BT-Mar.2015 1 of 3 PTO

ICMA.

Pakistan 9

BUSINESS TAXATION (BLE-402)

SEMESTER-4 FALL 2014 EXAMINATIONS

Wednesday, the 11th March 2015

Time Allowed: 02 Hours 30 Minutes Maximum Marks: 70 Roll No.:

(i) Attempt all questions. (ii) Answers must be neat, relevant and brief. (iii) Use of non-programmable scientific calculator of any model is allowed. (iv) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper. (v) In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,

effective presentation, language and use of clear diagram/ chart, where appropriate. (vi) DO NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script. (vii) Question No. 1 Multiple Choice Question printed separately, is an integral part of this question paper. (viii) Question Paper must be returned to invigilator before leaving the examination hall.

Marks

Q. 2 (a) In the light of section 24 of the Income Tax Ordinance, 2001: (i) Define the term intangibles. 04 (ii) Briefly explain that how the allowable deduction will be computed, if an intangible

asset is not used for the whole tax year in deriving income from business chargeable to tax? 02

(b) Ms. Sara is a resident individual of Pakistan. She is moving to Canada and planning to sell all assets of her business to Sigma (Private) Limited, a resident company of Pakistan and a wholly owned company. Before leaving Pakistan, Sara intends to file her income tax return and seeking your advice in respect of the conditions where no gain or loss will be accounted for on disposal of her business to Sigma.

Required: Being a Tax Consultant briefly state Ms. Sara regarding conditions where no gain or loss

will be accounted for on disposal of all the assets to Sigma as per section 95 of the Income Tax Ordinance, 2001. 05

Q. 3 (a) Venus Limited is a public listed company having three (3) subsidiaries. One of its subsidiaries Mars Limited has been suffering losses for last few years. The Board of Directors of Mars Limited wants to surrender its assessed losses in favour of its holding company.

Required: In view of the provisions of section 59 B of the Income Tax Ordinance, 2001 you are

required to answer the following:

(i) For how long a continued ownership of the share capital would be required for Venus with Mars Limited for adjustment of losses surrendered by the Mars against its income under the head income from business and whose approval with regard to such surrendered losses would be required? 02

(ii) In case of Mars Limited what percentage of ownership of share capital is mandatory for Venus Limited? 01

(iii) For how many tax years Mars Limited can surrender its tax losses and how would its unadjusted losses be treated after the specified period? 02

(iv) Which type of losses cannot be surrendered by a subsidiary in favour of holding company and other subsidiary in the group? 02

(b) As per section 172 of the Income Tax Ordinance, 2001 there are certain persons who can act as an authorized representative of resident/ non-resident taxpayers. Specify such persons who can act as authorized representative of a non-resident taxpayer. 05

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Marks

Q. 4 Mr. Hassan has been working as an Accounts Executive in Prime Limited which is a public limited company. In addition to his salary, other perks and allowances are also provided to him by his employer. He has various other sources of income as well. Assume you are Income Tax Consultant and Mr. Hassan has submitted the following information for the tax year ended on June 30, 2015 for calculation of his taxable income and tax liability:

Rupees Basic salary per annum 500,000 Perquisites and allowances paid by the employer: House rent allowance 110,000 Utilities 25,700 Entertainment allowance 13,000 Reimbursement of medical expenses 7,750

Two cars have been provided to Mr. Hassan and maintained by the company. One car is used wholly for the companys business purposes having cost of Rs.300,000 and the other one is used for his family exclusively costing to Rs.350,000.

Income from other sources:

Mr. Hassan has been maintaining a profit and loss sharing account in ITC bank. The bank has credited a profit of Rs.11,300 in his account during tax year.

He is also a non-professional writer and has received Rs.20,000 on account of his literary work which was started and completed during the year.

Other information:

Mr. Hassan paid annual premium of Rs.12,000 for life insurance policy and Rs.4,000 for health insurance policy.

He also paid donation of Rs.15,000 to an approved charity organization. He also paid Zakat of Rs.10,000 under the Zakat and Ushr Ordinance, 1980. Required:

Calculate the taxable income and tax liability of Mr. Hassan for the tax year 2015. Provide all necessary notes to support your calculations. 17

(Note: See Page # 3 for tax rates of salaried person for the tax year, 2015)

Q. 5 (a) In view of the provisions of Sales Tax Laws: (i) Identify the circumstances under which the debit and credit notes are required to be

issued in respect of supply made by a registered person. 03 (ii) Specify the manner and modes in which sales tax due on imported or taxable

supplies shall be paid. 03

(b) XYZ Industries (Pvt.) Limited has been established for many years and registered under the Sales Tax Act, 1990. The Chief Financial Officer (CFO) of the company, Mr. Akram observed that there is often delay and discrepancies in filing of sales tax return due to inexperienced staff regarding the sales tax matters. He requested the Sales Tax Advisor of the company to train the staff of the sales tax department.

Required: Being the Sale Tax Advisor, guide the staff regarding the following queries in the light of

the Sales Tax Act, 1990: (i) In case of any short payment of sales tax, how the company can avoid and reduce

imposition of penalty under section 33 of the Sales Tax Act, 1990? 04 (ii) Under which situations, XYZ Industries (Pvt.) Limited may be held liable to pay

default surcharge in addition to the sales tax due on it? 03 (iii) Is there any provision in the Sales Tax Act, 1990 for a registered person to file a

revised sales tax return? Elaborate in the light of section 26 (3) of the Sales Tax Act, 1990. 02

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Marks

Q. 6 (a) Karvan Limited is a company registered under the Sales Tax Act, 1990. The company is engaged in the manufacturing, import and export of chemical products. Following activities were carried out by the company during the month of January 2015:

Rs. 000 Purchases: Local:

Raw materials from registered suppliers 800,000 Raw materials from non-registered suppliers 400,000

Imports: Invoice value (converted into Pak Rupees) 150,000 Customs duty 37,500 Value inclusive of customs duty 187,500 Federal excise duty 6,250 Manufacturing and other costs 220,000

Supplies: Sales to registered customers 1400,000 Sales to non-registered persons (commercial/ industrial customers) 600,000 Sales of exempted supplies 400,000 Exports 220,000

Additional Information: Sales tax of Rs.50,000, Rs.20,000 and Rs.16,000 was paid in cash on account of

electricity, gas and telephone bills respectively, directly consumed for taxable activities. Required:

In the light of the provisions of the Sales Tax Act, 1990, compute the net sales tax payable for the month of January 2015. Substantiate your answer with notes. 07

(b) Define the following terms as per section (2) of the Federal Excise Act, 2005: (i) Wholesale dealer. 03 (ii) Distributor. 02

(c) In the light of the Customs Act, 1969 describe the goods on which normal custom duties shall be levied at the rates prescribed in the First Schedule. 03

THE END EXTRACT OF TAX RATES FOR SALARIED TAXPAYERS

Sr. No. Taxable Income Rate of Tax

1. Where the taxable income does not exceed Rs. 400,000 0%

2. Where the taxable income exceeds Rs. 400,000 but does not exceed Rs. 750,000 5% of the amount exceeding Rs. 400,000

3. Where the taxable income exceeds Rs. 750,000 but does not exceed Rs. 1,400,000 Rs. 17,500 + 10% of the amount exceeding Rs. 750,000

4. Where the taxable income exceeds Rs. 1,400,000 but does not exceed Rs. 1,500,000 Rs. 82,500 + 12.5% of the amount exceeding Rs. 1,400,000

5. Where the taxable income exceeds Rs. 1,500,000 but does not exceed Rs. 1,800,000 Rs. 95,000 + 15% of the amount exceeding Rs. 1,500,000

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