricultural operation (similarly salary received by him
for services in agricultural operations as salary is only a mode of adjustment
of the firm’s income).
Q: An association of persons named M/S Khan and
sons has its most of its branches in Pakistan is it sufficient to be resident
AOP or not?
Answer
M/S khan is resident AOP because control and management of the
affairs of the association is situated wholly or partly in Pakistan at any time
in the year.
Explain with reference to Income Tax Ordinance
2001? 5 marks Answer
Income Tax Ordinance, 2001
To updates the tax laws and brings our law in accordance with
international standards, this ordinance was promulgated on 13th September, 2001, which
became effective from 1st July, 2002.
Basic Features of Income
Tax Ordinance 2001 Scheme
of the Ordinance is given below: There
are thirteen chapters Chapters are divided into:
Parts &
Divisions
There are 240 Sections
This ordinance comprises of seven Schedules
Schedules are integral part of the Ordinance
Q: list down some important characteristics of
salary? 5 marks
Another Paper:
1. Under which circumstances business
income of a nonresident person shall be considered as Pakistan-source income?
(Marks 3) Answer
Business
income of a non- resident person shall be Pakistan- source income to the extent
to which it is directly or indirectly attributable to-
• A
permanent establishment of the non-resident person in Pakistan
• Sales
in Pakistan of goods or merchandise of the same or similar kind as those sold
by the person through a permanent establishment in Pakistan
• Other
business activities carried on in Pakistan of the same or similar kind as those
effected by the non-resident through a permanent establishment in Pakistan (or)
• Any
business connection in Pakistan
Where
the business of a non-resident person comprises the rendering of independent
services (including professional services and the services of entertainers and
sports persons), the Pakistan-source business income of the person shall
include [in addition to any amounts treated as Pakistan-source income under
sub-section (3)] any remuneration derived by the person where the remuneration
is paid by a resident person or borne by a permanent establishment in Pakistan
of a non-resident person
4. Section 102 deals with Foreign-source of
income of resident
individuals. Identify the tax treatment.
(Marks 3) Answer
Foreign Source Salary of Resident Individuals Sec. 102
(1)
Any foreign-source salary received by a resident
individual shall be exempt from tax if the individual has paid foreign income
tax in respect of the salary.
(2)
A resident individual shall be treated as having
paid foreign income tax in respect of foreign-source salary if tax has been
withheld from the salary by the individual’s employer and paid to the revenue
authority of the foreign country in which the employment was exercised.
Question No: 29
( Marks: 3 )
What exemption granted under section 46 of IT
Ordinance 2001?
Answer
Section 46 Profit on Debt
Any
profit received by a non – resident person on a security issued by a resident
person shall be exempt from tax provided:
•Persons
not associates
•Security
widely issued by resident person outside Pakistan
•Profit
on security was paid outside Pakistan
•Security approved by
Central Board of Revenue (CBR)
Question No: 30
( Marks: 3 )
Under which conditions any royalty is treated as Pakistan
source income if it is paid by:
i.
Resident
person
ii.
Non-resident
person
Answer
A
royalty shall be Pakistan-source income if it is:
• Paid
by resident person, except where the royalty is payable in respect of any
right, property, or information used, or services utilized for the purposes of
a business carried on by the resident outside Pakistan through a permanent
establishment; or
• Borne
by a permanent establishment in Pakistan of a non-resident person
Question No: 32
( Marks: 5 )
Determine total income of Mr. Sharif, a
non-resident individual for tax year 2009. Relevant data is given below:
i.
Share
of profit received in Singapore from a business controlled through a permanent
establishment in Pakistan Rs 200,000.
ii.
Salary
income of Mr. Sharif from an employment in Pakistan
Rs600,000
iii. Remittance received from China Rs 400,000
iv. Profit on debt received on deposits kept
with a bank in Pakistan Rs 50,000
Question
No: 29 ( Marks: 3 )
What
is the difference between remittance and receipt of income? Which one is
chargeable to taxable?
Answer
Difference
between remittance and receipt of income
Receipt of income is the
money that you receive and you might have to return it on a later stage.
Further the receipt can be on sale of goods, or business receipts out of which
the profit shall be your income. If salaried, the salary is your income for the
purpose of tax calculations. While a remittance
is a transfer of money by a foreign worker to his or her home country. See
"Remittance Man" below for the historical use of the word, which is
the opposite of the modern use.
Question
No: 30 ( Marks: 3 )
Section
102 deals with Salary received from Foreign-Source by resident individual. What
is the tax treatment of such salary?
Answer
Foreign Source Salary of Resident Individuals Sec. 102
(1)
Any foreign-source salary received by a resident
individual shall be exempt from tax if the individual has paid foreign income
tax in respect of the salary.
(2)
A resident individual shall be treated as having
paid foreign income tax in respect of foreign-source salary if tax has been
withheld from the salary by the individual’s employer and paid to the revenue
authority of the foreign country in which the employment was exercised.
Question
No: 31 ( Marks: 5 )
Profit
on debt earned by a non-resident person is exempt from tax under clause (77) of
Part I of the second schedule. Is this exemption only available to
“Individuals” as reference has been made to persons being citizens of Pakistan
or otherwise? Provide the details of this clause.
Answer
No this exemption is also
available Approved loans, Foreign currency accounts held in the Pakistani
account, profit on rupee help with a scheduled bank in Pakistan, profit from
the private frogin currency accounts held in the authorized banks.
Question No: 32 ( Marks: 5 )
Mr.
Irfan resident of Pakistan received salary from UK. He has also paid tax on his
salary from UK as per the tax laws prevailing there. What will be the tax
treatment of his salary as a Pakistani resident? Which section of the income
tax ordinance deals this scenario?
Answer Foreign-Source Salary Income [102]
Mr.
Irfan’s salary from UK would be exempted from tax, because he has paid tax on
his salary from UK. Under Foreign-Source
Salary Income [section102] foreign source salary income of a resident
individual will be exempt from tax, if he has paid foreign income tax in
respect of such income. Payment of foreign tax means that the employer has
deducted the tax at source and deposited the same to the revenue authorities of
the country in which employment was exercised.
Question
No: 31 ( Marks: 5 )
Why
the right to acquire share is not chargeable to tax under Employee Share Scheme
section 14. Under what condition the right to acquire share under section 14 is
taxable?
Answer
Employee Share Schemes sec 14:
The
value of a right or option to acquire share under this scheme shall be not
chargeable to tax.
Where
shares issued are subject to a restriction on transfer of the shares
a)
no amount shall be chargeable to tax under the head Salary until the earlier of
i. the time the employee has a free right to transfer the shares;
or ii. the time the employee disposes of the shares &
b)
the amount chargeable to tax to the employee shall be fair market value of
shares at the time employee has free right to transfer as reduced be any amount
given as consideration for the grant of a right or option to acquire the
shares.
Where
in a tax year an employee disposes of a right or option to acquire shares under
an employee share scheme, the amount chargeable to tax shall include the amount
of any gain made on the disposal computed accordance with the following
formula:
A-B
Where A is the
consideration received from the disposal of the right or option.
B
is the employee’s cost in respect of the right or option.
Question No: 30 ( Marks: 3 )
If Mr. Kamal resident of Pakistan suffered a
foreign loss against the income received from foreign country in tax year. What
is the treatment of such foreign loss? Which section deals this kind of loss?
Such losses can be carried forward up to how many years?
Answer
Foreign losses Sec.104: Deductible expenditures incurred by a
person in deriving foreign source income chargeable to tax under a head of
income shall be deductible only against that income. Foreign losses carried
forward up to 6 years.
Question No: 32 ( Marks: 5 )
If Mr. Basit resident of Pakistan suffered a
foreign loss against the income received from foreign country in tax year
2008-09. What is the treatment of such loss? Which section deals this kind of
loss?
Answer: Under Sec.104 Foreign losses
Deductible expenditures incurred by a person in deriving foreign source income
chargeable to tax under a head of income shall be deductible only against that
income. These type of losses carried forward up to six years.
Question
No: 31 ( Marks: 5 )
Define
Income that is charged to tax under section 2(9).
Answer
Business Defined Section 2(9)
“Business
includes any trade, commerce, manufacture, profession, vocation but doesn’t
include employment”
Following
incomes (except exempt income) shall be charged to tax under the head ‘Income
from Business’.
a) Profits
& Gains from any business in a tax year.
b) Income
derived from any trade, profession, sale of goods or provision of any services.
c) Income
from hire or lease of tangible movable property.
d) FMV
of Perquisites derived by a person by virtue of business relationships.
e) Management
Fee derived by a management company.
Income
from Business also includes:
• Any
profit on debt derived by a person. (it is only applicable to such person,
whose is business is to derive such income. e.g.; a banking company)
• Any
amount received by schedule bank from mutual fund, as share of profit.
• Profit
earned on debts in course business shall be chargeable to ‘income from
business’.
• Income
on leasing by lessor, being banks, leasing companies etc.
Income
derived from any trade, profession, sale of goods or provision of any services.
• Income
from hire or lease of tangible movable property
• FMV
of Perquisites derived by a person by virtue of business relationships.
• Management
Fee derived by a management company
|
Question No: 16 (
Marks: 3 ) |
|
Mr. Zeeshan an
employee of federal government has been posted at Paris on 1st
July, 2006. He came
on a visit to Pakistan on 1st November, 2006 and returned back to
Paris on 15th December, 2006. For the rest of the period pertaining to tax
year 2007, he remained in UK. Determine residential status for the tax year
2007 with respect to section 81 of Income Tax Ordinance 2001. Answer Mr. Zeeshan is resident of tax year 2007 |
|
Question No: 17 (
Marks: 3 ) |
|
Enumerate the
essentials of Taxation Management. •
Understanding and application of updated laws particularly tax
laws, rules and procedures. •
Application/use of benefits such as Tax credits, rebates,
exemptions, reductions etc. available under the law. •
Maintenance of Records/Books of Accounts as per requirement of
law. •
Disclosure of true facts (no concealment). |
|
Question No: 18 (
Marks: 3 ) |
|
Determine tax
year in the light of following information: a) Mr. Kamran a
rice exporter deriving income during the period from 1st January
2004 to 31st December 2004. Answer : Tax year is 2005 b) M/S XYZ an
insurance company having an accounting period from 1st January
2006 to 31st December 2006. Answer : Tax year is 2007 c) Mr. X an
individual derived income during the period from 1st July 2002 to
30th June 2003. Answer : Tax year is 2003 |
Question No: 19 ( Marks: 3 )
|
Make a
comparison between the residential status of Resident AOP and Resident
Company. Resident
Association of Persons Sec. 84 An association of persons shall be a resident
association of persons for a tax year if the control and management of the
affairs of the association is situated wholly or partly in Pakistan at any
time in the year. Resident
Company– Sec. 83 A company shall be resident company for a tax year if: •
it is incorporated or formed by or under any law in force in
Pakistan; •
the control and management of the affairs of the company is
situated wholly in Pakistan at any time in the year; or c. It
is a Provincial Government or local authority in Pakistan. |
|
Question No: 20 (
Marks: 3 ) |
|
Is the income of non- resident taxed in
Pakistan? Which part of his/her income is taxed? Yes non-resident person charged only on Pakistan Source Income.
Sec.11(6) Business
income of a non- resident person shall be Pakistan- source income to the
extent to which it is directly or
indirectly attributable to- •
a permanent establishment of the non-resident person in Pakistan;
•
Sales in Pakistan of goods or merchandise of the same or similar
kind as those sold by the person through a permanent establishment in
Pakistan. •
Other business
activities carried on in Pakistan of the same or similar kind as those
effected by the non-resident through a permanent establishment in Pakistan
(or) •
Any business connection in Pakistan. |
Question
No: 31 ( Marks: 5 )
Why
Government levy tax on Person? What are the important elements that take into
consideration while levying tax?
5. This question was related to identification of
tax year of the given cases. (Marks 5)
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