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Chapter 21 ___________Solved Past Papers Income Tax Numericals of CA Module C - (2001 to 2015)

Q.NO.1 Spring 2015 On 1 July 20X4, Tahir commenced business of manufacturing garments. Income statement of

Note: All the following questions have been solved under the Income tax Ordinance, 2001 effective from July 01, 2015.

SOLVED PAST PAPERS INCOME TAX NUMERICALS OF MOD-C (2001 TO 2015)

21

Chapter

Conceptual Approach to Taxes _______ ___ _______________ __ 323

Notes Rs. in 000Sales 49,330 Less: Cost of sales (i) (39,150) Gross profit 10,180 Less: Administrative and selling expenses (ii) (9,140) Financial charges (iii) (2,500) Other charges (iv) (1,358)

(2,818) Add: Other income 3,875 Profit before taxation 1,057

Notes to the income statement:

ii. Administrative and selling expenses include:

i. On 15 July 20X4, used machinery was imported from China valuing Rs. 1,500,000. Depreciation @ 15% was charged on machinery for the whole year and is included in cost of sales.

Rs. 975,000 paid for the purchase of computer software. The software is likely to be used for twelve years.

Cost of preparation of a feasibility study amounting to Rs. 250,000 which was issued prior to the commencement of business. Salary of Rs. 50,000 per month was paid to Tahir’s brother who handles the financial matters of the business.

Q.NO.1 Spring 2015 On 1 July 20X4, Tahir commenced business of manufacturing garments. Income statement of the business for the year ended 30 June 20X5 is as follows:

iv. Other charges include:

Other information:

iii. 5,000 shares were purchased for Rs. 600,000 from initial public offering of a new listed company.

iii. Financial charges include Rs. 80,000 pertaining to a vehicle obtained on lease from a leasing company. The cost of vehicle was Rs. 1,300,000. Depreciation of Rs. 260,000 has been included in administrative and selling expenses. Lease rentals paid during the year amounted to Rs. 300,000.

running and maintenance expenses of vehicle amounting to Rs. 295,450. Use of vehicle for personal purposes was approximately 20%. provision for bad debts amounting to Rs. 25,000.

i. Tahir was working in UAE for the past five years and had come back to Pakistan in April 20X4. He received an amount equivalent to Rs.150,000 from his ex-employer as differential amount on his final settlement in August 20X4.

ii. He sold a plot for Rs. 3,500,000 which was inherited from his father in 20X1. Fair market value of the plot at the time of inheritance was Rs. 1,500,000.

Salary of Rs. 50,000 per month was paid to Tahir’s brother who handles the financial matters of the business.


Chapter 21 _______ Solved Past Papers Income Tax Numericals of CA Module C - (2001 to 2015)

iv. Premium of Rs. 300,000 was paid on Tahir’s life insurance policy.

Required:

Mr. TahirResident : IndividualTax Year : 2016Computation of Taxable income and tax thereonIncome from Business (W-1) 1,939,840 Total Taxable Income 1,939,840

Tax on Rs. 1,939,840 [144,500 + (1,939,840 - 1,500,000) x 20%] 232,468 Less: Rebate on shares and life Insurance ( 232,468 / 1,939,840 x 387,968 ) (W-3) (46,494) Tax Payable with Return 185,974

Under the provisions of the Income Tax Ordinance, 2001 compute the taxable income and tax liability of Tahir for the tax year 20X5. Provide comments in respect of items which do not appear in your computation.

324_________________ ____________ _______ _Conceptual Approach to Taxes

Tax Payable with Return 185,974

Working - 1Income from Business

Profit before taxation 1,057,000 Add: Accounting Depreciation 225,000 Pre-commencement Expenses 250,000 Computer software 975,000 Depreciation on Lease Asset 260,000 Lease charges 80,000 Vehicle used for private purpose 59,090 Provision for bad debts 25,000 1,874,090

2,931,090 Less: Amortization of software (975,000 / 10 ) 97,500 Lease rentals paid during the year 300,000 20% Amortization of pre-commencement Expense 50,000 Tax Depreciation (W-2) 543,750 (991,250) Taxable income from business 1,939,840

Working - 2Depreciations WDV DepreciationCost of Machinery 1,500,000 Less: 25% Initial allowance (375,000) 375,000 Cost of Machinery 1,500,000 Less: 25% Initial allowance (375,000) 375,000

1,125,000 Less: Depreciation (168,750) 168,750 Total 956,250 543,750 Working - 3Higher of investment in shares OR Life Insurance

Shares of listed company A 600,000 Insurance Premium B 300,000 Or C 1,500,000 Or 20% of 1,939,840 D 387,968 Lower of A , B, C & D 387,968



Fahim also incurred the following expenses in respect of the above house:(i) property tax of Rs. 15,000.

(iii) insurance premium of Rs. 110,000.(iv) Rs. 5,000 per month to Wasif for collection of rent.

Required:

(ii) payment of interest amounting to Rs. 200,000 to his friend against amount borrowed for renovation of the house.

Q.NO.4(b) Spring 2015 On 1 July 2014, Fahim agreed to rent out a house to Mirza at a monthly rent of Rs. 180,000 with effect from 1 August 2014 and received one year’s rent in advance. He also received Rs. 800,000 as asecurity deposit which was partly used to repay the security deposit amounting to Rs. 400,000 received from theprevious tenant in July 2010 and partly used for renovation of the house.

Note -1 As the taxpayer is a returning expatriate hence no treatment of foreign source salary has been made as the sameis exempt under section 51 of the Income tax ordinance, 2001.

Note -2 No treatment of gain on disposal of plot has been made as the same is not taxable due to its disposal after two years from the date of its inheritence.


Required:

Mr. FahimTax Year 2016Computation of taxable incomeIncome from PropertyRent (180,000 x 11) 1,980,000 Unadjustable advance (W-1) 64,000

2,044,000 Less: Deductions u/s 15A 1/5th repair allowance 408,800 Property tax 15,000 Profit on debt for renovation of rented house 200,000 Insurance premium 110,000 Lower of actual collection & admin charges or 6% of RCT 55,000 (788,800) Taxable Income 1,255,200

W-1Working for Unadjustable advance[ 800,000 - ( 400,000 / 10 x 4 ) ] / 10 64,000

Under the provisions of the Income Tax Ordinance, 2001 compute the taxable income of Fahim for tax year 2015 assuming he has no other income.

[ 800,000 - ( 400,000 / 10 x 4 ) ] / 10 64,000

Following information is available in respect of his business operations for tax year 2015:

LHR PAR BER

Income / (loss) from business 29 40 -15Advance taxes paid in respective countries during the year 10 5 3Income from capital gain (net of income tax of Rs. 3 million) - 27 -Carried forward losses: Loss from business - 55 -

----- Rs. in million -----

Q.NO.6 Spring 2015 Aslam is a resident taxpayer who operates his business from Lahore (LHR) and Paris(PAR). In August 2014, he established a new branch in Berlin (BER).



Capital loss - 6 -

The following amounts paid by Aslam in respect of BER have been charged to LHR:(i) salaries for the first three months amounting to Rs. 5 million.(ii) rent expense for the year amounting to Rs. 7 million.

Required:

Tax Year 2016Computation of taxable income and tax thereon

LHR PAR BERRs. In million Rs. In million Rs. In million

Income / Loss 29 40 (15) Add / (Less): salaries wrongly charged 5 - (5) Rent wrongly charged 7 - (7)

41 40 (27)

Under the provisions of the Income Tax Ordinance, 2001 calculate the tax payable by Aslam in the tax year 2015and foreign tax losses to be carried forward to next year, if any.


41 40 (27) Income From Business 41 40 (27) Less: Adjustment against loss from Business b/f (55-40)= 15 c/f - (40)

(A) 41 - (27)

Income from Capital Gain - 30 - Set-off Capital Loss - (6) -

(B) - 24 -

Total Income [A + B] 41 24 (27) Total Taxable Income 41 24 (27)

The un-adjusted business loss of PAR of Rs. 15 million and Ber of 27 million shall be carried forward for adjustment against succeeding years foreign source business income with limitation of maximum upto six tax years.

COMPUTATION OF TAX LIABILITY:Tax on Rs. 65,000,000 [1,319,500 + (65,000,000 - 6,000,000) x 35%] = 21,969,500 22

Less tax credit for foreign source capital gain (Lower of Pakistanaverage tax OR Foreign tax paid)

(3)

19 Less advance tax paid (10)Less advance tax paid (10)Balance tax payable 9

(a) His monthly cash remuneration in AECL is as follows:Rupees

Basic salary 480,000Medical allowance 48,000Utilities allowance 55,000Market value of rent free accommodation 75,000

No tax credit on foreign (PAR) source business income has been computed as the tax on such income in Pakistan is nil as comared to Rs. 3 million in Ber.

Q.1 CAF September 2014 Sultan is working as electronic engineer with Ansari Electrical Company Limited (AECL). Hehas provided you with the following information for the tax year ended 30 June 2014:



(i) Leave encashment amounting to Rs. 300,000.

(d) A lump sum amount of Rs. 1.2 million was received as the author of a literary work.(e) Sultan took three years to complete this literary work.

(g) The net income from the studio for tax year 2014 was Rs. 990,000. The expenses include salaries of twoworkers at Rs. 15,000 and Rs. 18,000 per month and utility bills amounting to Rs. 110,000. All expenses were paid incash.

(f) Sultan is also a part time singer and owns a studio. He sold the premises in which the studio was situated for Rs. 10

million and shifted his musical instruments to new premises which he purchased for Rs. 15 million. He received Rs. 2.5

million from his father in cash as loan to pay for his new studio. The previous premises was purchased several years ago

for Rs. 1.4 million and had a tax written down value of Rs. 600,000 at the time of disposal.

(c) Rs. 200,000 were received from a private limited company for attending board meetings.

(iii) He is allowed to use his personal car for office use. Reimbursement of car running and maintenance expensesamounted to Rs. 550,000. 15% of these expenses pertain to personal use.

(ii) Hospitalization cost is covered by an insurance policy up to the amount of Rs. 1.5 million. The insurancepremium relating to this benefit amounted to Rs. 55,000.

(b) He was also provided the following benefits in accordance with the terms of his employment:


Required:

Mr. SultanResident : IndividualTax Year 2016Compitation of taxable income and tax thereon

Rs. Rs.Income from SalaryBasic Salary 5,760,000 Medical allowance 576,000 Utilities allowance 660,000 AccommodationRent free accommodation 900,000 45 % of 5,760,000 2,592,000 2,592,000 Leave encashment 300,000

Under the provisions of the Income Tax Ordinance, 2001 compute the taxable income and tax thereon for the tax year2014.

(j) An amount of Rs. 500,000 was paid by him as contribution to an approved pension fund.(i) He gifted 40 fans having a fair market value of Rs. 100,000 to an approved charitable organisation.

cash.(h) He won a car, in a competition held by Star Motor Limited for promotion of its sales. The fair market value of the carwas Rs. 850,000.

Leave encashment 300,000 Conveyance allowance 82,500

9,970,500 Income from BusinessStudio Income 990,000 Inadmissible expense 216,000 Gain on sale of studio 800,000 2,006,000

Income from other sourcesFee for attending BOD meetings 200,000 Loan received from father 2,500,000 Literary work as an author 1,200,000 Winning a car 850,000 4,750,000 Total Income 16,726,500 less: Winning a car covered under FTR (850,000)



Taxable Income 15,876,500

Computation of Tax LiabilityTax on Rs. 12,944,500

[1,425,000 + (15,876,500 - 7,000,000) x 30%] 4,087,950 Less: Rebate on donation

4,087,950 / 12,944,500 x 100,000 (25,748) Less: Rebate on contribution to APF

4,087,950 / 12,944,500 x 500,000 (128,742) Tax payable with return 3,933,459

Rs. in '000'

Sales of manufactured motors 45,000 Less: Cost of sales and administrative expenses

Rs. in '000'

Q. NO. 1 Spring 2014 Qamar is engaged in the business of manufacturing and repair of electric motors. Hisaccountant has prepared the following tax computation for the tax year 20X4:


Less: Cost of sales and administrative expenses (excluding depreciation for the year)Income before depreciation 12,000 Less: Tax depreciation for the year (9,000)

3,000 Less: Brought forward business loss from tax year 20X3 (Total business loss was Rs. 4 million)Business income after adjusting business loss - Add: Interest income received from a commercial bank 500 Income form other sources 850 1,350 Taxable income 1,350

Computation of taxTax liability 125 Less: Tax deducted by bank on interest income (500,000 x 10%) (50) Tax payable 75

Following expenses are included in the cost of sales and administrative expenses:

Description Rs. In 000Travelling expenses include travel and hotel expenses of Qamar's visit to Malaysia for attending a trade fair

Electricity charges paid for Qamar's residence 150

(3,000)

100

(33,000)

Electricity charges paid for Qamar's residence 150Damages paid to a distributor for delayed supplies 200Donations to a non-profit organization 300Salary paid to Bari who is Qamar's brother. Advance tax has been deducted from the salary

Fine paid to the Ministry of Environment for infringment of environmental and safety lawsUnabsorbed depreciation brought forward from previous tax year 500

Required:

720

200

Qamar is not satisfied with the tax return prepared by his accountant and has requested you to review the return.

(a) Compute the revised taxable income of Qamar and tax payable by or refundable to him for the tax year 20X4. (b) Briefly comment on treatment of the above items of expenses in your tax computation.



Solution: (a)

MR. QAMAR Revised taxable income & tax thereonFor the tax year 2016

Rs. in '000'INCOME FROM BUSINESS U/S 18

Sales of manufactured motors 45,000 Less: Revised cost of sales and administrative expenses (excluding depreciation for the year) (N - 2)

13,150 Less: Brought forward business loss from tax year 20X3 (Total business loss was Rs. 4 million)

9,150 Less: Tax depreciation for the current year (9,000) Unadjustable tax depreciation - brought forward (b - 1) (500) Total business loss for the year (350)

INCOME FROM OTHER SOURCES U/S 39

(31,850)

(4,000)



Income form other sources (assumed net of allowable expenses and fully covered under normal tax regime) 850 Total income 500

(b - 2) 150 Taxable income 350

COMPUTATION OF TAX LIABILITY:

Tax under NTR - Tax under FTR on profit on PLS account 50

50 Less tax already deducted at source - on bank profit 50 Balance tax -

ASSUMPTIONS / BASIS:

Less straight deduciton U/C 61 of Part II of 2nd Schedule to the

Income tax Ordinance, 2001. [Rs. 300,000 or 30% of Rs. 500,000]

As the income is less than Rs. 400, 000 (maximum non taxable limit) hence no tax liability has beencomputed under normal tax regime (read with N - 1).

(N - 2) Revised cost of salesRs. Rs.

Cost of sales as per question 33,000 Add:

Less:

Electricity charges - residence 150 Donation to a non-profit Orgnization 300

Unabsorbed depreciation brought forward from previous tax year Fine paid for infringement of environmental laws

(1,150) Revised cost of sales 31,850

500

(N - 1) In the absence of information no minimum tax under section 113 of the Income Tax Ordinance, 2001 has beencomputed.

200



Solution: (b)

(4) As the fine or penalty for voilation of any law, rule or regulation is not allowable under section 21(g) of the Income taxOrdinance, 2001 hence the fine paid for infirngment of enviornmental laws has been accordingly deducted from the givencost of sales amount.

(3) As the personal expenses are not allowable under section 21(h) of the Income tax Ordinance, 2001 hence theelectricity charges of residence has been accordingly deducted from the given cost of sales amount.

(2) It has been assumed that the limitations of clause 61 has been met by the AOP in order to claim the same asstraight deduction from total income.

(1) Un-absorbed depreciation of (current year and brought forward) may be adjusted against any other head of incomechargeable to tax (except income under the head salary or income from property) under section 57(4) read with section56(1) of the Income Tax Ordinance, 2001.

Q. NO. 4 Spring 2014 Basher and Jamil jointly own a house in Karachi. Basher has 75% share in the house. On 1September 20X3, the house was let out at an annual rental of value of Rs. 6,500,000. This amount includes Rs. 186,000per month for utilities, cleaning and security.


RupeesUtilities, cleaning and security 650,000Repair and maintenance 810,000Insurance premium 240,000Collection charges 25,400Mark-up on amount borrowed for extension of the house 840,000

RequiredCalculate taxable income of Basher and Jameel under appropriate heads of income for the tax year 20X4.

Solution:

COMPUTATION OF TAXABLE INCOMEFOR THE TAX YEAR 2015

INCOME FROM PROPERTY U/S 15: Rs. Rs. Rs.

Rent [(Rs. 6,500,000 / 12 x 10) - 1,860,000] 3,556,667

per month for utilities, cleaning and security.

During the tax year 20X4, owners incurred the following expenditures in relation to the house:

Basher and Jameel have no other sources of income. All the above expenses were incurred by them jointly.

Rent [(Rs. 6,500,000 / 12 x 10) - 1,860,000] 3,556,667

Less: allowable deductions u/s 15A

Repair allowance (Rs. 3,556,667 x 1/5) 711,333 Insurance premium 240,000 Actual collection & admin charges 25,400 6% of rent chargeable to tax 213,400 Lower of two amounts 25,400 Mark-up on amount borrowed 840,000 1,816,733 Net income from property of Co-owners 1,739,934

INCOME FROM OTHER SOURCES U/S 39:

Income from utilities, cleaning and securities (Rs. 186,000 x 10) 1,860,000



Less expenses of utilities, cleaning and securities (650,000) Total taxable income 1,210,000

COMPUTATION OF TAX LIABILITY AS AOP:

Tax on Rs. 1,210,000 [Rs. 32,000 + (Rs.1,210,000 - Rs. 750,000) x 15%] 101,000 Divisible income afer tax 1,109,000

Taxable income of Co-owners: Property income Income from Totalother sources

after tax (N - 1)Rs. Rs. Rs.

Bashir 75% 1,304,950 831,750 2,136,700 Jameel 25% 434,983 277,250 712,233

Total taxable income 1,739,934 1,109,000 2,848,934

(N - 1) Share of both the members in income from other sources of the AOP has been included for rate purposes ofrespective member of the AOP.


Q.1 Autumn 2013

(i) In July 2012, she received following amounts from SL in final settlement:● Leave encashment amounting to Rs. 95,000.● Gratuity of Rs. 500,000 from an unrecognized gratuity fund maintained by SL.● Reimbursement of Rs. 100,000 against a health insurance policy. The insurance claim was lodged by SL on

behalf of Mrs. Aslam in January 2012.

● Basic salary of Rs.200,000 per month.● Medical allowance of Rs. 60,000 per month.● Rent free accommodation with annual letting value of Rs. 480,000.● Travelling allowance of Rs. 50,000 per month. 60% of the amount was spent in the performance of official duties. ● Provident fund @ 10% of basic salary. An equal amount was contributed by HPL.

respective member of the AOP.

(ii) In accordance with the terms of her employment, income tax related to her salary and benefits is to be borne by HPL. Her emoluments / benefits during the tax year were as follows:

(iii) Under an employee share scheme, Mrs. Aslam was awarded 5,000 share in HPL on 1 January 2013. Under the

Mrs. Aslam was employed with Sahal Limited (SL) as a Marketing Manager. On 30 June 2012 she resigned from heremployment with SL. On 1 July 2012, she joined Hassan Pakistan Limited (HPL), a quoted company, as a MarketingDirector. She has provided you the following information in respect of the tax year 2013:

● Rs. 20 per share on 1 January 2013● Rs. 28 per share on 31 March 2013● Rs. 32 per share on 1 May 2013

(iv) On 31 December 2012, she received a loan of Rs. 400,000 from HPL. The loan carries a mark-up of 4% per annum. The prescribed benchmark rate is 10%.

(v) She won the best executive employee award of HPL and received a laptop having a fair market value of Rs. 100,000

(iii) Under an employee share scheme, Mrs. Aslam was awarded 5,000 share in HPL on 1 January 2013. Under thescheme she was not allowed to sell the shares up to 31 March 2013. she sold all the shares in HPL on 1 May 2013. Fairvalue of the shares on the above dates was as follows:

(vi) An amount of Rs. 355,000 was received from her spouse as support payment, under an agreement to live apart.



(vii) She paid Rs. 105,000 as zakat under the Zakat and Ushr Ordinance, 1980.(viii) Donation of Rs. 70,000 was paid to an approved organization.

Required:Compute the taxable income, tax liability and tax payable for the tax year 2013.Note: Show all relevant exemptions, exclusion and disallowances.

SolutionMRS. ASLAMSALARIED RESIDENT INDIVIDUALCOMPUTATION OF INCOME & TAX THEREONFOR THE TAX YEAR 2016

Rupees Rupees Rupees

Total income Exempt /

income not taxable

Taxable income

INCOME FROM SALARY U/S 12

From sahal limited (SL)


From sahal limited (SL)Leave encashment 95,000 Gratuity (N-1) 500,000 75,000 425,000

Reimbursement of insurance -

From hassan pakistan (HPl)Basic salary 2,400,000 Medical allowance (N-2) 720,000 240,000 480,000

Rent free accommodation 480,000 Higher of Rs. 480,000 or Rs. 1,080,000 (45% of 2,400,000) 1,080,000 1,080,000

Travelling allownce (N-3) 600,000 360,000 240,000 Contribution to Provident fund (N-4) - Employee share scheme 140,000 - 140,000 Loan from employer (N-5) 400,000 - Award of best executive employee (N-6) 100,000 Total salary 4,960,000

CAPITAL GAINS U/S 37

Amount received to live apart (N-7) 355,000 - Income before SBI 4,960,000

Less: Zakat (105,000) Less: Zakat (105,000) Donation (assumed that organization was specified in clause 61 of 2nd schedule) (N-8) (70,000) Taxable income 4,785,000

Separate Block of Incomecapital gain on shares [Rs. (32-28) x 5,000 ] 20,000


Tax on Rs. 4,785,000 [597,000 + 27.5% x (4,785,000 - 4,000,000)] 812,875

Tax on capital gain on shares of listed company (Rs. 20,000 x 15% as sold within one year) 3,000 Total tax liability 815,875

ASSUMPTIONS / BASIS:



N-1 Gratuity

N-2 Medical allowanceIt is exempt upto 10% of the basic salary remaining is taxable.

N-3 Travelling

N-4 Provident fund

N-5 Loan from employerAmount of loan is below Rs. 500,000 so it is exempt.

N-6 AwardAny benefit given by employer to employee is taxable under the head income from salary like commission paid toemployees.

N-7 Agreement to live apart

It is assumed that the travelling allowance is given for both office and personal use so 60% of it is exempt for office use.

It is not mentioned in question what is the type of provident fund it is so it is assumed that the provident fund is un-recognised provident fund so it is not taxable.

Contribution to un-recognised gratuity fund U/C 13 is exempt upto Rs. 75,000 or 50% of the amount whichever is lower.

securities Date of purchase purchase cost (Rs.) Date of sale Sale proceeds

(Rs.)A 20-Nov-12 500,000 17-Mar-13 400,000B 05-Aug-12 320,000 08-Jun-13 600,000C 01-Jun-12 650,000 17-Jun-13 700,000


N-7 Agreement to live apartIt is exempt under non-recognition rule.

N-8 Donation

Q.3 Autumn 2013

Gulzar is a Pakistani resident and operates various businesses. He disposed off the following assets during the taxyear 2013:

(iv) Listed securities were sold as follows :

(i) An immovable property was sold for Rs. 50 million. The cost of the immovable property was Rs. 25 million. Taxdepreciation of Rs.4 million had been allowed on the immovable property up to the tax year 2012.

No comparison with amount worked out at 30% of taxable income has been made as the actual donation amount isalready less than the same.

(ii) A car was disposed of for Rs. 1.2 million. The car was acquired on 1 July 2011. The tax written down value of the carat the beginning of tax year 2013 was Rs.0.9 million. The car was being used partly (70%) for business purposes. Therate of depreciation for tax purposes is 20%.

(iii) An antique sculpture was purchased for Rs. 350,000 on 30 August 2000. It was sold for Rs. 1,500,000 an 28February 2013 through auction. The auctioneer was paid a commission of Rs. 15,000 . Tax was deducted and paid byGulzar from the amount of commission within due date.



(iv) Listed securities were sold as follows :

Required:

Solution

MR. GULZAR

Compute the amount of capital gain / loss arising on the above transactions under the provisions of the Income TaxOrdinance, 2001.





NON SALARIED RESIDENT INDIVIDUALCOMPUTATION OF INCOME & TAX THEREONFOR THE TAX YEAR 2016

Rs. Rs.

Immoveable property:

Consideration received from the sale of immovable property 50,000,000 Less: WDV of immovable property Cost of asset U/S 22(13)(d) 50,000,000 Less: Depreciation charged upto 2013 (4,000,000) 46,000,000 Gain on sale of immovable property taxable under the head Business income U/S 18

4,000,000

Antique sculpture:

Sale price U/S 76(10) 1,500,000 Cost of antique (including disposal expenses) (Rs. 350,000 + 15,000) 365,000

1,135,000 As holding period is more than 1 year, therefore 25% is exempt (283,750)


As holding period is more than 1 year, therefore 25% is exempt (283,750) Capital gain on sale of antique 851,250

Depreciable motor vehicle:

Consideration received from the sale of depreciable motor vehicle 1,200,000

Less: WDV of motor vehicleCost of motor vehicle (Rs. 900,000 x 100 / 85) 1,058,824 Less tax depreciation allowed upto tax year 2012 (Rs.1,058,824 x 15% x 70%)

Note attached (111,177) 947,647

Gain on sale of depreciable motor vehicle taxable under the head Business income

252,353

Note: The cost of motor vehicle not plying for hire is well within themaximum limit of Rs.2.5 million for pessanger transport vehicle &further no initial allowance has been claimed on the assumptionthat the motor vehicles are not for hiring purposes. Although thenormal depreciation rate of 20% on motor vehicles has been givenhowever 15% applicable rate as per 3rd Schedule has been usedfor the solution.

Listed Companies shares: Company C

Sale price 700,000 Less: cost of shares at the date of disposal 650,000

50,000 50,000

Listed Companies shares: Company A

Sale price 400,000 Less: cost of shares at the date of disposal 500,000

(100,000) (100,000) As holding period is less than one year therefore its loss may be adjusted against capital gain from other taxable securities

Listed Companies shares: Company B



Sale price 600,000 Less: cost of shares at the date of disposal 320,000 As holding period is less than 1 year, therefore its gain may be 280,000 280,000 adjusted against capital loss of Company A Taxable capital gain under section 37A 230,000

Q.1 Spring 2013

(a) Monthly cash remuneration from ATL:

Basic salary Rs.300,000 Utility allowance 15% of basic salary Medical allowance 12% of basic salary

Mr. Creative is working as Director Human Resources at Artistic Technologies Limited (ATL). Following are the details ofhis income / receipts during the latest tax year.

(b) In addition to above, he was also provided the following benefits in accordance with his terms of employment:

(i) Rent-free furnished accommodation in a bungalow situated on a 500 square yard plot of land. Rent for comparableaccomodation facility in the vicinity is Rs 150,000 per month.


e) During the latest tax year, following investments were made:Rs.

Approved voluntary pension fund 600,000Open – end mutual fund 1,100,000

(c) A house owned by Mr. creative had been leased out by him at a monthly rent of Rs 50,000.

(d) Five years ago, Mr. Creative had purchased 20,000 shares of Rs.10 each, of an unlisted public company at the rate ofRs.140 per share. After one year of acquisition, he received 8,000 bonus shares from the company. During the latest taxyear, he sold 75% of the bonus shares at a price of Rs. 145 per share.

(f) During the latest tax year, he redeemed 4,000 units of an open-end mutual fund at Rs. 50 per unit and Mr. creative hadclaimed a tax credit of Rs.40,000 on this investment.

(ii) An 1800cc company – maintained car. The car was purchased two years ago at a cost of Rs. 1,600,000 and is usedboth for official and personal purposes.

(g) Donations of Rs.50,000 were paid to charitable institutions listed in the second schedule to the Income Tax

He returned the non-adjustable deposit of Rs.300,000 to the tenant, which was received two years ago. The house wasimmediately leased to his cousin without any security deposit on a monthly rent of Rs.48,000.

accomodation facility in the vicinity is Rs 150,000 per month.

The Lease expired on 31 December. Mr. Creative refused to renew the lease in spite of the tenant's offer to renew thelease offer after increasing the rent by 10%.

(h) Tax deducted at source from his salary was Rs.737,000.

Required:

Solution

Mr. Creative (Resident)Computation of taxable income and tax liabilityFor the tax year 2016

INCOME FROM SALARY U/S 12 Note Rupees Rupees

(g) Donations of Rs.50,000 were paid to charitable institutions listed in the second schedule to the Income TaxOrdinance, 2001.

Compute the taxable income, tax liability and tax payable for the latest tax year.



Basic salary (Rs. 300,000 × 12) 3,600,000 Utility allowance (300,000 × 12 × 15%) 540,000 Medical allowance (300,000 × 12 x 12%) 432,000 Less: Exempt up to 10% of basic salary U/C 139 (360,000) 72,000 Rent free furnished accommodation (Higher of fair market rent Rs. 1,800,000 or 45% of basic pay (1,620,000) shall be added in the taxable salary income)

1,800,000

Company maintained car (1,600,000 × 5%) U/R 5 80,000 6,092,000

INCOME FROM PROPERTY U/S 15

Rent (Rs. 50,000 × 6 months) + (Fair market rent Rs.55,000 x 6 months) (Assumed after allowable deductions)

N-1 630,000

INCOME FROM CAPITAL GAINS U/S 37

Gain on sale of bonus shares of unquoted Company (8,000 x 75% x Rs.145 each)

870,000

Less cost of bonus shares (Rs.6,000 x 2,800,000 / 28,000) (600,000)(In the absence of information it has been assumed that the cost of


(In the absence of information it has been assumed that the cost ofbonus shares computed as above is equal to fair market value atwhich 5% tax U/S 236N has already been paid under final taxregime, otherwise the fair market value on which 5% tax has beenpaid shall be considered as cost of bonus issue)Capital gain 270,000 75% capital gain taxable 202,500

Total income 6,924,500 Less: Donation to charitable institutions (Lower of 30% of taxableincome or actual amount paid hence acutal amount consideredunder 2nd Schedule)

(50,000)

Taxable income 6,874,500


Tax on Rs. 6,874,500 [597,000 + 27.5% x (6,874,500 - 4,000,000)] 1,387,488

Less tax credit on

Approved voluntary pension fund (lower of actual amount Rs.600,000 or 20% of taxable income i.e. Rs. 1,374,900)

600,000

Open – end mutual fund (No tax credit computed on this investment as the same was made in the latest tax year and further due to partial encashment within 24 months period the tax credit of preceeding tax year shall be adjusted in the latest tax year and not in the current tax year).

N-2 -

600,000Less tax credit Rs. 1,387,488 / 6,874,500 x 600,000 (121,099)

1,266,389 Less tax deducted at source against salary income (737,000)Balance tax payable 529,389

NotesN-1: No treatment of security refunded after two years has been made in the current year as no further securityreceived by the landlord.



N-2: In the absence of information it has been assumed that all the open end fund units sold during the current taxyear.

Q.No. 3 (b) Spring 2013

Heads of income Foreign income Foreign tax paid Foreign losses brought forward

RUPEES RUPEES RUPEES Speculation business 500,000 125,000 (250,000) Non- Speculation business (1,000,000) - - Capital gains 750,000 75,000 (1,500,000) Other sources 1,250,000 187,500 -

The foreign tax credit relating to Income from other sources which remained unadjusted during the last tax year

Pakistan source income amounted to Rs.2,500,000 and tax payable thereon amounted to Rs. 722,500.

Following are the details of its foreign source incomes, tax paid thereon and foreign losses brought forward for the latesttax year:

Imaginative Enterprise (IE) is an Association of persons and was formed two years ago. During the latest tax year, IE's


The foreign tax credit relating to Income from other sources which remained unadjusted during the last tax year amounted to Rs.50,000.

Required: Calculate total tax payable and foreign tax losses to be carried forward to next year (if any).

Solution

Imagivative Enterprise (Resident AOP)Computation of taxable income and tax liabilityFor the tax year 2016

Rs. Rs.Foreign source of incomes :Non speculation: Current year loss (N - 1) (1,000,000)

Capital gain U/S 37 Current year income 750,000 Brought forward losses 1,500,000

(750,000) 750,000 -

Other sources U/S 39

The unadjusted capital loss to c/f for adjustment against succeeding years capitalgains.

Other sources U/S 39 Current year income 1,250,000 Balance income from other sources 250,000

Speculation U/S 18 Current year income 500,000 Brought forward losses (250,000) 250,000 Net foreign source of income 500,000 Add Pakistan source of income 2,500,000 Total taxable income 3,000,000


Tax on Rs. 3,000,000 [344,500 + 25% x (3,000,000 - 2,500,000)] 469,500



Less: tax credit on foreign source of income under respective heads: Tax credit on income from other sources shall be allowed on lower - Foreign tax paid on income from other sources or 187,500 - Pakistan tax on net foreign source of income (Rs.469,500 / 3,000,000 x 250,000) 39,125 Hence lower allowed as tax credit (39,125)

Less: tax credit on foreign source of income under respective heads: Tax credit on speculation income shall be allowed on lower of:

- Foreign tax paid on speculation income or 125,000 - Pakistan tax on net speculation income (Rs.469,500 / 3,000,000 x 250,000) 39,125 Hence lower allowed as tax credit (39,125) Balance tax payable 391,250

Notes:


Notes:1. Non speculation losses adjusted against firstly income form other sources and balance against specualtion income.2. Last year unadjusted foreign tax credit on income from other sources is not allowed to be refunded, carried forward or carried back.3. The income tax given in question only on Pakistan source of income has been ignored as credit shall be on total tax liability basis that is Pakistan source income plus foreign source income.

Q.1 Autumn 2012

(A) INCOME FROM BEENA and CO.Income Statement Note Rupees

Revenue (i) 8,500,000Less: Expenses

Salaries (ii) 2,000,000Gifts and donations (iii) 400,000Lease charges (iv) 900,000Professional fee (v) 400,000Property expenses (vi) 350,000Travel expenses 150,000Other expenses (vii) 600,000

Beena Sikandar is a lawyer and owns a law firm under the name Beena and Co. She is also Director Legal Affairs atAyesha Foods Limited. Details of her income for the tax year 2012 are as follows:

Other expenses (vii) 600,000Tax withheld by clients 200,000

5,000,000Net profit 3,500,000

Notes to the Income Statement

(ii) Salary expenses include amount of Rs. 50,000 and Rs. 75,000 per month paid to Beena and her brother respectively.Her brother looks after administration and financial matters of the firm.(iii) Gifts and donations include gifts to clients, gift to her son and donation to Edhi Foundation amounting to Rs. 100,000,Rs. 50,000 and Rs. 250,000 respectively.

(i) Revenue includes Rs. 750,000 recovered from Rafia in respect of bad debts that had been written off while calculatingthe taxable income for the tax year 2010. The amount was receivable against professional services rendered to Rafia.

(iv) A vehicle was obtained solely for official purposes on operating lease, from a bank. The lease commenced on 1 March



(B) DIRECTOR'S REMUNERATION FROM AYESHA FOOD LIMITED

(i) Beena received monthly remuneration of Rs. 100,000 from AFL.

(v) Details of tax deducted by AFL are as follows:(iv) She received a fee of Rs. 150,000 from AFL for attending the meetings of the Board of Directors (BOD).

(v) The professional fee includes an amount of Rs. 150,000 paid to a legal firm for defending a law suit filed againstBeena, in a family court.

(vi) Beena lives in an apartment situated above her office, and two-fifths of the total property expenses relates to this apartment.

(vii) Other expenses include an amount of Rs. 150,000 paid for Beena's Golf Club membership which she exclusivelyused to promote her business interests. The payment to the club was made in cash.

(ii) During the year, she also received two bonus payments of Rs. 100,000 each. One of the bonus pertains to tax year 2011. It was announced last year but disbursed to her in the current year.

(iv) A vehicle was obtained solely for official purposes on operating lease, from a bank. The lease commenced on 1 March2012. Lease charges include Rs. 500,000 paid as security deposit to the bank.

(iii) Beena has also been provided a vehicle, by AFL, for her personal as well as business use. The car was acquired by AFL in May 2007 at a cost of Rs. 2,000,000. The fair market value of the car as at 30 June 2012 was Rs. 1,500,000.


(v) Details of tax deducted by AFL are as follows:Rupees

From salaries 390,000From fee received for attending the meetings of BOD 9,000

Required:

SolutionBeena Sikandar (Resident)Computation of taxable income and tax liabilityFor the tax year 2016

Notes Rs.INCOME FROM BUSINESS U/S 18

Profit before tax as per accounts 3,500,000

Add:Tax withheld by clients 200,000Salary paid to Beena 600,000Gifts to clients and son 1 150,000Donation to Edhi Foundation 1 250,000Security deposit on operating lease 2 500,000Legal charges paid for personal law suit 150,000

Compute the taxable income, tax liability and tax payable by Beena Sikandar for the tax year 2012. Provide appropriatecomments on the items appearing in the notes which are not considered by you in your computation.

Legal charges paid for personal law suit 150,000Rent related to personal apartment (2/5 x 350,000) 140,000Club membership fee paid in cash 150,000

2,140,0005,640,000


Monthly remuneration from AFL (Rs. 100,000 x 12) 1,200,000Bonus received in tax year 2012 3 200,000Conveyance (2,000,000 x 5%) U/R 5 100,000Fee as employee for attending meeting of the BOD (N - 4) 150,000

1,650,000Total taxable income 7,290,000




Salary is less than 50% of taxable income, hence rates of non-salaried individual applied.

Tax on Rs. 7,290,000 [1,319,500 + 35% x (7,290,000 - 6,000,000)] 1,771,000

Less: Proportionate tax on income chargeable to tax under minimum tax liability (1,771,000 / 7,290,000 x 5,640,000) 1,370,156

400,844Proportionate tax (as above) (A) 1,370,156

Minimum tax (deductible) (8,500,000 x 10%) (B) 850,000

Higher of (A) or (B) 1,370,1561,771,000

Less: tax credit on donation Tax credit shall be allowed on lower of: - Actual amount of donation i.e. Rs. 250,000 - 30% of taxable income i.e. Rs. 2,187,000

Tax credit = [250,000 x 1,771,000 / 7,290,000] 60,734Tax liability 1,710,266

Less: tax already paid or deducted at source Tax withheld by clients 200,000


Tax withheld by clients 200,000 Tax deducted on salaries 390,000 Tax deducted on fee received as employee 9,000

599,000Balance tax payable 1,111,266

Comments on items not considered in computations

a. Bad debts recovered

Notes

1. Gifts and donation

2. Security deposit on lease

3. Bonus

4. Meeting fee to director

Salary including bonus is chargeable to tax on receipt basis.

As bad debts of Rs. 750,000 was allowed as expense in tax year 2010 and now this amount has been recovered, therefore, this amount is chargeable to tax. No treatment is required as this amount has already been included in revenue.

It is assumed that security deposit does not form part of the lease rentals and shall be refunded by bank on repayment ofall lease rentals.

It is assumed that gifts are given in personal capacity, therefore not allowed for tax purposes. Tax credit shall be allowedon donation to Edhi Foundation.

4. Meeting fee to director

Q.5 (a) Autumn 2012

In May 2012, Hameeda sold certain personal assets at the following prices:

RupeesPlot in DHA Karachi 10,000,000Paintings 2,000,000Jewellery 5,000,000

Additional information(i) Plot in DHA Karachi was inherited by her from her father in May 2006. It was purchased by her father for Rs. 4,000,000and market value at the time of inheritance was Rs. 5,000,000.

As the meeting fee has been recived by the taxpayer as an employee hence the same is taxed as income under the head salary income instead of taxation under the head income from other sources.



(iii) Jewellery costing Rs. 3,000,000 was purchased and gifted to her by her husband in March 2009.

Solution

Hameeda (Resident)Computation of taxable income and tax liabilityFor the tax year 2016

CAPITAL GAINS U/S 37 Rs. Rs.

Paintings: Sale price 2,000,000 FMV at the date of inheritance 2,350,000 (350,000)

Required: Discuss the taxability of Hameeda in respect of the above gains/ losses on sale of assets in the context ofIncome Tax Ordinance, 2001.

(ii) Paintings were inherited from her mother in July 2011. these paintings were purchased by her mother for Rs.1,000,000 and market value at the time of inheritance was Rs. 2,350,000.


FMV at the date of inheritance 2,350,000 (350,000) As the loss on painting is covered under section 38(5) hence the same has not been considered for computation of taxable gain.

Jewellery: Sale price 5,000,000 FMV at the date of inheritance (assumed equal to cost) 3,000,000

2,000,000 As holding period is more than 1 year, therefore 25% is exempt (500,000) 1,500,000

Plot in DHA: (Separate block of income) Sale price 10,000,000 FMV at the date of inheritance 5,000,000

5,000,000 As holding period is more than 2 year, therefore gain is exempt (5,000,000) - Taxable income under normal law 1,500,000


Tax on Rs. 1,500,000 [32,000 + 15% x (1,500,000 - 750,000)] 144,500

Q.5 (b) Autumn 2012

On 1 July 2010, Kashmala and Shumaila formed an Association of Persons (AOP) with the objective of providing

(ii) Accounting depreciation on office assets amounted to Rs. 0.3 million.

During the year ended 30 June 2012, the AOP incurred a net loss of Rs. 0.8 million on a turnover of Rs. 50 million. The cost for the year was arrived after adjustment of the following:

On 1 July 2010, Kashmala and Shumaila formed an Association of Persons (AOP) with the objective of providinginformation technology support services to corporate clients. They contributed Rs. 1.2 million and Rs. 0.8 millionrespectively in their capital accounts and agreed to share profits and losses in the ratio of their capitals.

For the year ended 30 June 2011, business loss and unabsorbed depreciation of Rs. 0.4 million and Rs. 0.3 millionrespectively were assessed and carried forward. The total turnover of the AOP in 2011 was Rs. 40 million.

(i) Salaries amounting to Rs. 0.5 million and Rs. 0.3 million were paid to Kashmala and Shumaila respectively.

Required: Calculate the taxable income, net tax payable and unabsorbed losses (including unabsorbed depreciation), ifany , to be carried forward by the AOP for the year ended 30 June 2012.

The taxes withheld by the clients, for the year ended 30 June 2012 amounted to Rs. 0.55 million. AOP is entitled to claim tax depreciation of Rs. 0.25 million in respect of the office assets.



Solution

AOPComputation of taxable income and tax liabilityFor the tax year 2016

INCOME FROM BUSINESS U/S 18 Rs.

Accounting loss 800,000

Add:Salaries paid to partners (500,000 + 300,000) 800,000Accounting depreciation 300,000

1,100,000

Business income as per tax 300,000Less: B/f business loss (Rs.400,000 - 300,000 = 100,000 balance business loss shall be c/f) 300,000

Income for the year - Less:

Tax depreciation for the year 250,000Total loss related to unabsorbed depreciation for the year (250,000)Less: brought forward unabsorbed depreciation 300,000


Less: brought forward unabsorbed depreciation 300,000Total unabsorbed depreciation to be carried forward (550,000)


As there is nil income under normal law hence minimum tax under NTR is computed as under.

Minimum tax liability:

10% minimum tax on gross receipts of Rs.50 million against services 5,000,000Less tax deduted under section 153 550,000Balance tax payable 4,450,000

Q.1 Spring 2012

As there is nil income during the tax year after adjustment of brought forward losses, hence business loss of Rs. 100,000for current year shall be carried forward for the succeeding six tax years whereas the unabsorbed brought forwarddepreciation loss shall be carried forward to the extent of Rs. 550,000 without any time limitation.

In the absence of information it has been assumed that the AOP has realized all the services income on which thecorporate sectors have partially deducted tax on the same, however the AOP is under obligation to pay the 10% minimumtax on the entire gross receipts even when the corporate sectors clients have not fully deducted tax on the same.

Dr. Sona is a leading Eye Specialist and is listed on the panels of two hospitals. He also manages a private clinic. Asummary of his receipts and payments for the latest tax year is as follows:

Receipts Note Rupees Payments Note RupeesConsultation fees Rent of clinic 300,000

- Hospitals (i) 1,880,000 Household expenses 1,960,000

- Clinic 2,400,000 Purchase of motor car 640,000

Income from surgery Surgical equipment 500,000

- Hospitals (i) 1,504,000 Salary to assistant 180,000

- Clinic 2,350,000 Clinic running expenses 240,000



Property income (ii) 1,012,000 Car expenses (iv) 200,000

Other income (iii) 75,000 Donation (v) 300,000

Notes to the receipts and payments are presented below: (i) The amount received from hospitals is net of withholding tax. (ii) Dr. Sona owns a commercial building which he has rented out. Details of net receipts are as follows:

RupeesRent for the year 870,000Non-adjustable security deposit: - received from a new tenant 700,000- paid to old tenant (received three years ago) -500,000Tax withheld -50,000Property tax on building -8,000Net receipts 1,012,000

(iii) The amount was received for writing an article in an international magazine on World Health Day. (iv) 60% of the motor car expenses were incurred in connection with his personal use.(v) Donation was given to a Government medical college for upgrading its library.


(v) Donation was given to a Government medical college for upgrading its library.(vi) Depreciation on motor car and surgical equipment, under the 3rd Schedule of the ITO, 2001 is Rs. 96,000 and Rs. 75,000 respectively.

Solution of Q. NO. 1 Spring 2012Dr. SonaTax year 2016 Clinic Hospital Total

Rs. Rs. Rs.INCOME FROM BUSINESS U/S 18

Consultation fee from clinic 2,400,000 Surgical fee from clinic 2,350,000

4,750,000 Less: Admissible expensesClinic rent 300,000 Surgical equipments depreciation 75,000 Depreciation on motor vehicle 38,400 / 8,388,710 x 4,750,000 21,744 Car expenses (Rs.200,000 x 40%) = 80,000 / 8,388,710 x 4,750,000

45,299

Salary to assistant 180,000 Clinic running expenses 240,000 Business income 862,042

3,887,958 3,887,958

Required: Compute the taxable income, tax liability and tax payable by Dr. Sona for the latest tax year. Provideappropriate comments on the items which are not relevant for your computations,

3,887,958 3,887,958

INCOME FROM PROPERTY U/S 15 & 16

Rental income 870,000 Advance against property (700,000 - 150,000) / 10 55,000 500,000/10 = 50,000 x 3 = 150,000

925,000 Less: Property tax paid (8,000) 1/5th repair allowance (185,000) 732,000


Other income 75,000 75,000Fee from hospital (assumed net of tax hence grossed up 1,880,000 x 100 /90)

2,088,889



Surgery fee from hospital (assumed net of tax hence grossed up 1,504,000 x 100 / 90)

1,671,111

3,760,000 Less: proportionate expenses:Depreciation on motor vehicle 38,400 / 8,510,000 x 3,638,710 16,419 Car expenses (Rs.200,000 x 40%) = 80,000 / 8,510,000 x 3,638,710

34,206

Other income3,709,374 3,709,374

Total taxable income 8,404,332


Tax on Rs. 8,404,332 [1,319,500 + 35% x (8,404,332 - 6,000,000)] 2,161,016

Less: Tax credit on donation made of Rs. 300,000(2,161,016 / 8,404,332 x 300,000 (77,139) Tax payable 2,083,877

Less: proportionate tax on hospital services [(2,083,877 / 8,404,332 (A) 919,749


Less: proportionate tax on hospital services [(2,083,877 / 8,404,332 x 3,709,374)

(A) 919,749

Balance tax under NTR 1,164,127

Minimum tax deducted on hospital services:(3,760,000 x 10%) (B) 376,000Tax under NTR as above 1,164,127Add: higher of A and B 919,749Total tax liability 2,083,877

Less: already deducted on hospital services (376,000)Less: tax withheld on property income (50,000)Balance tax payable 1,657,877

Notes

1. Rental income

2. House hold expenses

3. Purchase of motor carMotor car purchased is not a business expense.

The rent received or receivable by a person for a tax year shall be chargeable to tax in that year under the head “Incomefrom property”. Therefore, only three months’ rent is included in the taxable income of Mr. Khursheed which is below theminimum threshold limit for the taxability of rent.

House hold are expenses not allowable against any head of income, so there is no treatment made in solution.

Motor car purchased is not a business expense.

Q. NO. 1 Autumn 2011

(1) Income from ZGCKhursheed was employed with ZGC up to 31 December 2010. During this period he received thefollowing emoluments:

Mr. Khursheed, a Pakistani national, was employed as the chief financial officer in Zulfiqar Gas Company (ZGC), since1990. Following information pertains to his income for the tax year 2011:

- Basic salary of Rs. 400,000 per month, medical allowance of Rs. 75,000 per month and utility allowance equivalentto 10% of basic salary.

- A company-maintained car for official and private use. The car was purchased two years ago at a cost of Rs. 5million. According to the company’s policy, ZGC deducted Rs. 10,000 per month from his salary, for private use of the car.



- Rs. 7,500,000 as a golden handshake under the voluntary retirement scheme.- Rs. 9,100,000 from an unapproved gratuity fund maintained by ZGC.

The tax deducted at source for the tax year 2011 amounted to Rs. 3,750,000.(2) Other Information

- He incurred a loss of Rs. 500,000 on the sale of his shareholdings in a private limited company.- He sold his personal car at a profit of Rs. 300,000.

On 31 July 2010, Khursheed had undergone a major surgery and incurred an expenditure of Rs. 1,500,000. ZGCreimbursed the entire amount as a special case as it was not covered under the terms of employment.

Due to poor health, Khursheed opted for early retirement on 31 December 2010 under the company’s voluntary retirementscheme. He received the following benefits on his retirement:

- Transfer of company’s car for Rs. 2,600,000. The amount was deducted from his final settlement. The fair marketvalue of the car as of 31 December 2010 was Rs. 2,800,000.

- On 1 January 2011, Khursheed commenced business of marketing of horticultural plants and related items.However, due to intense competition, he had to wind-up this venture on 31 May 2011. During this period, he had incurreda loss of Rs. 750,000.- He purchased 5000 shares for Rs. 500,000 from initial public offering of a new listed company on 1 June 2010. Heclaimed a tax credit of Rs. 60,000 on such investment, against the tax payable for the tax year 2010. On 15 June 2011, hesold these shares for Rs. 700,000.


- He sold his personal car at a profit of Rs. 300,000.

- His average tax rate for the preceding three years is 18%.Required:(a) Compute the amount of taxable income, tax liability and tax payable / (refundable), if any, for the tax year 2011.(b) Briefly comment on the items which are not considered by you in the above computation.

Solution of Q. No. 1 Autumn 2011

Mr. KhursheedTax year 2016

INCOME FROM SALARY U/S 12 Notes Rupees Rupees

Basic salary (Rs. 400,000 × 6) 2,400,000 Utility allowance (400,000 × 6 × 10%) 240,000 Medical allowance (75,000 × 6) 450,000 Less: Exempt up to 10% of basic salary U/C 139 (240,000) 210,000 Medical reimbursement (totally taxable as not covered by the terms of employment)

1,500,000

Company maintained car (5,000,000 × 5% × 6/12) U/R 5 125,000 Less: Amount deducted from salary (10,000 × 6) (60,000) 65,000 Golden handshake payment 7,500,000

- On 1 March 2011, he purchased an apartment for Rs. 5,000,000. 60% of this amount was financed by a scheduledbank. During the tax year 2011, he paid markup amounting to Rs. 127,500. On 1 April 2011, he rented out the flat to Mr.Abdul Sattar at a monthly rent of Rs. 25,000 and received advance rent for eight months.

Golden handshake payment 7,500,000 Gratuity (Rs. 9,100,000 - Exempt upto Rs. 75,000) 9,025,000 Difference in purchase value and FMV of vehicle as benefit for employee

200,000

21,140,000 INCOME FROM PROPERTY U/S 15

Rent (Rs. 25,000 × 3 months) 1 75,000

INCOME FROM BUSINESS U/S 18

Loss from business 2 (750,000)

INCOME FROM CAPITAL GAINS U/S 37

Gain on sale of quoted shares 3 200,000 -



Capital loss on sale of private company shares 4 (500,000) - Sale of personal car 5 300,000 - Taxable income 21,215,000

Taxable income 21,215,000 Less: Income to be taxed separately-Golden handshake (7,500,000)

13,715,000 COMPUTATION OF TAX LIABILITY:

Tax on Rs. 13,715,000 [1,422,000 + 30% x (13,715,000 - 7,000,000)]

3,436,500

Tax on Rs. 7,500,000 (golden handshake) at 18% 6 1,350,000 4,786,500

Less: Tax credit relating to markup on housing loan(Rs. 127,500 x 4,786,500 / 21,215,000) (28,766)

4,757,734 Add tax on capital gain on quoted Company shares (Rs. 200,000 x 12.5%) covered under Fixed tax regime

25,000

4,782,734


4,782,734 Add recouped tax credit U/S 62 3 60,000 Tax deducted at source by bank from salary income (3,750,000)Balance tax payable 1,092,734

Notes

1. Rental income

2. Business loss

3. Gain on sale of quoted shares

4. Capital loss

No loss (including Loss under the head business income) shall not be set off against income from salary and income fromproperty. However the loss shall be carried forward to adjust the same against the business income of six subsequent taxyears.

Since, the sale of listed company's shares is made after holding the shares for more than twelve months but less than twenty four months, the gain on sale of shares is taxable @ 12.5%.

The rent received or receivable by a person for a tax year shall be chargeable to tax in that year under the head “Incomefrom property”. Therefore, only three months’ rent is included in the taxable income of Mr. Khursheed. Further it has beenassumed that the same is after allowable deducitons under section 15A of the Ordinance.

Furthermore, the tax credit of Rs. 60,000 allowed in the tax year 2013 will be recouped as the same has been disposed offwithin twenty four months from the date of purchase has been elapsed.

4. Capital loss

5. Sale of personal car

6. Golden handshakeIt is assumed that last three years' average rate of tax for golden handshake is 18% and further it is more beneficialfor the taxpayer to opt for taxation of golden handshake at last three year's average rate as compared to this toinclude the same in the current year's income.

Income under the head ‘Capital gains’ can arise only on the disposal of a capital asset. Since movable assets held for personal use are excluded from the definition of capital asset, gain on sale of car is not a taxable income in the hands of the Mr. Khursheed.

Where a person sustains a loss on sale of shares of a private company it is construed as a capital loss and it cannot beset-off against any other head of income, but shall be carried forward to the next year and set off against the capital gain,if any.



Q.5 Autumn 2011

The relevant exchange rates are as follows:1 June 2009 €1 = Rs. 118.101 June 2010 €1 = Rs. 121.4010 April 2011 €1 = Rs. 123.90

Solution of Q. NO. 5 Autumn 2011

Required: Compute the amount to be included in the taxable income of Mr. Feroz for tax years 2009, 2010 and 2011 andspecify the head of income under which the income would be classified.

Mr. Feroz has been the CEO of Aziz Foods Pakistan Limited (AFPL) for several years. He was given 2000 shares on 1June 2009 by Aziz AG, Germany (the parent company of AFPL) at a price of €2.5 per share. The market price on thatdate was €8.2 per share. The shares were transferable on completion of one year of service, from the date of issue ofshares.

The market price of the shares as on 1 June 2010 was €12.5 per share. On 10 April 2011, Mr. Feroz sold all shares at €13 per share. He paid a commission of €50 to the brokerage house.


Mr. FerozComputation of taxable income

Tax year 2014 Rs.

Shares were issued in tax year 2014, however, transferability of the shares is restricted in tax year 2014 hencenothing is taxable in tax year 2009.

Tax year 2015

Income from salary U/S 12Market value of shares on 1 June, 2010 (12.5 x 2,000 x 121.40) 3,035,000 Less: cost of shares (2.5 x 2,000 x 118.10) 590,500

2,444,500 Tax year 2016

Capital gain U/S 37A

Consideration received (13 x 2,000 x 123.90) 3,221,400 Less: cost Cost of shares after acquisition of the same (including salary income) 3,035,000 Commission expense (50 x 123.90) 6,195

3,041,195 3,041,195 Capital gain 180,205

Q. NO. 3 Spring 2011

1. Profit on debt of Rs. 500,000 paid on a working capital loan obtained from a foreign bank.CL did not deduct withholding tax while paying profit on debt considering the bank does not have a Permanent Establishment in Pakistan.2. Expenditure of Rs. 450,000 on promotion of a product which is expected to generate revenue for twelve years.3. Bad debt in respect of a staff loan, Rs. 25,000.4. Reimbursement of expenses of Rs. 300.000 to CL by the parent company- This amount was incurred by CL in 20X1 on marketing a new product imported from Dubai.

Carrot Ltd (CL) is engaged in the manufacture, import and sale of electronic appliances for the past twenty years. Whenreviewing the company's tax provisions, you noticed the following amounts appearing in the tax calculation for the yearended June 30, 20X2.



5. Initial allowance of Rs. 4,000,000 on a used equipment acquired locally from MSD Limited.6. Financial charges amounting to Rs. 100,000 and depreciation amounting to Rs. 300,000 on a vehicle acquired on finance lease from Radish Leasing. Lease rentals paid during the year amounted to Rs. 400,000.

Required:Under the provisions of CIR, 2001 discuss the admissibility of the above amounts for tax purpose.

Solution of Q. NO. 3 Spring 2011

6. Amount of rental payment shall be allowed as deduction, however the amount of depreciation and financial charges shall not be allowed as deduction.

4. As the amount is the reimbursement of expenses incurred on behalf of parent company so the same shall be adjusted against the receivable balance from parent and has no impact on taxable income.

1. It is not admissible as the withholding tax @ 20% under section 152(2) of the Income tax Ordinance, 2001 was notdeducted by CL limited.2. It is an admissible expense as it is incurred for the purpose of business of company.

5. Initial allowance on locally purchased equipment shall not be allowed as the asset is already used in Pakistan.

3. Bad debts in respect of loan to employees shall not be admissible under the Income Tax Ordinance, 2001 because the same is not against a trading liability already allowed.


Q.1 Autumn 2010

(a) His monthly cash remuneration in WPL is as follows:Rupees

Basic salary 200,000 Medical allowance 30,000 Utilities allowance 10,000

(b) In addition to the above, he was also provided the following benefits in accordance with his terms of employment:

(i) Medical insurance for hospitalization and surgery, limited to Rs. 1,500,000 per annum. (ii) Payment of his children's school fees of Rs. 15,000 per month. The fee is deposited directly into the school's bank account. (iii) Rent free furnished accommodation on 1000 square yards. The accommodation is located within the municipal limits of Karachi. (iv) Two company-maintained cars. One of the cars was purchased by WPL for Rs. 3,000,000 and is exclusively for his business use. The second car was obtained on lease on February 1, 2009 and is used partly for official and partly for personal purposes. The fair market value of the leased vehicle at the time of lease was Rs. 1,800,000.

Mr. Zameer Ansari is working as a Chief Executive Officer in Wimpy (Private) Limited (WPL). Following are the details ofhis income / receipts during the tax year 2010:

lease was Rs. 1,800,000. (v) Leave encashment amounting to Rs. 100,000 was paid to Mr. Zameer on July 5, 2010. (vi) An amount equal to one basic salary was paid by WPL to an approved pension fund.

(c) Mr. Zameer had received 15,000 shares of WPL on December 1, 2006 under an employee share scheme. He had the option to transfer the shares on or after January 1, 2009. However, he sold all the shares on April 1, 2010

Fair value of the shares were as follows: · Rs. 35 per share on December 1, 2006 · Rs. 42 per share on January 1, 2009 · Rs. 48 per share on April 1, 2010(d) An apartment owned by Mr. Zameer was rented on July 1, 2009 to Mr. Abdul Ghaffar at a monthly rent of Rs. 22,000. He received a non-adjustable security deposit of Rs. 150,000 which was partly used to repay the non-adjustable security deposit amounting to Rs. 90,000 received from the previous tenant in July 2007. He also incurred Rs. 20,000 on account of repair charges.



(e) He earned profit amounting to Rs. 750,000 on fixed deposit account maintained with a bank. The bank withheld income tax amounting to Rs. 75,000 and Zakat amounting to Rs. 250,000.(f) Tax deducted at source from his salary, amounted to Rs. 650,000.

Required: Compute the taxable income, tax liability and tax payable by Mr. Zameer Ansari for the tax year 2010.

Solution of Q.1 Autumn 2010

Mr. Zameer Ansari Tax Year 2016IndividualResident

Computation of taxable income and tax liability

INCOME FROM SALARY U/S 12 Rs. Rs.

Basic salary (Rs. 200,000 x 12 months) 2,400,000 Medical allowance (Although exempted upto 10% of basic salary, clause 139 of 2nd schedule, however as the medical facility has

360,000


clause 139 of 2nd schedule, however as the medical facility has also been given in the question therefore the same is fully chargeable to tax)One month basic salary employer contributed towards pension fund (As benefit)

200,000

Utility allowance (Rs. 10,000 x 12 months) 120,000 Medical insurance and hospitalization fully exempt U/C 139 - Payment of his children's school fees 180,000 Rent free furnished accommodation (45% of basic salary shall be included in the salary income assumed equal to FMV)

1,080,000

Conveyance provided by employer: Wholly for business use (Fully exempt) Partly for personal and business use (5% of FMV of leased vehicle) (1,800,000 x 5%) 90,000

Leave encashment received on 5 July 2012 (N-1) - FMV of shares at the date when employee has free right to transfer (already included as benefit in the salary income of the tax year 2011)

-

4,430,000 INCOME FROM PROPERTY U/S 15 & 16

Rental income (Rs. 22,000 x 12 months) 264,000 Non-adjustable advance ((150,000-(90,000 / 10 x 2)/10) 13,200 Non-adjustable advance ((150,000-(90,000 / 10 x 2)/10) 13,200 Income from property 277,200

Less: 1/5th of rent as fixed repair allowance (55,440) 221,760


On sale of (Pvt.) Ltd. company shares after retention of more than 12 months therefore gain shall be taxable as capital gain shares {15,000 x (Rs.48-Rs.42) x 75%}

67,500


Profit on fixed deposit account maintained with a bank (SBI as FTR)

750,000



Total income 4,719,260 Less: Allowable deductionsZakat paid under the Zakat and Ushr Ordinance (250,000) Total taxable Income 4,469,260


Tax liability under NTR Tax on Rs. 4,469,260 [597,000 + 27.5% x (4,469,260 - 4,000,000)] 726,047

Less: Tax credit on contribution to approved pension fund (although paid byemployer but the same is on behalf of employee)

Tax credit shall be allowed on lower of:

- Actual amount of contribution i.e. Rs. 200,000 - 20% of taxable income i.e. Rs. 893,852

Tax credit = (200,000 x 726,047 / 4,469,260) 32,491 693,556

Tax liability under FTR


Tax liability under FTR

Tax on Income from other sourcesTax on 750,000 @ 10% 75,000 Total tax liability 768,556

Less: Tax deducted at source from his salary (650,000) Tax deducted on PLS (75,000) Balance tax payable 43,556

NOTES

Q.1 Spring 2010

(i) The AOP suffered loss before tax amounting to Rs. 1,500,000. The loss has been arrived at after adjusting rental income earned by the AOP, the details of which are as follows:

RupeesRental income 2,000,000

Sohail, Khaled and Qazi are members of an AOP and share profit and loss in the ratio of 2:2:1. The principal activity of theAOP is trading of rice and wheat. Following are the details of the annual income / (loss) of the AOP and its members:

N-1 Leave encashment has been ignored as received after the tax year. Salary and perquisites are charged on the receipt basis.

Rental income 2,000,000 Related expenses:Property tax 40,000 Depreciation 457,500 Net rental income 1,502,500

No tax was withheld on the rental income.

(ii) The expenses debited to profit and loss account include the following amounts paid to the members of the AOP:

Sohail Khaled QaziRs. Rs. Rs.

Salary 900,000 600,000 -Interest on capital 300,000 300,000 500,000



(iii) Sohail earned Rs. 800,000 from another business, of which he is the sole proprietor.(iv) Khaled received an amount of Rs. 255,000 as share of income after tax, from another AOP where he is entitled to 40% of the total profit. Tax on annual income of that AOP amounted to Rs. 112,500. He also earned income of Rs. 900,000 from a sole proprietorship concern owned by him.(v) Qazi works as a Freelance IT Consultant and provides consultancy services to corporate clients. He received Rs. 940,000 from his clients after deduction of tax amounting to Rs. 60,000. The total expenses incurred in providing the consultancy services amounted to Rs. 150,000.

Solution of Q.1 Spring 2010

Name of Taxpayer : AOPNational Tax Number : Tax Year Ednded on : 30th June, 2015Tax Year : 2016Personal Status : AOP

Required: Assuming that the above data pertains to the tax year 2010, compute the taxable income and tax liability of theAOP and each of its members.


TAXABLE INCOME OF THE FIRM

INCOME FROM BUSINESS U/S 18 (Rs.) (Rs.)

Loss as per P and L A/c (1,500,000) Less: net rental income (1,502,500)

(3,002,500) Add: Inadmissible Expenses Salaries to partners: Sohail 900,000 Khalid 600,000 1,500,000 Interest on Capital Sohail 300,000 Khalid 300,000 Qazi 500,000 1,100,000 Loss under the head "Income from Business" (402,500)


Rental income 2,000,000 Less: 1/5th repair allowance (400,000) Less: Property tax (40,000) 1,560,000


Tax liability under NTR on business loss (A) -

Tax liability under NTR on Property incomeTax on first Rs.1,560,000 [144,500 + 20% x (1,560,000 - 1,500,000)]

(B) 156,500

Total tax liability of firm (A + B) 156,500

Total income of the firm (Property income less business loss) 1,157,500

In the absence of information no minimum tax under section 113 has been computed.



Less firm tax liability 156,500Divisible income 1,001,000

COMPUTATION OF SHARE FROM AOP Total Sohail Khaled Qazi Rs. Rs. Rs. Rs.

Salary 1,500,000 900,000 600,000 - Interest 1,100,000 300,000 300,000 500,000 Balance loss divided in profit sharing ratio (1,599,000) (639,600) (639,600) (319,800) Total income 1,001,000 560,400 260,400 180,200

COMPUTATION OF INCOME and TAX LIABILITY OF PARTNERS Sohail Khaled Qazi

Rs. Rs. Rs.

Net income from another business as proprietor covered under NTR (net taxable)

800,000 900,000 850,000

Share from another AOP under NTR after tax (included for rate purposes)

- 255,000 -

Share from AOP under NTR after tax (included for rate purposes) 560,400 260,400 180,200


Share from AOP under NTR after tax (included for rate purposes) 560,400 260,400 180,200

Total share from AOP included for rate purposes 560,400 515,400 180,200 Total income 1,360,400 1,415,400 1,030,200

COMPUTATION OF TAX LIABILITY OF EACH PARTNER:

Tax on Rs. 1,360,400 [32,000 + 15% x (1,360,400 - 750,000)] 123,560 Tax on Rs. 1,415,400 [32,000 + 15% x (1,415,400 - 750,000)] 131,810 Tax on Rs. 1,030,200 [32,000 + 15% x (1,030,200 - 750,000)] 74,030

Less tax on share from AOP 50,899 47,997 12,949 Tax liability under NTR (A) 72,661 83,813 61,081 Minimum tax under NTR (B) - - 60,000Tax liability: higher of (A) or (B) 72,661 83,813 61,081

Q.NO. 6(b) Spring 2010

Mr. Shahbaz, a resident individual, earned Rs. 700,000 from the sale of assets as shown below:

Purchase Price in Sale Price in Gain /(loss)

Date Rupees Date Rupees Rupees Date Rupees Date Rupees RupeesShares of a listed company 10-12-08 350,000 7/31/2009 200,000 (150,000)Shares of an unlisted company 15-07-08 500,000 11/30/2009 900,000 400,000Jewellery 15-05-08 750,000 12/20/2009 1,400,000 650,000Sculpture 01-07-05 400,000 1/31/2010 300,000 (100,000)Shares of a (Pvt.) Ltd. Co. 01-01-09 1,300,000 2/15/2010 1,200,000 (100,000)

Discuss the treatment and the implications of each of the above transactions with brief reasons under the IncomeTax Ordinance, 2001.

Solution of Q.NO. 6(b) Spring 2010

Name of Taxpayer : Mr. ShahbazNational Tax Number : Tax Year Ednded on : 30th June, 2016Tax Year : 2015



Personal Status : IndividualResidential Status : Resident

INCOME FROM CAPITAL GAIN

Shares of a listed company U/S 37ALoss on sale of shares of a listed company (securities) can only be adjusted against gain from any other securitieschargeable to tax under section 37A and any unadjusted loss shall not be carried forward.

Shares of unlisted company, private limited company and Jewellery U/S 37- As the holding period of shares of unlisted company is more than one year, hence 25% of the capital gain shall beexempt.

- Similarly the holding period of jewellery is more than one year, hence 25% of the capital gain shall also be exempt.

- Loss on sale of shares of private company shall be adjusted against gain on sale of unlisted company andjewellery.

Loss on Sculpture U/S 38(5)Loss on sale of Sculpture shall not be recognized.


Loss on sale of Sculpture shall not be recognized.Rs.

Gain on shares of unlisted company (400,000 x 75%) 300,000 Loss on shares of private company (100,000) Gain on Jewellery (650,000 x 75%) 487,500 Capital gain chargeable to tax 687,500

Q.NO. 1 Autumn 2009

Income from MPL(i) Monthly remuneration:

Rupees Basic salary 280,000 Medical allowance 45,000 Utilities allowance 45,000 Cost of living allowance 25,000 Total monthly salary 395,000

Market value of rent free accommodation provided 120,000

(ii) As per terms of employment, tax liability of Mr. Zulfiqar to the extent of Rs. 200,000 is to be borne by MPL.

Mr. Zulfiqar, a senior executive of Mirza Petroleum Limited (MPL), retired on March 31, 2009 after completion of nineteenyears of dedicated service. The details of Mr. Zulfiqar’s income for the tax year 2009 are given below:

(ii) As per terms of employment, tax liability of Mr. Zulfiqar to the extent of Rs. 200,000 is to be borne by MPL.

(iii) On his retirement, he received gratuity of Rs. 2,660,000 from an unrecognized gratuity fund maintained byMPL.

(iv) He is receiving pension amounting to Rs. 50,000 per month from the date of his retirement.

Other Information(v) He is also receiving pension of Rs. 12,000 p.m. from a multinational company where he worked from 1975 to1990.

(vi) A plot inherited from his father was sold for Rs. 5,000,000. Fair market value of the plot at the time of 'inheritance was 'Rs. '1,000,000

(vii) On January 1, 2009, he rented out one of his residential bungalows to a private school for Rs. 100,000 per



month and received advance rent for two years.

(viii) Rs. 500,000 were invested in new shares offered by a listed company.

(ix) He paid mark up amounting to Rs. 250,000 on a house loan obtained from a scheduled bank.

(x) He incurred a loss of Rs. 20,000 on sale of a painting.

Required:(a) Compute taxable income and tax liability of Mr. Zulfiqar for the tax year 2009.(b) Briefly comment on the items which are not considered in the above computation.

Solution of Q.NO. 1 Autumn 2009

Name of Taxpayer : Mr ZulfiqarNational Tax Number : Tax Year Ednded on : 30th June, 2016Tax Year : 2016 Rs. Rs.Personal Status : Individual



Basic salary (Rs. 280,000 x 9 months) 2,520,000 Cost of living allowance (Rs. 25,000 x 9 months) 225,000 Salary for provident fund 2,745,000 Medical allowance (Rs. 45,000 x 9 months) 405,000 Less: exempt upto 10% of basic salary U/C 139 (Rs. 2,520,000 x 10%)

(252,000) 153,000

Utilities allowance (45,000 x 9 months) 405,000 Rent free accommodation (N-2)Higher of Rs. 120,000 or (45% x Rs. 2,520,000) will be taxable 1,134,000

Tax liability of Mr. Zulfiqar to the extent of Rs. 200,000 is to be borne by MPL

200,000

Gratuity from an unrecognized gratuity fund exempt upto lesser of 75,000 or 50% of amount received

2,660,000

Less: Lesser of Rs. 75,000 or (50% x Rs. 2,660,000 = 1,330,000) 75,000 2,585,000

Pension amounting to Rs. 50,000 per month from the date of his retirement (Rs. 50,000 x 3 months) (N-3)

150,000

Pension of Rs. 12,000 p.m. from a multinational company where he worked from 1975 to 1990 (Rs. 12,000 x 12 months) (N-3)

144,000 144,000

Plot inherited from his father was sold for Rs. 5,000,000. N-1 - Total salary income 7,366,000


Rental income (6 months x Rs.100,000) assumed net amount after expenses (N-4)

600,000

Total income income under NTR 7,966,000 Less deductible allowance for profit on debt (N - 6) (250,000) Taxable income under NTR 7,716,000


Tax on Rs. 7,716,000 [1,422,000 + 30% x (7,716,000 - 7,000,000)] 1,636,800



Less: Tax creditsInvested in new shares offered by a listed company U/S 62 (N - 7) 500,000

500,000 Tax liability / Taxable income x Investment in shares (1,636,800 / 7,716,000) x 500,000

106,065

Total tax payable 1,530,735 Less: Tax paid by employer 200,000 Balance tax payable 1,330,735

NOTES

N-5 Loss on sale of painting shall not be recognized.

N-3 Only one pension with the higher amount is exempted so Rs.150,000 is exempted.N-2 Higher of the FMV of rent or 45% of (MTS or Basic Salary)

N-1 Plot inherited from father was sold is not taxable on the assumption that the same is being held for more than twoyears.

N-4 Advance rent received is adjustable against rent therefore it is ignored. Just the rent for 6 months will be taxable.

N-6 Lower of actual amount Rs. 250,000, 50% of Taxable income (Rs.7,716,000 x 50%) = 3,858,000 or Rs. 1,000,000


Q. NO. 3(b) Autumn 2009

During the tax year 2009, Ishaq Enterprise disposed off the following assets:

Required: Compute the tax gain or loss on disposal of each of the above assets.

Solution of Q. NO. 3(b) Autumn 2009

(iii) three trucks were disposed off for Rs. 2.5 million. They were acquired in tax year 2008. The tax written down value oftrucks at the begning of tax year 2009 was Rs. 2.4 million. The trucks were being used partly i. .e. 60% for businesspurpsoes. The rate of deprciation for tax purposes is 20%.

N-6 Lower of actual amount Rs. 250,000, 50% of Taxable income (Rs.7,716,000 x 50%) = 3,858,000 or Rs. 1,000,000hence Rs. 250,000 has been taken into consideration.

(i) an immovable property was sold for Rs. 200 million. The cost of immovable property was Rs. 100 million. Upto taxyear 2008, tax depreciation of Rs. 10 million had been allowed on the immoveable property.

N-7 Lower of actual investment Rs. 500,000, 20% of Taxable income (Rs. 7,716,000 x 20%) = 1,543,200 or Rs.1,500,000, hence lower amount of Rs. 500,000 has been taken into consideration.

(ii) a plant was exported to Nepal. The export proceeds amounted to Rs. 28 million. The cost and written down value ofthe plant was Rs. 25 million and Rs. 18 million respectively.

Solution of Q. NO. 3(b) Autumn 2009Rs. Rs.

Consideration received from the sale of immovable property 200,000,000 Less: WDV of immovable property Cost of asset U/S 22(13)(d) 200,000,000 Less: Depreciation charged upto 2008 (10,000,000) 190,000,000 Gain on sale of immovable property 10,000,000

Consideration received from the export of plant 25,000,000 Less: WDV of plant Cost of an asset U/S 22(14) 25,000,000 Less: Depreciation charged upto 2008 7,000,000 18,000,000 Gain on sale of plant 7,000,000



Consideration received from the sale of trucks 2,500,000 Less: WDV of trucks 2,400,000 Add: disallowed tax depreciation portion in the tax year 2008(2,400,000 x 100 / 85 x 15% x 40/100)

Note attached 169,412 2,569,412

Loss on sale of motor trucks (69,412)

Q. No. 5(a) and (b) Autumn 2009

Nature of Income Amount in Equivalent: Rupees

Mr. Abdullah, an employee of a Malaysian based company, has been assigned to work in Karachi, in its subsidiarycompany which is registered under the Companies Ordinance, 1984. The initial assignment of two years commenced onMarch 1, 2009 and would be extended subject to mutual agreement. Mr. Abdullah’s remuneration will be paid in Malaysia,details of which are given below:

Note: There is no limitation on value of motor trucks as they are not passenger transport vehicle & further no initialallowance has been claimed on the assumption that the motor trucks are not for hiring purposes.


Rupees Pakistan source salary income for the tax year 2009 5,750,000 Pakistan source salary income for the tax year 2010 17,250,000 Foreign source salary income for the tax year 2009 12,000,000 Foreign source salary income for the tax year 2010 3,000,000

Required: (a) Explain the residential status of Mr. Abdullah under the ITO, 2001 for the tax years 2009 and 2010.(b) Compute taxable income of Mr. Abdullah for the tax years 2009 and 2010 with supporting comments.

Solution of Q. 5(a) and (b) Autumn 2009

a) RESIDENTIAL STATUS

YEAR 2015

YEAR 2016Mr. Abdullah is a resident person because he was in Pakistan for 183 days or more in tax year 2010.

b) TAXABLE INCOME Rs. Rs.

YEAR 2015 - As non resident individual Total

Mr. Abdullah is a non-resident person because his stay in Pakistan was for 120 days that is less than 183 days in tax year2009.

YEAR 2015 - As non resident individual TotalPakistan source salary 5,750,000 Foreign source salary - 5,750,000

YEAR 2016 - As residnet individualPakistan source salary 17,250,000 Foreign source salary (See note below) - 17,250,000

Note: Foreign source salary of a resident shall be ignored for tax computation as tax on the same has already beenpaid, however if foreign tax on the same is not paid within two years then the same shall be taxed in Pakistan.

Q.NO.1 Spring 2009

Mr. Manto worked as an employee in Berlin Hotel, Germany for a period of five years. During the said period he did notvisit Pakistan for a single day. He returned to Pakistan on July 1, 2008 and immediately joined as a General Manager in awell-reputed hotel, based in Karachi.



Assume that the details of his income for the tax year 2009 are as follows:

(i) Basic salary (per month) Rs. 100,000 House rent allowance (per month) Rs. 30,000 Medical 'allowance (per month) 'Rs. '10,000

(ii) Besides medical allowance, he is also entitled to free medical treatment at approved hospitals.

(iii) He has been provided a company maintained 1600cc car which was used partly for official and partly for personal purposes. The hotel has leased the car from a bank. The gross lease rentals payable over the period of lease amount to Rs. 2,700,000. The fair market value of the car at the time of lease was Rs. 1,600,000. The total lease rentals paid by the hotel during the year amounted to Rs. 800,000.

(iv) He is entitled to lunch at the hotel’s restaurants where the usual charges are Rs. 400 per person. He is entitled to concessional rate of Rs. 40 per day which is deducted from his salary. Assume that there are 300 working days in the year.

(v) He went for a training course to Islamabad where boarding and lodging cost amounting to Rs. 150,000 was borne by the hotel. He incurred a further expense of Rs. 125,000 which was reimbursed by the hotel.

(vi) Provident fund was deducted @10% of his basic salary. An equal amount was contributed by the hotel. Interest credited to his provident fund account amounted to Rs. 48,000.


(vii) As per terms of employment agreed with Mr. Manto, tax of Rs. 249,200 on salary will be borne by the hotel.

(viii) During the year, he also received an amount of Rs. 94,000 (net of 6% withholding tax) from a local university where he gave lectures on hotel management.

(ix) On July 15, 2008, he received a lump sum amount of Rs. 4,000,000 through a normal banking channel as final settlement from Berlin Hotel.

(x) On August 1, 2008, he inherited 25,000 shares of a private limited company. The estimated fair market value of the shares, on the date of inheritance, was Rs. 42 per share. He sold all the shares on February 28, 2009 at Rs.62 per share.(xi) He paid zakat amounting to Rs. 200,000 to an approved organization, through cross cheque.

Required: (a) Compute Mr. Manto’s taxable income and tax payable for the tax year 2009.(b) Briefly explain the treatment of items which are not considered in the above computation.

Solution of Q.NO.1(a) Spring 2009

Name of Taxpayer : Mr. MantoNational Tax Number : Income year ended : 30th June, 2016

Tax Year : 2016Personal Status : IndividualPersonal Status : IndividualResidential Status : Resident

(Rs.) (Rs.)INCOME FROM SALARY U/S 12

Basic salary (Rs.100,000 x 12 months) 1,200,000 House rent allowance (Rs.30,000 x 12months) 360,000 Medical allowance (Rs.10000 x 12 months) 120,000 (As the free medical facility seperately been provided hencemedical allowance shall be totally taxable)Value of conveyance (5% of FMV (1,600,000 x 5%) of leased car) 80,000 Lunch at concessional rate (Exempt U/C (53A) as marginal cost to employer) [(Rs.400 - 40) x 300 days] 108,000 - Training and boarding and lodging cost (Exempt being for official purposes) 275,000 -

Employer's contribution for recognized provident fund 120,000



Less: Exempt upto lower of 10% of basic salary or 100,000 (100,000) 20,000 Lessor of (10% x Rs.1,200,000)120,000 or Rs.100,000Employee contribution (not to be included as already included in salary) - Interest on provident fund 48,000 Less: Exempt upto higher of 1/3rd of salary or calculated @ 16% (400,000) - Tax liability paid by hotel 249,200 Amount received as final settlement from Berlin Hotel (not to include in income u/s 51 & 102) - Total income from salary 2,029,200


Sale of inherited shares in (Pvt.) Ltd. Company Rs.(62-42) x 25,000 shares 500,000


Amount received on lecture given on hotel management (gross amount) 100,000 Total Income 2,629,200 Less: Deductible allowanceZakat paid to an approved organization [Lower of 30% of taxable income or actual Zakat paid] (200,000) Taxable income 2,429,200



Tax on Rs. 2,429,200 [137,000 + 17.5% x (2,429,200 - 1,800,000)] 247,110 Less: proportionate tax on service income (100,000 x 247,110 / 2,429,200) (A) 10,172 236,938

Tax deducted on services (Minimum tax) (B) 6,000

Add: higher of (A) or (B) 10,172 247,110

Less: Tax deducted on services income (6,000) Tax deducted on salary income (249,200) Balance Tax refundable (8,090)

Solution of Q.NO.1(b) Spring 2009


As all the information has been considered while solving the Part (a) of this question hence there is not need any answerfor this part.

Rupees

Sales 12,000,000Cost of sales 10,000,000Gross profit 2,000,000Selling, administrative and other expenses 2,500,000Net loss (500,000)

Import of raw materials 200,000

Mr. Qasm is in the business of manufacturing of leather products. The financial results of the business for the tax year2009 are as follows:

He had rented out the ground floor of his house and received Rs. 300,000 as rent thereof. No tax was deducted by histenant. Advance tax paid during the year includes the following:



Electricity bills 70,000Telephone bills 50,000

Required: Compute the tax payable/refundable by Mr. Qasmi for the tax year 2009.


Name of Taxpayer : Mr. QasimNational Tax Number : Income year ended : 30th June, 2016Tax Year : 2016Personal Status : IndividualResidential Status : Resident

Computation of income and tax thereon Rs. Rs.

(A) 18,000As there is loss under normal law hence 5% minimum tax liability on industrial electricity bill is to be paid by the tax payer upto monthly bill of Rs. 30,000 that comes


Taxable income from propertyRent chargeable to tax (Assumed after allowable expenses) 300,000 Tax payable on income from propertyTax on 300,000 @ 0% (B) - Higher of (A) & (B) is to be paid by the taxpayer 18,000

Less: tax paid / deducted at sourceImport of raw materials 200,000 Electricity bills 70,000 Telephone bills 50,000 320,000Balance tax refundable (302,000)

Q.NO. 1: Autumn 2008

(i) He received basic salary of Rs. 65,000 per month.(ii) He was provided with furnished accommodation for which DD Pakistan Limited paid a rent of Rs. 25,000 per

electricity bill is to be paid by the tax payer upto monthly bill of Rs. 30,000 that comes to Rs. 1,500 p.m. (Rs. 1,500 x 12 months)

Mr. Ali Raza is working as a Senior Executive in DD Pakistan Ltd. The details of his income/receipts during the tax year2008 are as follows:

Note: Business loss is not allowed to set off against income from property, however the same shall be carried forward andadjusted against business income only in succeeding six tax years.

(ii) He was provided with furnished accommodation for which DD Pakistan Limited paid a rent of Rs. 25,000 per month.(iii) A company owned car was provided to him which was used partly for official and partly for private purposes. The car was purchased at a cost of Rs. 500,000 but had a fair market value of Rs. 520,000.(iv) Medical allowance of Rs. 150,000 was paid to him during the year. The actual medical expenses incurred by him amounted to Rs. 40,000.(v) He earned an income of Rs. 45,000 on the sale of jewellery but incurred a loss of Rs. 28,000 on sale of an antique.(vi) An apartment owned by him was rented on July 1, 2007 at a monthly rent of Rs. 10,000. He received a non-adjustable security deposit of Rs. 100,000, which was partly used to repay the non-adjustable security deposit received from previous tenant in July 2005, amounting to Rs. 70,000.

(vii) He incurred the following expenses on the apartment:Rupees

Repairs 8,000



Share of rent to House Building Finance Corporation 15,000(viii) Gross dividend of Rs. 12,000 was received from a listed company.(ix) Provident fund was deducted @ 12% of his basic salary. An equal amount was contributed by the company.(x) He withdrew cash from the bank on which the bank deducted tax of Rs. 400.(xi) Tax deducted by the company amounted to Rs. 170,000.

Compute his taxable income, total tax payable and tax payable with the return.

Solution of Q.NO. 1: Autumn 2008

Name of Taxpayer : Mr. Ali RazaNational Tax Number : Income year ended : 30th June, 2016Tax Year : 2016Personal Status : IndividualResidential Status : Resident




Basic salary (Rs.65,000 x 12 months) 780,000 Rent-free accommodation higher of FMR or 45% of basic salaryhigher of (Rs.25,000 x 12 months) 300,000 or (45% x 780,000) 351,000 351,000 conveyance facility partly for personal use (Rs.500,000 x 5%) 25,000 Medical Allowance 150,000 Less: 10% of basic pay (78,000) 72,000

Employer provident fund contributoin (12% of Basic pay) 93,600 Less: Exempt lower of 1/10th of salary (Rs.780,000 x 0.1) or Rs.100,000 (78,000) 15,600 Employee's contribution shall not be considered as already included in salary - Total salary income 1,243,600

CAPITAL GAIN U/S 37

Gain on sale of Jewellery 45,000 Loss on sale of an antique shall not be recognized. - 45,000 Taxable income under NTR excluding SBI income 1,288,600


Rental Income (Rs.10,000 x 12 months) 120,000 Add: Non-adjustable Advance [Rs.(100,000 - (70,000 / 10 x 2) /10] 8,600

128,600 128,600

Less 1/5th fixed repair allowance irrespective of actual repair expenses (25,720) Share in rent to HBFC (15,000) 87,880 Taxable income 1,376,480


Tax on Rs. 1,376,480 [14,500 + 10% x (1,376,480 - 750,000)] 77,148

Tax on income covered under FTR10% tax on gross dividend of Rs. 12,000 1,200

78,348 Less: Tax paid / deducted under sections Cash withdrawal 231 A (400) Salary income 149 (170,000) (170,400)



Balance tax refundable (92,052)

NOTES:N-1 Loss on sale of antique shall not be recognized.

Q.NO. 3(a): Autumn 2008

(i) Being a UK national, he will be a non-resident for Pakistan tax purpose;(ii) His income from consultancy services provided by him under the contract of employment should be classified as ‘fees’ for technical services’ and shall be chargeable to tax at 15% of the gross amount of the consideration received by him;(iii) No tax was deducted from his remuneration. However, United Autos deposited an amount of Rs.275,000 in

Mr. Henry stayed in Pakistan for eight months during the tax year 2008. During the said period, he was only involved inproviding in-house independent consultancy services to different departments of the Company. Mr. Henry is of the viewthat:

Mr. Henry is a UK national and provides independent consultancy services in his individual capacity, to United AutosLimited, a Pakistani company. Mr. Henry has entered into a contract with the company. The company’s accountant hastreated payment under this contract as being under an employment contract with the company.


(iii) No tax was deducted from his remuneration. However, United Autos deposited an amount of Rs.275,000 in the government treasury on his behalf. Mr. Henry believes that tax deposited on Mr. Henry’s behalf does not attract any additional tax incidence for him as he has not received the amount in cash, from the company.(iv) Since his remuneration was agreed to be paid in Pound Sterling, the rate of conversion for tax purpose shall be the rate applicable on the date of agreement. Any increase in value of Pound Sterling against Pakistan Rs. should be non-taxable.

Solution of Q.NO. 3(a) Autumn 2008

ii) As Mr. Henry is providing independent consultancy services to various departments of local company and the sameshall not be treated under the term employment hence a contract of services shall be treated as service contract andhigher of minimum tax at the rate of 10% or tax under normal tax regime on taxable profit, if any, is to be paid by Mr.Henry.

iii) Tax paid by the company on behalf of Mr. Henry shall be treated as income and tax on the same is to be paid by Mr. Henry on the same basis as given in Note 2 above.

Briefly explain whether or not Mr. Henry’s assumptions in (i) to (iv) above are in accordance with relevant provisions of theCIR, 2001.

i) Mr Henry assumption that being as UK National he is a non-reisdent for Pakistan tax purposes is not correct as theresidential status is being decided on number of days stay in Pakistan instead of Nationality base. As his stay in Pakistanis for 183 days or more hence he is a reisdent for Pakistan tax purposes.

Q.NO.1 Spring 2008

Rs. ‘000’Sales (including rental income) 76,000Cost of sales 53,000

23,000Selling, administrative and other expenses 16,250Profit before tax 6,750

Saleem, Rashid and Moin are partners in a partnership concern carrying on the business of manufacturing and sale ofconsumer goods. They share profit and loss in the ratio 2:3:5 respectively. The results of operations of the firm are asfollows:

iv) The presumption of Mr. Henry is again not correct as the conversion rate to the remuneration in pound sterling shall bethe date at which the amount received by Mr. Henry and not the date of agreement.



Tax deducted at source on import of raw material 900Tax deducted at source on sale of goods 1,750

Other information:(i) The firm has rented out a vacant portion of its factory to a company at an annual rental of Rs.1 million. Tax was duly deducted by the lessee.(ii) Mr. Saleem has earned income of Rs. 325,000 from another business as a sole proprietor. He also sold his personal car for a loss of Rs. 50,000.(iii) Mr. Rashid earned a gross income of Rs. 200,000 from another partnership firm where he is entitled to 25% of the total profit of the firm. He also earned dividend of Rs. 50,000 from a listed company.(v) Mr. Moin has no other source of income.

Required:

Solution of Q.NO.1 Spring 2008

Name of Taxpayer : AOPNational Tax Number :

Assuming that the above data pertains to the tax year 2008, compute the tax liability of the firm and each of its partnersand the amount of tax payable by them alongwith the return of income.


National Tax Number : Income year ended : 30th June, 2016

Tax Year : 2016Personal Status : AOP

Rs. Rs.INCOME FROM BUSINESS U/S 18

COMPUTATION OF TAXABLE INCOME:

In the absence of information it has been assumed that the sale of the AOP is wholly to the persons that havededucted withholding tax at source. Hence the income of the firm is fully covered under FTR.

Gross receipts of AOP on sale of goods manufactured Rs.1,750,000 x 100 / 4.5 38,888,889

Property Income 1,000,000 Less 1/5th repair allowance (200,000) Rent chargeable to tax 800,000


4.5% tax on gross receipts as above 1,750,000 Add tax on income from property (32,000 + 15% (800,000 - Rs.750,000) ) 39,500 Total tax liability under the Ordinance 1,789,500 Total tax liability under the Ordinance 1,789,500

Less: Tax deducted at source

On import of raw materials 900,000 On property income (Rs. 1,000,000 - 150,0000) x 10% 85,000

On sale of goods 1,750,000 2,735,000 Balance tax refundable (945,500)

The income of the AOP coverved under FTR shall not be included in the income of the respective partner for ratepurposes.

TAX LIABILITY OF PARTNERS

Saleem



Loss on sale of personal car shall not be recognized. - Share in rental income after tax (Rs.800,000 - 39,500) x 2/10 152,100 Business income from sole proprietorship 325,000 Total Income 477,100 Tax liability 7% of [ Rs.476,500 - 400,000] 5,355

Rashid

Share from another AOP 200,000 Share in rental income after tax (Rs.800,000 - 39,500) x 3/10 228,150 Dividend Income (Rs. 50,000 not to be included in income) - Total Income 428,150

Tax liability 7% of [ Rs.427,250 - 400,000] 1,908 Add tax on dividend income 5,000 Tax liability 6,908

Moin


MoinBusiness Income from AOP -

Q.NO.1 Autumn 2007

RupeesBasic salary (per month) 70,500Rent of furnished accommodation (per month) 30,000Utilities allowance (per month) 12,000Medical benefits reimbursed during the year 25,000

In lieu of premature termination, the following additional benefits were allowed to Mr. Ayub:

No tax liability has been computed as there is no taxable income from any head of income hence the share from AOP inretanl income shall also not included for rate purposes.

On his retirement as a permanent employee, he had been paid gratuity from the approved fund. According to the rules ofthe fund, he was also entitled to a special gratuity in lieu of his services rendered under the contract. Accordingly, anamount of Rs. 120,000 was also paid out of the fund, on termination of the contract.

House rent was paid by the company directly to the landlord. Medical benefits were reimbursed against bills submitted byMr. Ayub.

Mr. Ayub, after retirement from a multinational company as a senior executive, was rehired on contract for a period ofthree years. However, due to certain reasons, the contract was prematurely terminated six months earlier i.e. onDecember 31, 2006. The detail of emoluments received by him during the tax year 2007 are given below:

In lieu of premature termination, the following additional benefits were allowed to Mr. Ayub:(i) A compensation for early termination of Rs. 150,000 was paid.(ii) Mr. Ayub had obtained an interest free loan of Rs. 200,000 on July 1, 2006 which was payable in lumpsum on March 31, 2007. 25% of the outstanding balance was waived and remaining amount of loan was deducted from his final settlement. The benchmark rate according to the ITO, 2001 is 10%.

(iii) He was allowed to retain a 1600cc car which was in his use, at accounting book value of Rs. 650,000. The fair market value of the car at the time of settlement was Rs. 700,000.

Required: Compute the taxable income and tax liability for the tax year 2007.

Solution of Q.NO.1 Autumn 2007

Name of Taxpayer : Mr. AyubNational Tax Number : Income year ended : 30th June, 2016Tax Year : 2016




INCOME FROM SALALRY U/S 12 Rs. Rs.

Basic Salary (Rs. 70,500 x 6 months) 423,000 Rent of furnished accommodation (30,000 per month) higher of Fair market rent or 180,000 45% of MTS or basic salary 190,350 190,350 Utilities allowance (Rs.12,000 x 6 month) 72,000 Medical benefits reimbursed during the year (fully exempted) - Gratuity from the approved fund (N - 1)A compensation for early termination (included in current year 150,000 income in the absence of last 3 year's income and tax thereon)Interest on interest free loan (As the loan is less than Rs. 500,000 and rate is within benchmark rate hence no addition in the income has been made)

-

Amount waived of loan (Rs. 200,000 x 25%) 50,000 Conveyance facility retained by employee at FMV 700,000 Total taxable income 1,585,350


Total taxable income 1,585,350


Tax on Rs. 1,585,350 [92,000 + 15% x (1,585,350 - 1,500,000)] 104,803

NOTESN-1 Assumed that Gratuity received is approved by Commissioner therefore it is totally exempted.

Q NO. 3(a) Autumn 2007

Fair Market Value (Rs.)

25,000 shares of a private limited company 2,500,000 21,000 shares of a public listed company 462,000 Membership card of Karachi Stock Exchange 20,000,000 Jewellery 1,500,000 During the tax year 2007, Mr. Zia undertook the following transactions:(1) He gifted some of the assets to his 20-year old son Mr. Ishaq. The detail and fair market values of the assets are as follows:

Mr. Zia inherited certain assets from his father in the year 2004. The fair market values of the assets on the date ofinheritance were as follows:

Fair Market Value (Rs.)10,000 shares of the private limited company 2,000,000 10,000 shares of the public listed company 1,700,000 Membership card of Karachi Stock Exchange 40,000,000 (2) The remaining shares were sold as follows: − shares of private limited company for Rs. 3,000,000, − shares of public limited company for Rs. 1,500,000.

Mr. Ishaq sold all the assets transferred through gift in the same year. The assets fetched the following amounts:

Sales Proceeds (Rs.)10,000 shares of a private limited company 2,500,000 10,000 shares of a public listed company 1,500,000 Membership card of Karachi Stock Exchange 55,000,000



Required: (i) Based on the above information, compute the taxable income of Mr. Zia and Mr. Ishaq for the tax year 2007.(ii) Give brief explanation for the items not included in the taxable income.

Solution of Q NO. 3(a) Autumn 2007

Mr. ZiaGain on disposal of Assets Rs. Rs.Gain from sale of shares of public listed company is taxable as SBI @ 7.5% as it is held for more than 24 months (Rs. 1,500,000 - 242,000 FMV of sodl shares at the date of gift)

1,258,000

Gain on sale of shares of private companyConsideration received 3,000,000 Less: FMV at the time of inheritance Rs.(2,500,000 / 25,000 x 15,000)

(1,500,000)

Gain on disposal 1,500,000 Capital gain for taxable purposes (Rs.1,500,000 x 0.75) 1,125,000


Capital gain for taxable purposes (Rs.1,500,000 x 0.75) 1,125,000

Gain on Acquisition of JewelleryNo gain or loss shall be recognized on the acquisition of any asset received by way of inheritance or gift.

Mr. IshaqNo gain or loss shall be recognized on the acquisition of any asset received by way of inheritance or gift.

Gain on disposal of AssetsLoss from sale of shares of public listed company can neither be adjusted against gain realized under section 37 nor it can be carried forward. Rs.(1,500,000 - 1,700,000)

(200,000)

Gain on sale of shares of private companyConsideration received 2,500,000 Less: FMV at the time of inheritance (2,000,000) 500,000

Gain on membership card of stock exchangeConsideration received 55,000,000 Less: FMV at the time of gift as deemed as cost (40,000,000) 15,000,000 Taxable Income 15,500,000

Solution of Q NO. 3(a) Autumn 2007Solution of Q NO. 3(a) Autumn 2007

No gain or loss shall be recognized on the acquisition of any asset received by way of inheritance or gift.

Q.NO. 4(b) Autumn 2007

Solution of Q.NO. 4(b) Autumn 2007

Note: Applicable Tax Rate in Pakistan = 25%; US$ 1 = Pak Rupees 60.

During the tax year 2007, Mr. Yahya, a resident person, derived an income of Rs. 1,500,000 from his business inPakistan. He has also earned an amount of US$ 30,000 from his business in a foreign country on which he paid incometax to tax authorities of that country, amounting to US$ 10,500.

Compute the tax liability of Mr. Yahya for the tax year 2007.



Name of Taxpayer : Mr. YahyaNational Tax Number : Income year ended : 30th June, 2016Tax Year : 2016Personal Status : IndividualResidential Status : Resident

TOTAL TAXABLE BUSINESS INCOME U/S 18 Rs. Rs.

Pakistan source business income 1,500,000 Foreign source business income ($ 30,000 @ Rs. 60) 1,800,000 Total taxable business income 3,300,000


Tax on Rs. 3,300,000 [344,500 + 25% x (3,300,000 - 2,500,000)] 544,500 Less: Foreign tax credit i.e. Lower of (A) Foreign income tax paid ($10,500 x Rs.60) 630,000 (B) Pakistan income tax (tax liability x Foreign source income / Taxable income)


Taxable income)Rs.(544,500 x 1,800,000 / 3,300,000) 297,000 297,000 Balance tax payable 247,500

Q.NO. 2(a): Spring 2007

Explain the correct tax treatment in each of the following situations:

(i) In 1998, Mr. Hamid inherited a rare sculpture of Buddha which had a fair market value of Rs. 200,000 on the date of inheritance. In February 2007, the sculpture was sold by him at Rs. 500,000.

(ii) In December 2006, Mr. Yahya entered into an agreement for sale of his residential plot to Mr. Moosa, who paid an advance of Rs. 500,000. According to the agreement, Mr. Moosa was required to pay the balance by February 28, 2007. However, instead of paying the balance amount, he terminated the sale agreement. Mr. Yahya forfeited the advance of Rs. 500,000 in accordance with the terms of the agreement.

(iii) In September 2006, Mr. Saleem sold his personal car, Toyota Corolla, to one of his cousins at a price of Rs. 50,000 whereas the fair market value of the car was Rs. 200,000. The car was purchased by him in the year 2000 at a cost of Rs. '300,000

(iv) Mr. Ibrahim was working as a Chief Financial Officer in Dawood Pakistan (Pvt.) Limited, which is a wholly owned subsidiary of Dawood AG, Germany. According to the Company’s policy, Mr. Ibrahim was sent on secondment to Germany on January 1, 2007 for a period of five years. During this period, half of his salary will be credited to his bank account in Pakistan, whereas the remaining portion will be received by him in Germany. Germany.

Solution of Q.NO. 2(a): Spring 2007

i) Gain on sale of Sculpture Rs. Rs.Consideration received 500,000 Less: FMV at the time of inheritance (200,000)

300,000 Taxable gain on sale of sculpture (as holding period is more than 1 year so 75% is chargeable to tax) (Rs.300,000*0.75)

225,000

Mr. Zubair provided consultancy services to a listed company. In consideration for his services, he received a net amountof Rs. 47,000 after tax deduction of Rs. 3,000.



ii) Any forfeited money as advance against sale agreement of land and building is included in the definition of "Rent". So, the amount of forfeited money shall be chargeable to tax.

500,000


Rs. in million

The income of Mr. Yousuf during the tax year 2006 amounted to Rs. 120 million which included capital gains of Rs. 10million and dividend income of Rs. 12 million. The tax liability for 2006 was Rs. 32 million out of which Rs. 4 million relatedto tax on capital gains and dividend income. The following information is available for the quarter ended December 31,2006:

iii) As the sale of personal car is neither a business transaction nor a capital asset. There will be no tax treatment on the disposal of personal asset. So, the cost, FMV or consideration are irrelevant.

iv) Mr. Ibrahim's salary income is taxable in Pakistan in 2007 and foreign source income in next 5 years as his employment based in Pakistan according to section 101.

v) Any tax deducted at source on consultancy services is treated as minimum tax however the tax under normal law shall be computed and higher from both is to be paid by Mr. Zubair.


Rs. in millionTax deducted at source by the customers 3 Tax paid on import 2 Compute advance tax liability for the quarter ended December 31, 2006.


Name of Taxpayer : Mr. YousafNational Tax Number : Income year ended : 30th June, 2016Tax Year : 2016Personal Status : IndividualResidential Status : Resident

Rs. (in millions) Rs. (in millions)COMPUTATION OF ADVANCE TAX LIABILITY UNDER SECTION 147:

Total Income 120 Less: Capital Gain (See note - 1 below) - Dividend Income (12) (12) Net income (excluding income covered under SBI / FTR) 108

Computation of advance tax LiabilityComputation of advance tax LiabilityTotal Tax 32 Less: Tax on dividend income 1.20 Balance tax under NTR (including capital gain covered U/S 37) 30.80

As the latest tax year income under NTR of Mr. Yousaf is more than Rs. 500,000 therfore the quarterly advance tax liability on the basis of latest tax year is as under.

Latest tax year tax liability under NTR 30.80 Quarterly advance tax liability shall be 1 / 4 th of the above amount 7.70



Q.NO. 2(b) Autumn 2006

Mr. Dollar has been working as a senior engineer in a local company. The detail of his monthly emoluments is asunder:

Basic salary Rs.100,000Medical allowance Rs.15,000 Utilities allowance Rs.10,000

Note-1 In the absence of information it has been assumed that the capital gain is on capital assets covered under section37 that is under NTR hence the same has also been considered while computing advance tax under section 147 of theIncome tax Ordinance, 2001.

Note-2 As for individual the dividend income is fully covered under SBI hence the same has been ignored for the computation of advance tax under section 147.

Note-3 In the absence of information it has been assumed that the individual is engaged in trade business hence the tax deducted at source on sale of goods and commercial import have not been deducted from the advance tax liability as the same are fully covered under Final tax regime.


In addition to the above cash emoluments, he is entitled to the following perquisites: (i) A car for his personal and official use, having cost of Rs.700,000 to the employer. (ii) Rent free accommodation having monthly rent of Rs.20,000 or cash in lieu thereof. However he has opted to take rent free accommodation. (iii) Special allowance of Rs.15,000 to meet travelling, boarding and lodging expenses to be incurred by him in the normal course of his employment duties.

You are required to compute the amount of tax to be deducted each month, from his salary for tax year 2007.

Solution of Q.NO. 2(b) Autumn 2006

Name of Taxpayer : Mr. DollarNational Tax Number : Income year ended : 30th June, 2016Tax Year : 2016Personal Status : IndividualResidential Status : Resident

INCOME FROM SALARY U/S 12 (Rs.) (Rs.)

Basic salary (Rs.100,000 x 12 months) 1,200,000 Medical allowance (Rs.15,000 x 12 months) 180,000 Less: 10% of basic salary exempt U/C 139 (Rs.1,200,000 x 10%) (120,000) 60,000

Utilities allowance (Rs.10,000 p.m) 120,000 Conveyance facility provided for personal and official useTaxable at 5% of cost of conveyance (700,000 x 5%) 35,000 Rent free accommodation (Higher of FMR or 45% of MTS or B.S)Higher of (Rs.240,000 (20,000 x 12) or Rs.540,000 (45% x 1,200,000))

540,000

Special allowance is not taxable as it is reimbursed for business purposes - Total taxable income 1,955,000


Tax on Rs. 1,955,000 [137,000 + 17.5% x (1,955,000 - 1,800,000)] 164,125 Per month tax to be deducted by employer (Rs. 164,125 / 12 months) 13,677



Q.NO. 1 Spring 2006

(i) Basic salary Rs. 100,000 per month(ii) House rent allowance Rs. 40,000 P.M.(iii) Utilities allowance Rs. 15,000 per month

During the year, Fatima has also undertaken the following transactions:(i) Shares in QP (Pvt.) Ltd. were sold for Rs. 500,000. These shares were acquired in the year 1999 at a cost of

In addition to the above cash emoluments, she was provided with a Honda Civic car, exclusively for official use. The costof car to the Company was Rs. 1,000,000. As per Company’s policy, the car was sold to Fatima in January 2005 at thewritten down value of Rs. 100,000 whereas the fair market value of the same at the time of sale was Rs. 300,000.

In May 2005, Fatima was approached by Pharma Industries (Pvt.) Limited (PIL). They offered her employment at a highersalary and some extra benefits, alongwith a one time payment of Rs. 200,000 as an inducement to accept their offer.Fatima accepted PIL’s offer by resigning from CPL with effect from June 1, 2005. She joined PIL from July 1, 2005. Theamount of Rs 200,000 was, however, paid to her on June 29, 2005.

Ms. Fatima Hasan was working as a Marketing Head with Consumer Products Limited (CPL) at following emoluments:


(i) Shares in QP (Pvt.) Ltd. were sold for Rs. 500,000. These shares were acquired in the year 1999 at a cost of200,000

(ii) A residential plot inherited in the year 2000 was sold for Rs. 1,000,000. The fair market value of the plot at the time of inheritance was Rs. 200,000.(iii) A painting purchased at a cost of Rs. 100,000 was sold for Rs. 75,000.(iv) She had won a cash prize of Rs. 250,000 in a quiz show. Tax of Rs. 50,000 was deducted from the prize money u/s 156.(v) Dividend of Rs. 50,000 was received on account of shareholding in a listed Company. Tax of Rs. 5,000 was deducted u/s 150.(vi) She received a fee of Rs. 100,000 in consideration for preparing a research paper for a foreign University. Fatima incurred Rs.10,000 on the printing of research paper and courier charges for sending the paper abroad.(vii) An amount of Rs. 50,000 was donated to an approved charitable institution.

Solution of Q.NO. 1 Spring 2006

Name of Taxpayer : Fatima Hassan

National Tax Number : Income year ended : 30th June, 2016Tax Year : 2016Personal Status : IndividualResidential Status : Resident

In the light of above information, compute the taxable income of Ms. Fatima for the tax year 2005 by giving briefexplanation for the items not included in the taxable Income.

Residential Status : Resident


Basic salary (Rs.100,000 x 11 months) 1,100,000 House rent allowance (Rs. 40,000 x 11 months) 440,000 Utilities allowance (Rs. 15,000 x 11 months) 165,000 Benefit on purchase of car from employer FMV at the time of purcahase 300,000 Less: Consideration paid to employer (100,000) 200,000 Benefit from Pharma Industry (Pvt.) Limited 200,000

2,105,000 CAPITAL GAIN U/S 37

Gain on sale of shares in QP (Pvt.) Ltd. 500,000 Consideration received on disposal (200,000)



300,000 Taxable capital gain (holding period more than 1 year) 75% x Rs.300,000 225,000 Loss on sale of painting is not recognized (N - 1)


Consideration for preparing a research paper for a foreign University. 100,000 Less: Expenses paid on the printing of research paper and courier charges (10,000) 90,000 Total Income 2,420,000

Income taxable under FTRCash prize (gross amount) 250,000 Dividend received (gross amount) 50,000

NOTE: N-1 Gain on the sale of residential plot after two years of retention is not taxable under capital gains.


The records of Mr. A show the following results:


Particulars RupeesLoss from ‘income from other source’ after setting off dividend income of Rs. 30,000 (20,000)Income from speculation business 10,000Capital gains on disposal of shares of private limited companies 20,000Loss from business of textiles after considering tax depreciation of Rs. 290,000 410,000

Required: You are required to work out the following:(i) taxable income;(ii) tax liability; and (iii) amount of loss that can be: (a) adjusted against any other head of income; (b) carried forward for maximum 6 years; (c) carried forward for indefinite period.


Name of Taxpayer : Mr. ANational Tax Number : Income year ended : 30th June, 2016Tax Year : 2016Personal Status : IndividualResidential Status : Residential Status : Resident

i) Taxable Income Rs. Rs.Loss from business (excluding depreciation loss Rs. 290,000) (120,000) Income from speculation business 10,000 Income from capital gain (assumed within one year under section 37) 20,000 Loss from other sources after dividend income (20,000) Less: dividend income (30,000) (50,000) Business loss (140,000) Less tax depreciation (290,000) Total loss as per tax (430,000)

ii) Computation of tax liability



As there is loss under normal law and information regardingturnover under normal law has not been given, hence tax only ondividend income is to be computed as under.Tax on dividend income (Rs. 30,000 x 10%) assumed at normalrate

3,000

iii) Amount of loss that can be:(a) adjusted against any other head of incomeLoss under the head income from other sources and total businessloss (including depreciation) may be adjusted against profit fromany other head of income.

460,000

(b) Carried forward for maximum 6 yearsBusiness loss (excluding depreciation loss) shall be carried forwardfor 6 years.

140,000

(c) Carried forward for indefinite period.Unabsorbed depreciation loss shall be carried forward for indefiniteperiod.

290,000


period.

Q.NO. 2 Autumn 2005

From the UAE company:

From Pakistan subsidiary:(a) Basic salary Rs. 500,000 p.m.(b) Medical allowance Rs. 45,000 p.m (no free medical or hospitalization facility is given to Mr. Imran under the terms of employment).(c) The company has provided Mr. Imran a TV and VCR costing Rs. 40,000 on which the company charges depreciation at the rate of 20% in its books of accounts.(d) Company has provided interest free loan to Mr. Imran amounting to Rs. 5 million which remained outstanding throughout his employment with the company. Mr. Imran acquired a flat from the amount of loan and rented it out at the rate of Rs. 50,0000 p.m. for a period of seven months. He also paid Rs. 35,000 as property tax during the period.

Mr. Imran is a citizen of Pakistan. During the first nine months of the tax year 2005, he worked as financial controller of aPakistan based subsidiary of a multinational group. After that he was transferred and employed as Head of Finance of theUAE based subsidiary of the Group. Mr. Imran’s family stayed in Dubai throughout the year. The detail of income earnedby him during the tax year 2005 is given below:

Mr. Imran earned US $ 30,000 during the three-month’s employment in the UAE. No tax is deducted from salary earnedand paid in the UAE. To relocate Mr. Imran in UAE, the UAE Company incurred one time miscellaneous cost of Rs.100,000 to move the household items of Mr. Imran from Pakistan to Dubai.

property tax during the period.(e) His family’s housing cost in Dubai, borne by the company amounts to Rs. 30,000 p.m.(f) Mr. Imran’s travelling and related cost borne by the Pakistan subsidiary to meet his family, amounts to Rs. 30,000 p.m.

Required: Compute the taxable income of Mr. Imran for the tax year 2005 based on the data provided above.


Name of Taxpayer : Mr. Imran

(g) During the employment with the Pakistan subsidiary, Mr. Imran had exercised option to acquire 300 shares of the parent company at the rate of US $ 8 per share. At the time when the option was exercised, the value of the share was US $ 10 (Rs.58) per share. Furthermore, during the year Mr. Imran sold 200 options previously received by him at a price of US $ 3 per option (Rs. 171) after holding it for more than a year. Neither the Pakistan subsidiary nor Mr. Imran incurred any cost in this regard.




SALARY FROM UAE COMPANY U/S 12 Rs. Rs.

Basic salary ($30,000 x Rs.90 assumed) 2,700,000Expenses borne by company to move the household items 100,000 2,800,000

SALARY FROM PAKISTAN SUBSIDIARY U/S 12

Basic salary (Rs.500,000 x 9 months) 4,500,000 Medical allowance (Rs.45,000 x 9 months) 405,000 Less: 10% of basic salary (Rs.4,500,000 x 10%) 450,000 - Cost of TV and VCR (Rs.40,000 x 20%) 8,000 Interest free loan (Rs.5,000,000 x 10% x 9 / 12) 375,000 Family’s housing cost in Dubai (Rs.30,000 x 12 months) 360,000


Family’s housing cost in Dubai (Rs.30,000 x 12 months) 360,000 Imran’s travelling and related cost borne by the Pakistan subsidiary (Rs.30,000 x 9 months) 270,000 Share option schemeBenefit on acquisition of shares (300 shares x 2 x 58) (Note 1 attached) 34,800 Benefit on sale of share options (200 options x 171) 34,200 69,000 Total Income 8,382,000


Rental Income (Rs. 50,000 x 7 months) (assumed after allowable expenses)

350,000


Note -1 Grant of an option or right is not taxable whereas exercise of an option to acquire shares is taxable wherethe same is without restriction and limitation.

Q.NO. 15: Spring 2005

Mr “B” is the Chief Executive of a Multinational Company. Details of his emoluments are as follows:Rs.

Basic Salary 8,800,000 Bonus 5,000,000 Utility allowance 880,000 Relocation allowance 200,000

Apart from the above he is provided with the following perquisites/benefits:(i) A free unfurnished accommodation by the employer with land area of 2100 sq. yds.(ii) Motor vehicle for both private and official use, cost of acquisition of which was Rs.2,000,000.(iii) Children education fees for the year Rs.105,000.(iv) House servant salaries for the year Rs.230,000.

(a) Rent Rs.50,000 per month.(b) The property was let out on rent from December 2, 2003 to June, 2004(c) Property tax paid Rs.35,000.

According to the terms of employment the tax liability of Mr. “B” on the above benefits and perquisites from (i) to (iv) aboveis borne by the employer. Tax liability on other remuneration is borne by himself.

Mr. “B” also owns a property which was let out on rent for a part of the year details of income and expenses incurred areas follows:



The Bank account of Mr. “B” was credited with profit during the year amounting to Rs.6,300. During the year thefollowing amounts were withheld at source as Income Tax:

RupeesFrom salary income 4,541,250 Tax paid by the employer 446,820 From profit on bank account 630 On receipt of rent 17,500

You are required to compute the taxable income and tax liability of Mr. “B” for the tax year 2004.

Solution of Q.No. 15 Spring 2005

Name of Taxpayer : Mr. BNational Tax Number : Income year ended : 30th June, 2016Tax Year : 2016Personal Status : Individual




Basic Salary 8,800,000 Bonus 5,000,000 Utility allowance 880,000 Relocation allowance 200,000 Free unfurnished house higher of (FMV or 45% of MTS or Basic pay)(45% of Rs. 8,800,000) is taxable 3,960,000 Conveyance facility partly for personal use (5% of Rs. 2,000,000) 100,000 Children education fees for the year 105,000 House servant salaries for the year 230,000 Tax paid by employer 446,820

19,721,820


Rental income (Rs.50,000 x 7 months) 350,000 Less fixed 1/5 th repair allowance (70,000)Less property tax (35,000)Net income from property 245,000 Total taxable income 19,966,820


Tax on Rs. 19,966,820 [1,422,000 + 30% x (19,966,820 - 7,000,000)] 5,312,046

Add Tax under FTR10% tax on PLS profit of Rs. 6,300 630

5,312,676Less: Tax already paid Tax paid by emplyer 446,820 Tax deducted from salary 4,541,250 Tax paid on PLS profit 630 On receipt of rent 17,500 5,006,200 Balance tax payable 306,476

Q.NO.15: Autumn 2004



Mr. A is the Chief Executive of a multinational company. Details of his emoluments are as follows:

Basic salary 4,004,520 Bonus 1,980,642 Utility allowance 400,452 Leave encashment 538,083 Other allowance 90,000 House rent allowance 1,802,040

He also owns a property which has been let out on rent. The details of rent received and expenses incurred are asfollows:

(a) Rent Rs.10,000 per month. The property was let out on rent for the whole year. The annual letting value of the house is 'Rs.100,000.

Apart from the above he has received Director’s fee amounting to Rs. 52,000. During the year he has sold shares thatwere acquired through exercise of a ‘Stock Option’(being the a share, of a UK company) two years ago. The gain on saleamounts to Rs.4,206,000.


value of the house is 'Rs.100,000.(b) He has paid property tax amounting to Rs. 11,500.(c) During the year he has paid Rs.6,000 for repairs and maintenance.

He has also received profit on PLS Account at Rs.6,500.

During the year the following amounts were withheld at source towards income tax.

(a) From salary income Rs. 3,600,000(b) From profit on PLS Account Rs.650

You are required to compute the taxable income and tax liability of Mr. A for the tax year 2004

Solution of Q.No 15 Autumn 2004

Name of Taxpayer : Mr. ANational Tax Number : Income year ended : 30th June, 2016Tax Year : 2016Personal Status : IndividualResidential Status : Resident


Basic salary 4,004,520 Basic salary 4,004,520 Bonus 1,980,642 Utility allowance 400,452 Leave encashment 538,083 Other allowance 90,000 House rent allowance 1,802,040 Director’s fee (assumed as employee) 52,000 Total income 8,867,737

INCOME FROM PROPERTY U/S15

Rental Income (Rs.10,000 p.m x 12 months) 120,000 Less fixed 1/5th repair allowance (24,000) Property tax (11,500) Net income from property 84,500





Tax on Rs. 8,952,237 [1,422,000 + 30% x (8,952,237 - 7,000,000)] 2,007,671

Tax on capital gain on disposal of Listed Company shares under section 37A after two years (Rs. 4,206,000 x 7.5%)

315,450

Tax on profit on debt @ 10% 650 Total tax liability under NTR and FTR 2,008,321 Less: tax deducted at source from salary 3,600,000 Less: tax deducted at source on PLS profit on debt 650 3,600,650 Balance tax refundable (1,592,329)

NOTES

N-1 In the absence of information, it has been assumed that the shares of the company on which gain is given inthe question is in the definition of Public company hence tax has been levied accordingly u/s 37A of the Ordinance.N-2 Profit on PLS is covered as SBI under final tax regime.


N-2 Profit on PLS is covered as SBI under final tax regime.

Q.NO. 2 Spring 2004

Mr. A is an employee of a multinational company incorporated in Pakistan. His remuneration during the year was asfollows -

(Rupees)1 Basic Salary 1,117,245 2 Reward 22,062 3 Bonus 300,000 4 House Rent Allowance 643,514 5 Utility Allowance 111,724

During the year the company has withheld tax from his salary amounting to Rs. 695,000.You are required to compute his taxable income and tax thereon for the Tax Year 2003.

The Company has provided him a car for personal and business use. The cost of the car was Rs.1,100,000. During theyear Mr. A has paid interest on loan borrowed for construction of a house amounting to Rs.115,000. In addition to theabove, Mr. A was granted Stock Option of 2500 shares by the Head Office of the Company at US$ 36 per shares. Out ofthe above stock option, 1250 shares vested to him during the year were immediately exercised by him. The price of theshare at the time of exercise was US$ 41 per share. The exchange rate between US$ and Pak Rupee on the date onwhich Mr. A exercised his option was US$ 1 = Rs.58.


Name of Taxpayer : Mr. AIncome year ended : 30th June, 2016Tax Year : 2016Personal Status : IndividualResidential Status : Resident


Basic Salary 1,117,245 Reward 22,062 Bonus 300,000 House Rent Allowance 643,514 Utility allowance 111,724



Conveyance facility for both official and for business use (5% of 1,100,000) 55,000 Employee stock option (1,250 shares x 58 x (41 - 36)) 362,500 Taxable Income 2,612,045


Tax on Rs. 2,612,045 [259,500 + 20% x (2,612,045 - 2,500,000)] 281,909 Less: tax withheld by employer 695,000 Balance tax refundable (413,091) Notes

Q.NO. 6 Spring 2004

Note 1: In the absence of information, it has assumed that the loan availed is not fulfilling the requirements of section 64Ahence no deductible allowance has been claimed for the same.

Mr. A and B are equal partners of a Registered Firm (RF). The profit and loss account of RF shows profit before tax of Rs.10 million for the year ended June 30, 2003. Assuming no other tax adjustment, the profit shown in the accounts is liableto tax. You are required to compute the tax, if any, payable by the RF, Mr. A and Mr. B, assuming Mr. A and B have noother source of income. Also give brief explanation of the treatment made in the computation.



Name of Taxpayer : AOPNational Tax Number : Income year ended : 30th June, 2016Tax Year : 2016Personal Status : AOP

Divisible Income of the Firm (Rs.)Profit before tax 10,000,000 Tax on Rs. 10,000,000 [1,319,500 + 35% x (10,000,000 - 6,000,000)] 2,719,500 Profit after tax 7,280,500 Share of each PartnerShare of A (7,280,500 x 1/2) 3,640,250 Share of B (Rs. 7,280,500 x 1/2) 3,640,250

7,280,500

Note: The partners are not required to pay any tax liability as they have no other source of income. Income fromAOP shall be exempt from tax in the hands of partners as the tax paid by the AOP. If the partners have any othersource of income then the share in profit from AOP shall be added in taxable income for rate purposes.

Q.NO. 2 Autumn 2003

other source of income. Also give brief explanation of the treatment made in the computation.

Q.NO. 2 Autumn 2003

Description Company “A” Company “B”Rs. Rs.

Basic Salary 714,158 572,572 Bonus 150,000 71,800 House Rent Allowance 258,663 222,746 Utility Allowance 71,415 57,257 Conveyance provided by employer partly used for business and private 1,100,000 use- Cost of the car purchased by the companyLeave encashment 77,783 NIL

Mr. Bashir Ahmed is an employee who had joined his current employment during the tax year 2003. His details of salary,allowance and perquisites received from company “A” his previous employer and company “B” his present employer areas follows:



Medical reimbursement as per the terms of employment 35,000 25,000 Ex-gratia payment received under Golden Handshake Scheme 2,048,300 -

The details of assessed income and assessed tax in respect of past three years is as follows:Assessment year Assessed

Income Tax assessed

Rs. Rs.2000-2001 1,309,570 269,902 2001-2002 1,545,850 371,255 2002-2003 2,264,940 557,633

Required: Compute the taxable income and tax liability of Mr. Bashir based on the data provided above for the tax year 2003.


Name of Taxpayer : Mr. Bashir Ahmed

During the year Company “A” had deducted tax u/s 149 amounting to Rs.270,000 and Company “B” had deducted tax u/s149 amounting to Rs.800,000 from payments made to Mr. Bashir.


Name of Taxpayer : Mr. Bashir Ahmed


INCOME FROM SALARY U/S 12 Total (Rs.)Co. A + Co. B

Basic Salary 1,286,730Bonus 221,800House Rent Allowance 481,409Utility Allowance 128,672Conveyance provided by employer partly for personal use (1,100,000 x 5%) 55,000Leave encashment 77,783Medical reimbursement as per the terms of employment (fully exempt) 0Ex-gratia payment 2,048,300Salary Income taxable under normal procedure 4,299,694


Tax under Option 1Tax under Option 1Normal procedure: Tax on Rs. 4,299,694 [Rs.597,000 + {(4,299,694 - 4,000,000) x 27.5%]

679,416

Tax under Option 2Tax on income without golden handshakeTax on Rs. 2,251,394 [Rs.137,000 + {(4,299,694 - 2,048,300-1,800,000) x 17.5%]

215,994

Tax on golden hand shake: ( tax of last 3 years / Taxable Income of last 3 years x 100) x Amount of golden hand shake Rs. (1,198,790 / 5,120,360 x 2,048,300)

479,553

Total tax payable 695,547



Tax liabilityAs tax under option 1 is lower than from tax payable under option 2 hence the tax payer shall opt to pay tax under option 1.

679,416

Less: Tax deducted at source 1,070,000Balance tax refundable (390,584)

Note 1: for golden handshake payments Income Taxyear 1 1,309,570 269,902 year 2 1,545,850 371,255 year 3 2,264,940 557,633 Total 5,120,360 1,198,790

Golden handshake payment is taxed as separate block of income, if we include golden handshake payment insalary income the higher amount of tax shall be payable on it.

Q.NO. 4 Autumn 2003

Compute the projected advance tax liability and net advance tax payable in respect of ABC Limited a public company, for


Rs.(i) Gross sales (including sale of imported goods and export sales) 20,000,000 Sales of imported goods 2,000,000 Export sales 3,000,000 Agency commission 1,000,000 Sale of fixed assets 200,000 Dividend income 1,000,000 Miscellaneous income 1,500,000 (ii) Gross Tax Liability 1,200,000 Tax on export sales 30,000 Tax on Import of goods 108,000 Tax on dividend income 50,000 The projected turnover and taxes expected to be withheld at source are as follows:-All figures are for the quarter ended September 30, 2003(i) Gross sales 5,000,000 Sale of imported goods 500,000 Export sales 1,000,000 Dividend income NilMiscellaneous income 500,000 (ii) Tax collection/deduction:- U/s 148 – on goods imported for sale 24,000

Compute the projected advance tax liability and net advance tax payable in respect of ABC Limited a public company, forthe quarter ended September 30, 2003. The data of turnover and tax liability assessed in respect of the latest assessedtax year is as follows:

- U/s 148 – on goods imported for sale 24,000- U/s 153 – on sale of imported goods 95,000- U/s 154 – on export sale 10,000

Solution of Q.NO. 4 Autumn 2003Rs. Rs.

Advance Tax Payable(Latest assessed tax under Normal tax regime (N-1) / Latest tax year turnover under NTR (N-2) x Actual turnover for the September quarter (N-3)) (Rs. 1,012,000 / 15,000,000 x 3,500,000) / 4

59,033

Less: tax deducted under section 153 on sale of imported goods 95,000

Balance tax excess paid during the quarter (35,967)



NOTESN-1 Latest assessed tax under NTRGross Tax Liability 1,200,000 Less: Tax on export 30,000 Tax on import of goods 108,000 Tax on dividend 50,000 188,000 Net tax 1,012,000 N-2 Latest tax year turnover under NTR Gross sales 20,000,000 Less: Export sales 3,000,000 Sales of imported goods 2,000,000 5,000,000 Net sales 15,000,000 N-3 Actual turnover for the quarter Gross sales 5,000,000 Less: Export sales 1,000,000 Sales of imported goods 500,000 1,500,000

3,500,000

Q.NO.4 (a) Spring 2003


Q.NO.4 (a) Spring 2003

Mercury and Co. has provided you the following data: Fair value of leased asset Rs.225,000 Interest rate 20.50%

Security Deposit paid 10% of fairvalue

Depreciation of leased asset 33% per annum

Term of lease 3 yearsYearly rental in arrears Rs.96,890

Required:

Solution of Q.NO.4 (a) Spring 2003

Name of Taxpayer : Mercury and Co.

National Tax Number : Income year ended : 30th June, 2016Tax Year : 2016Personal Status : Company

You are required to compute the amount available for deduction from the taxable income of Mercury and Co for eachyear. Please show proper working.

Personal Status : Company

1st Year Rs. Rs.Business Income -

Add: Inadmissible deductions Depreciation (Rs. 225,000 x 33%) 74,250 Interest Rs.(225,000 - 22,500) x 20.5% 41,513

115,763 115,763

Less:Admissible deductionsSecurity deposit as lease rental to claim after the expiry of lease period - Lease rental 96,890

(96,890) Taxable income 18,873In every year Lease rental only is allowable as deduction.



2nd YearBusiness Income - Add: Inadmissible deductions Depreciation 74,250 Interest (225,000 - 22,500 - 96,890 + 41,513) x 20.5% 30,160 104,410

104,410

Less:Admissible deductions Lease rental 96,890 96,890

7,520

3rd YearBusiness Income - Add: Inadmissible deductions Depreciation 74,250

Interest (225,000 - 22,500 - 96,890 - 96,890 + 30,160 + 41,513) x 20.5%

16,480 90,730

90,730


90,730 Less:Admissible deductions Lease rental 96,890 96,890

(6,160)

Q.NO.4 (b) Spring 2003

Sun and Moon have recently registered as partnership. They have incurred the following expenditure.

· Fees paid to consultants for preparation of registration deed Rs.50,000 · Preparation of feasibility report Rs.100,000 · Purchase of office equipment Rs.150,000 · Purchase of machinery Rs.1,000,000 · Trial run cost Rs.200,000 · Installation cost Rs.50,000

Required: You are required to explain the tax treatment by computing the amount allowable as deduction inaccordance with the provisions of Income Tax Ordinance 2001

Solution of Q.NO.4 (b) Spring 2003

Amount allowable as deductionBusiness Income - Less: Pre-commencement expenditure written off (N - 1) 70,000 Less: Pre-commencement expenditure written off (N - 1) 70,000 Initial allowance on fixed Assets (N - 2) 262,500 Depreciation on fixed Assets (N - 3) 140,625 Taxable income 473,125

NOTESN-1 Precommencement expenditure written off @ 20%

Fees paid to consultant for preparation of registeration deed 50,000 Preparation of feasibility report 100,000 Trial-run cost 200,000

350,000 Written off (350,000 @ 20%) 70,000

N-2 Initial allowance on Fixed Assets @ 25%



Machinery 1,000,000 Installation cost 50,000

1,050,0001,050,000 @ 25% 262,500

N-3 Depreciation on Fixed Asset @ 15% Office Equipment 150,000 Machinery 1,050,000 Less: initial Allowance (262,500) 787,500 Depreciable amount 937,500 Depreciation on Rs. 937,500 @ 15% 140,625

Q.NO.5. Spring 2003

For the tax year 2003 following information has been provided to you for the computation of his income from property and

Mr Amir-ud-din has recently constructed an office complex for the purposes of letting out. The office complex is alsoequipped with its own electric generators for which tenants are separately charged on a monthly basis. As per terms andconditions, Mr Amir-ud-din is also entitled to signing amount, which is nonrefundable.


RupeesRent for the year already received 1,150,000Rent for the year though due but irrecoverable 50,000Signing amount (non-adjustable non-refundable) 100,000Fire and water tax paid to the local authority 20,000Lawyers fee for suit to recover rent 50,000Lawyers fee for drafting master rent agreement 10,000Salary of the caretaker who also collects monthly rent 36,000Insurance premium being one per cent of market value of the property 200,000Repair maintenance expenditure 50,000

Solution of Q.NO.5. Spring 2003

Name of Taxpayer : Mr. Amir-ud-dinNational Tax Number : Tax Year : 2016Personal Status : IndividualResidential Status : Resident

INCOME FROM PROPERTY U/S 15 Rs.

For the tax year 2003 following information has been provided to you for the computation of his income from property andtax liability thereon:

Rent for the year already received 1,150,000 Rent for the year though due but irrecoverable 50,000 Signing amount (non-adjustable / non-refundable) 100,000 Gross property income 1,300,000

Less admissible deductions u/s 15A

1/5the repair allowance as fixed allowance 260,000Irrecoverable rent (Firstly added and then to deduct for the computation of correct amountof rent chargeable to tax) 50,000Fire and water tax paid to the local authority u/s 15A (1)(c) 20,000Lawyers fee for suit to recover rent 50,000Salary of caretaker who also collects monthly rent (not exceeding 6% of rent chargeable to tax) 36,000Insurance premium being one per cent of market value of the property 200,000



Total deductions 616,000Net income from property 684,000


Tax on first Rs. 500,000 7,000 Tax on balance (Rs. 684,000 - 500,000) x 10% 18,400Balance tax payable 25,400

Q.NO. 7 Spring 2003

Basic salary 225,000 Bonus 50,000 Conveyance allowance 50,000 House rent allowance 101,250 Leave fare assistance60,000

Cash paid to a non profit organization by way of donation Rs.20,000. Motor vehicle provided by employer and used partlyfor personal and partly for business purpose. Running cost borne by employee Rs.30,000. During the year Mr. Mushtaqwas issued 5,000 shares under an employee share option scheme whereby he was offered shares at 25% discount to the

Mr. Mushtaq has provided you with the following data for the computation of his total income and tax thereon for the taxyear 2003.


Required: You are required to compute his taxable income and tax thereon. Show all computations and assumptions, asnecessary.


Name of Taxpayer : Mr. MushtaqNational Tax Number : Income year ended : 30th June, 2016Tax Year : 2016Personal Status : IndividualResidential Status : Resident

INCOME FROM SALARY U/S 12Rs. Rs.

Basic salary 225,000Bonus 50,000 Conveyance allowance (N - 1) 50,000 House rent allowance 101,250

was issued 5,000 shares under an employee share option scheme whereby he was offered shares at 25% discount to themarket value. The market value of shares is Rs.11 per share. House loan taken by Mr. Mushtaq Rs.200,000. Interest paidon such loan during the year amounted to Rs.6,000.

Conveyance allowanceHouse rent allowance 101,250 Leave fare assistance 60,000 Benefit from share option (N - 2) 13,750 Taxable Income 500,000


Tax on Rs. 500,000 [0 + 2% x (500,000 - 400,000)] 2,000

NOTESN-1 The value of conveyance facility is not provided so there will be no treatment. conveyance allowance is fully taxable.N-2 Benefit from share option FMV of shares 55,000 Less: Cost of shares (5,000 shares x 11 x 0.75) 41,250 13,750



N-3 Donation paid in cash is not entitled for tax credit

Q. NO.4: Autumn 2002

ABC Associates owns a building which is 30 percent occupied for its business. The rest 70 percent is on rent.

The following information is available: Rupees

· Annual letting value of the property owned 2,000,000· Rent received from tenants 1,800,000· Depreciation on building under the· Third Schedule to the Ordinance 400,000· Property Tax 100,000· Municipal / local government taxes (agreements with tenants provide that tenants 100,000· should pay the taxes, cost to be allocated proportionately)· General and administration expenses 200,000

N-4 Deductible allowance on markup on house loan has not been claimed as the same has been assumed not fall withinsection 64A.


Required: Please compute the income of ABC Associates under the head ‘income from house property’.

Solution of Q. NO.4: Autumn 2002

Name of Taxpayer : ABC Associates

National Tax Number : Income year ended : 30th June, 2016Tax Year : 2016Personal Status : Company

INCOME FROM PROPETY U/S 15 Rs. Rs.

(A) 2,000,000

Rent received from tenants 1,800,000 Less advance for next two years (Rs. 600,000 / 3 x 2) (400,000) Add owners burden paid by tenant in the form of taxes 100,000

Annual letting value of the property owned being as Fair marketrent

Rent received includes Rs. 600,000 for three years commencing from July 01 of the current year. ABC Associates followaccrual basis of accounting and its income year is July-June 2002.

Add owners burden paid by tenant in the form of taxes 100,000 Actual rent for the tax year (B) 1,500,000

Higher of actual rent or Fair market rent i.e. higher of (B) & (A) 2,000,000

Less admissible deductions U/S 15A

1/5th of rent chargeable to tax as repair allowance 400,000 Tax depreciation (not an allowable expense) - Property Tax 100,000 Muncipal / local Govt. taxes against property (70% related to rented portion) 70,000

570,000 Net taxable income from property 1,430,000

Note - 1 It has been assumed that the data given in the question is only related to the rented out portion, unless where specified.



Q. NO.7(b): Autumn 2002

Unique Ltd. has following salary related data for the period July 1, 2001 to June 30, 2002 of its three employees.

S G O

(Salary and allowances per month)Basic salary 37,500 23,000 6,000House rent allowance 16,875 10,350 2,700Conveyance allowance - 2,300 300Utility allowance 4,000 2,500 1,000Recovery of Provident Fund Loan 2,000 1,500 500Additional information is as follows:

(i) S is provided a fully maintained car of 1000cc which is used both for private and business purpose.

Note - 2 General and administration expenses are not admissible against property income under section 15A of the Income Tax Ordinance, 2001.Note - 3 Taxes paid on behalf of owner by tenant shall be treated as income in the hands of the owner by virtue of section 69 of the Income Tax Ordinance, 2001.

Rupees


(i) S is provided a fully maintained car of 1000cc which is used both for private and business purpose.(ii) G owns his conveyance and also incurs its running and maintenance cost. The conveyance is used partly for business and private purposes.(iii) S, G and O all were entitled for annual bonus due in Sept. 2001, the term of bonus is one basic pay.

On the basis of above, compute tax withholding per month under the CIR read with the Income Tax Rules, 1982.

Solution of Q. NO.7(b): Autumn 2002:

Name of Taxpayer : S, G & ONational Tax Number : Income year ended : 30th June, 2016Tax Year : 2016Personal Status : IndividualResidential Status : Resident

INCOME FROM SALARY U/S 12 Rs. Rs. Rs.S G O

Basic salary 450,000 276,000 72,000Bonus 37,500 23,000 6,000House rent allowance 202,500 124,200 32,400Conveyance allowance - 27,600 3,600Utility allowance 48,000 30,000 12,000Utility allowance 48,000 30,000 12,000Recovery of Provident Fund Loan 24,000 18,000 6,000Conveyance facility (Assumed vehicle cost Rs.1,000,000 x 5%) 50,000 - -

Taxable income 812,000 498,800 132,000

Computation of tax liability (lower of A or B ):under normal case:Tax liability: (A) S [14,500 + 10% x (812,000 - 750,000)] 20,700 G [0 + 2% x (498,800 - 400,000)] 1,976 O (not taxable) 0

20,700 1,976 -



Tax per month to be deducted (Annual tax / 12 months) 1,725 165

Q. NO.4: Spring 2002:

Mr. Ashraf made the following donations during the income year 2000-2001:(a) Rs. 200,000 in cash to a relief fund sponsored by the Government.(b) Personal car to an institution referred to in Clause (61) of the Second Schedule. This car was purchased by Mr. Ashraf four years ago at the cost of Rs. 80,000.(c) The fair market value is Rs.60,000

Medicines to a private hospital purchased at the total cost of Rs. 10,000.

Solution of Q. NO.4 Spring 2002:

Name of Taxpayer : Mr. Ashraf

Please advice Mr. Ashraf regarding the allowance for donation which may be claimed by him keeping in view therequirement of Section 47 of the CIR 1979 if his income for the relevant income year has been assessed at Rs. 800,000.


Name of Taxpayer : Mr. AshrafNational Tax Number : Income year ended : 30th June, 2016Tax Year : 2016Personal Status : IndividualResidential Status : Resident

Rs. Rs.Income assessed 800,000

(a) Less direct deduction is allowed of donation amounting Rs. 200,000 in cash to a relief fund sponsored by the Government.

(200,000)

(b) Less direct deduction is allowed for donation of persoal car to an institution referred to in Clause (61) of the Second Schedule.

Value of deduction will be cost less depreciation of 3 yearsCost of car 80,000 Less: depreciation 3 years straight line method (Rs. 80,000 x 10% x 3)

24,000 (56,000)

c) Neither deduction nor tax credit is allowed for the donation of medicines to private hospital

-

Taxable income 544,000

Q. NO.5: Spring 2002

Explain whether the following are admissible as business expenditure under the ITO 1979:

(b) Penalty levied u/s 108 of the CIR, 1979 for failure to file statement u/s 139.

Solution of Q. NO.5: Spring 2002:

a) Repayment of principal amount of lease rentals: Lease rentals are admissible where leased asset is acquired for business purposes. In this case the repayment is principal amount with markup although not given in question.

b) Sales tax paid on the purchase of raw material to be used in the production of exempt supply shall be allowed as admissible expense.

(a) Repayment of principal amount of lease rentals of plant and machinery. (b)Sales tax paid on the purchase of rawmaterial to be used in the production of exempt supply. (c) Dividend (d) Provision in respect of doubtful debts.



Q. NO.6: Spring 2002

Rs. Basic Salary 130,500 p.mBonus 325,500 full yearHouse rent allowance 43,500 p.mUtilities 13,050 p.m

- Mr. Javaid has been provided with free use of a Company maintained car of 1,600 C.C.- In accordance with terms of his employment Mr. Javaid was paid Rs. 60,000 being the cost of air ticket in connection with a foreign tour. He last undertook a foreign tour three years ago.

e) Penalty levied under Section 108 of the Income Tax Ordinance, 1979 for failure to file statement under Section 139 shall not be admissible under the income tax ordinance.

c) Dividend is not an allowable deduction while calculating the business income because it is profit and loss approprriationitem.

Mr. Javaid, Managing Director of a multi national Company has submitted the following data for the income year ending 30

d) Provision in respect of doubtful debt is not allowed. Only actual bad debts are allowed.


connection with a foreign tour. He last undertook a foreign tour three years ago.- During the year Mr. Javaid sold 180,000 shares of Rs. 10 each purchased at par three years ago of M/s Azmat (Pvt) Ltd for Rs. 65 per share.- Zakat paid Rs. 12,000

Required: You are required to calculate the total income of Mr. Javaid and tax payable thereon.

Solution of Q. NO.6: Spring 2002

Name of Taxpayer : Mr. JavedNational Tax Number : Income year ended : 30th June, 2016Tax Year : 2016Personal Status : IndividualResidential Status : Resident


Basic Salary (Rs. 130,500 p.m) 1,566,000 Bonus 325,500 House rent allowance (43,500 p.m) 522,000 Utilities (13,050 p.m) 156,600 Free use of a Company maintained car of 1,600cc (N-1)Utilities (13,050 p.m)Free use of a Company maintained car of 1,600cc (N-1) - Cost of air ticket in connection with a foreign tour (N-2) - Total salary income 2,570,100


Consideration received (180,000 shares x 65) 11,700,000 Less: cost of shares (180,000 shares x 10) 1,800,000 Capital Gain 9,900,000 Taxable Capital Gian (9,900,000 x 75%) 7,425,000

9,995,100 Less: Zakat paid (12,000) Total Taxable Income 9,983,100




Tax on Rs. 9,983,100 [1,319,500 + 35% x (9,983,100 - 6,000,000)] 2,713,585

NotesN-1: The value of car not provided and further it is assumed that the car was being for office use only.

N-2: Air ticket for foreign trip treated as exempt as it is for the discharge of official duties.

Q. NO.7 Autumn 2001

Basic salary Rs. 35,000 p.m.Bonus 180,000House allowances 18,000 p.mUtilities allowance 50,000 p.a.

The employer provided him a 1300 c.c. car for office/personal use and medical facility worth Rs.25,000 during the

Mr Amir Ali is manager finance in a multinational company. He has received the following salary and other perquisitesduring the year ended on June 30, 2000:


The employer provided him a 1300 c.c. car for office/personal use and medical facility worth Rs.25,000 during theyear.

Compute the total income of Mr Amir Ali and tax payable thereon.

Solution of Q. NO.7 Autumn 2001:

Name of Taxpayer : Mr. Amir AliNational Tax Number : Income year ended : 30th June, 2016Tax Year : 2016Personal Status : IndividualResidential Status : Resident


Basic salary (35,000 p.m.) 420,000 Bonus 180,000 House allowances (18,000 p.m) 216,000 Utilities allowance (50,000 p.a) 50,000 1300 cc car for office / personal use ( Value assumed Rs.1,000,000 hence 5% of the 50,000 said cost shall be included in salary income) - Medical facility ( Assumed it is in accordance with terms of employment.)Medical facility ( Assumed it is in accordance with terms of employment.)Taxable salary income 916,000


Tax on Rs. 916,000 [14,500 + 10% x (916,000 - 750,000)] 31,100

Q. NO.8 Autumn 2001

Tariq

(a) Income accrued abroad but not remitted to Pakistan. 72,000

T and H Enterprises is a registered firm comprising of two equal partners named Tariq and Hamid. During the year endedon 30th June 2001 the partners besides their shares in the firm enjoyed income and sustained losses from the sourcesgiven below:



(b) Shares of loss from an association of persons 5,000(c) Zakat paid 26,500

Hamid(a) Speculation loss 25,000(b) Profit on sale of car 13,000(c) Income tax refund 5,000(d) Zakat paid 14,000

The profit and loss account of the registered firm for the year ended on 30th June, 2001, shows the followingposition:

Rs. Rs.Salaries 300,000 Gross profit b/d 480,000Office maintenance 5,000 Dividend from

Public Co. 250,000Repairs 38,000Provision for bad debts 14,000Super tax paid for last year 5,000Legal expenses 15,000


Legal expenses 15,000Commission to Tariq 16,000Premium of life policies ofPartners 5,000Depreciation 34,000Net profit:Tariq 149,000Hamid 149,000 298,000

730,000 730,000

Notes:(i) Tariq and Hamid are paid Rs.45,000 and Rs.55,000 respectively as salary. This is included in total salary expense.ii) Repairs includes Rs.18,000 being cost of a typewriter to be depreciated by 10%.(iii) Legal expenses include Rs.6,000, on which tax is deductible.(iv) Tax Depreciation excluding typewriter Rs.14,000.

Compute: (a) the total income of the firm and taxes payable by it. (b) the total income of each partner and tax thereon.

Solution of Q. NO.8 Autumn 2001:

Name of Taxpayer : T and H CompanyNational Tax Number : Income year ended : 30th June, 2016Tax Year : 2016Personal Status : Company

INCOME FROM BUSINESS U/S 18 Rs. Rs.

Net profit as per profit and loss Account 298,000 Add: Inadmissible deductions Salaries to partners (45,000+55,000) 100,000 Cost of typewritter 18,000 Provision for bad debts 14,000 Super tax paid for last year 5,000 Commission to Tariq 16,000 Premium on life policy of partners 5,000



Accounting depreciation 34,000 192,000 490,000

Less: Admissible expenses Dividend received (N - 1) 250,000 Tax depreciation (N - 2) 15,800 (265,800)

224,200 COMPUTATION OF TAX LIABILITY:(a) Tax on taxable income of Rs.224,200 @ 0% - Divisible income after tax 224,200

Partners share of profit from AOP T H TotalSalary 45,000 55,000 100,000 Commission 16,000 - 16,000 Life insurance premium 2,500 2,500 5,000 Share of profit on Equal proportion 51,600 51,600 103,200

115,100 109,100 224,200

TariqTotal income from foreign source 72,000 -


Total income from foreign source 72,000 - Less: Zakat (26,500) - Taxable income 45,500 - Add: Share of profit from AOP 115,100 - Taxable income for rate purposes 160,600 -

Computation of tax liability:Income is below the taxable limit, so no tax shall be charged.

HamidHe has a speculation loss which is set off only against speculation profit. So nothing shall be included from sharefrom AOP.

NOTESN-1 Dividend covered under FTR, so not included in taxable income.

N-2 Tax depreciation excluding depreciation of typewritter 14,000 Add: depreciation on typewritter @ 10% 1,800

15,800


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