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The Institute of Chartered Accountants of Pakistan

Foundation/Modular Examinations Autumn 2001

September 04, 2001

TAXATION (MARKS 100)

FE-2 (Paper-3)/Module C, SM 1, 5, 7 & 9 (3 hours)

Q.1 Define and explain the following with reference to the Income Tax Ordinance, 1979:

(a) Assessment Year (03)(b) Special Income Year (02)(c) Resident (03)

(d) Tax (02)

(e) Average rate of tax (02)

Q.2 Discuss briefly the legal position with respect to the admissibility or otherwise of thefollowing as business expenditure under the Income Tax Ordinance, 1979:

(a) Amount paid as income tax. (02)(b) Capital expenditure incurred on scientific research in Pakistan. (02)

(c) Share of profit paid to a bank under a scheme of musharika. (02)(d) Interest paid by a firm to a partner of the firm. (02)(e) Salary paid otherwise through a crossed bank cheque etc. not

exceeding five thousand rupees. (02)

Q.3 In the light of provisions of Income Tax Ordinance 1979, who is liable to discharge the taxliability of a deceased person, and to what extent? (06)

Q.4 Your client A bank has received a notice under Section 92 of the Income Tax Ordinance,1979 for the recovery of tax from one of their account holder. Please advise your client on

its obligations. (12)

Q.5 Can the income tax be recovered from a director or shareholder of a a private company

whose liability is limited to the extent of amount paid on shares subscribed by him. (05)

Q.6 Describe briefly the provisions relating to re-opening of a completed assessment, includingperiod of limitation, if any? (10)

Q.7 Mr Amir Ali is manager finance in a multinational company. He has received the followingsalary and other perquisites during the year ended on June 30, 2000:

Basic salary Rs. 35,000 p.m.Bonus 180,000House allowances 18,000 p.m

Utilities allowance 50,000 p.a.

The employer provided him a 1300 c.c. car for office/personal use and medical facilityworth Rs.25,000 during the year.

Compute the total income of Mr Amir Ali and tax payable thereon. (10)

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(2)

Q.8 T & H Enterprises is a registered firm comprising of two equal partners named Tariq andHamid. During the year ended on 30th June 2001 the partners besides their shares in thefirm enjoyed income and sustained losses from the sources given below:

Tariq

(a) Income accrued abroad but not remitted to Pakistan. Rs.72,000

(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 5,000z(d) Zakat paid 14,000

The profit and loss account of the registered firm for the year ended on 30th June, 2001,

shows the following position:Rs. Rs.

Salaries 300,000 Gross profit b/d 480,000

Office maintenance 5,000 Dividend from Public Co. 250,000Repairs 38,000

Provision for bad debts 14,000Super tax paid for last year 5,000Legal expenses 15,000

Commission to Tariq 16,000Premium of life policies of

Partners 5,000Depreciation 34,000Net profit:

Tariq 149,000Hamid 149,000 298,000

730,000 730,000Notes(i) Tariq & 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, which are not tax 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. (20)

Q.9 a) A person and his spouse are wealth tax assessees. A minor son of them also owns

a property. State whether the same is taxable and if yes, how? (05)

b) An individual has transferred its property for an inadequate consideration for hisbenefit. Describe the consequences of the same under the Wealth Tax Act. (05)

c) A non-resident person has obtained funds from a Pakistani bank and purchased aproperty outside Pakistan with that funds. Describe the impact of assets held abroad

and admissibility of debt incurred in Pakistan for the purposes of determination ofhis net wealth. (05)

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THEINSTITUTE OF CHARTEREDACCOUNTANTS OF PAKISTAN

Foundation/Modular Foundation Examinations Spring 2002

March 5, 2002


FE-2 Paper 3 Modular C8 (Module : C, SM 1, 5, 7 & 9) (3 hours)

Q.1 Define the following with reference to the Income Tax Ordinance 1979 :

a) Assesseeb) Capital assetc) Dividend

d) Public Company (08)

Q.2 State the classes of income tax authorities under the Income Tax Ordinance, 1979. (05)

Q.3 Briefly explain the provisions of Income Tax Ordinance regarding the claim of :

a) rebate for legal and educational expenditure incurred during the income yearby an assessee.

b) allowance for sum expended by an assessee on the purchase of books. (06)

Q.4 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 (91) of the Second Schedule. This

car was purchased by Mr. Ashraf four years ago at the cost of Rs. 80,000.The fair market value is Rs.60,000

c) Medicines to a private hospital purchased at the total cost of Rs. 10,000.

Please advice Mr. Ashraf regarding the allowance for donation which may be claimedby him keeping in view the requirement of Section 47 of the Income Tax Ordinance 1979if his income for the relevant income year has been assessed at Rs. 800,000. (08)

Q.5 Explain whether the following are admissible as business expenditure under theIncome Tax Ordinance 1979 :a) Repayment of principal amount of lease rentals of plant & machinery.b) Sales tax paid on the purchase of raw material to be used in the production of

exempt supply.c) Dividend

d) Provision in respect of doubtful debts.e) Penalty levied under Section 108 of the Income Tax Ordinance, 1979 for failure

to file statement under Section 139. (10)

Q.6 Mr. Javaid, Managing Director of a multi national Company has submitted the

following data for the income year ending 30 June 2001:

Basic Salary Rs. 130,500 p.m

Bonus 325,500House rent allowance 43,500 p.m

Utilities 13 050 p m

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(2)

Mr. Javaid has been provided with free use of a Company maintained car of 1,600 C.C In accordance with the 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 foreigntour three years also.

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. (10)

Q.7 What are the requirements for advance payment of tax by an individual under theIncome Tax Ordinance 1979? (05)

Q.8 (a) What are the consequences for non-payment or short payment of advance tax? (05)

(b) What powers are provided in the Income Tax Ordinance 1979 for recovery of taxif an assessee fails to voluntarily pay the assessed tax liability ? (04)

Q.9 You have received a letter from Mr.Zubair Ansari who is seeking your advise regardingThe mode and procedure of filing an appeal under the Income Tax Ordinance 1979.

Please draft a suitable reply briefly describing the appellate procedure and incorporatethe following chart in your reply. (12)

Name ofAppellate

Authority

Authoritywhose

order maybe

appealedagainst

Filingfee

Limitation periodfor filing appeal

Decision inappeal

Limitationperiod for

decision

Q.10 For assessees enjoying resident status, presumptive tax regime is applicable only on

those earning business income. Comment (07)

Q.11 Explain the term " time of supply" with reference to the Sales Tax Act 1990. (03)

Q.12 Mr. Omar has recently registered himself under the Sales Tax Act 1990. He has writtena letter enquiring the following in the light of the Sales Tax Act, 1990

* whether taxable supplies can be sold at discounted price* whether sales tax is payable on discounted price or normal price

* whether discounts can be given at varying rates

Please draft a suitable reply. (10)

Q.13 Explain the incidence of Sales Tax, if any, for exporters? (07)

(THE END)

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THEINSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

Foundation/Modular Intermediate Examinations Autumn 2002

September 03, 2002


FE-2 Paper 3 Module C Paper C8 (3 hours)

Q.1 (a) Under what circumstances Advance or Loan to a shareholder by a private companywould be treated as dividend with reference to the provision of the Income Tax

Ordinance, 1979. (03)(b) Rose Company Ltd. has a paid up capital of Rs.5,000,000 consisting 500,000 shares

of Rs.10 each. On 30.6.2001 the companys balance sheet shows accumulated

profits of Rs.1,500,000. Last year the company also created a reserve of

Rs.1,000,000 for issue of Bonus shares. The company has to be liquidated. Theofficial liquidator realized Rs.6,500,000 and distribution among the shareholderswas made at the rate of Rs.13 per share. Shewani Group owns 200,000 shares in thecompany.

How much of the amount received by Shewani Group is dividend? Please explainyour answer. (04)

(c) Please define the terms Co-operative Society and Finance Society withreference to the Income Tax Ordinance, 1979 and compare the same. (03)

Q.2 (a) What is binding on all authorities to follow for the purpose of administration of law

of Income Tax under the Income Tax Ordinance 1979? (02)(b) What is specifically prohibited for CBR when issuing its orders,

instructions for its subordinate officers? (03)

Q.3 (a) What is chargeable to tax under the head income from house property? (01)(b) Elaborate the terms house property and annual value. (04)

(c) What is the rationale for allowing vacancy allowance? (02)(d) What are the rules prescribed for the allowability of unrealized rent? (03)

Q.4 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 (agreementswith tenants provide that tenants should

pay the taxes, cost to be allocatedproportionately) 100,000

General and administration expenses 200,000

Rent received includes Rs. 600,000 for three years commencing from July 01 of the currentyear. ABC Associates follow accrual basis of accounting and its income year is July-June

2002.

Required: Please compute the income of ABC Associates under the head income from

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(2)

Q.5 Dreamland (Pvt) Ltd. has requested you to advice as regards the important aspects of lawfor disallowance of expenses incurred in cash[u/s 24ff] and excess perquisites[u/s 24(i)].Please write an advisory letter in this regard explaining the law with suitable examples.

(10)

Q.6 Please write a brief note about the adjustment of loss incurred under any

head of income in the current year. (03)

Q.7 (a) Elaborate the provision of Section 50(1) relating to withholding of tax on

Salary. (03)(b) Unique Ltd. has following salary related data for the period July 1, 2001 to

June 30, 2002 of its three employees.S G O

-- ----------Rupees--------------

(Salary and allowances per month)Basic salary 37,500 23,000 6,000

House rent allowance 16,875 10,350 2,700

Conveyance allowance - 2,300 300Utility allowance 4,000 2,500 1,000

Recovery 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 bothfor private and business purpose.

ii. G owns his conveyance and also incurs its running and maintenancecost. 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 Income TaxOrdinance read with the Income Tax Rules, 1982 (16)

Q.8 Explain whether income tax authorities can rectify their orders, if so, under whatcircumstances and is there any limitation of time for doing so? (04)

Q.9 How would you make deduction of tax at source on payment of dividend to-

o A resident individualo Public company listed in Pakistano A non resident individual

o A non resident company (04)

Q.10 Explain the law applicable in special case for recovery of income tax

from a defaulted partner of a firm. (04)

Q.11 Elaborate the term input tax as defined in the Sales Tax Act,1990 (05)

Q.12 (a) What is the significance of Third Schedule to the Sales Tax Act? (03)(b) Define Retail Price in the context of Third Schedule of the Sales Tax Act (02)(c) Whether trade discount allowed on products covered under the Third Schedule will

affect sales tax levied on such products. Give reasons in support of your answer(03)

Q.13 The finance manager of ABC Ltd requests for an advice on Tax Invoice, please draft a

suitable reply in the light of Sales Tax Act, 1990. (08)

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Modular Intermediate/Old Foundation Examinations Spring 2003

March 04, 2003


Module C Paper C8/FE-2 Paper 3 (3 hours)

Q.1 Define the following:

(a) Person

(b) Resident company

(c) Tax Year

(d) Intangibles (08)

Q.2 Explain the provisions relating to payment of advance tax by an individual. (06)

Q.3 (a) Who is required to furnish a return under the Income Tax Ordinance, 2001. (05)

(b) Can the commissioner order a person to file a return of Income. Pleaseexplain.

(05)

Q.4 (a) Mercury & Co. has provided you the following data:

Fair value of leased asset Rs. 225,000

Interest rate 20.5%Security Deposit paid 10% of fair valueDepreciation of leased asset 33% per annumTerm of lease 3 years

Yearly rental in arrears Rs. 96,890

Required:

You are required to compute the amount available for deduction from the

taxable income of Mercury & Co for each year. Please show proper working.

(05)

(b) Sun & Moon have recently registered as partnership. They have incurred thefollowing 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 in accordance with the provisions of Income TaxOrdinance 2001 (05)

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(2)

Q.5 Mr Amir-ud-din has recently constructed an office complex for the purposes ofletting out. The office complex is also equipped with its own electric generators forwhich tenants are separately charged on a monthly basis. As per terms and

conditions, Mr Amir-ud-din is also entitled to signing amount, which is non-refundable. For the tax year 2003 following information has been provided to you

for the computation of his income from property and tax liability thereon:

Rupees

Rent for the year already received 1,150,000Rent for the year though due but irrecoverable 50,000

Signing amount (non-adjustable non-refundable) 100,000Fire and water tax paid to the local authority 20,000Lawyers fee for suit to recover rent 50,000

Lawyers fee for drafting master rent agreement 10,000Salary of the caretaker who also collects monthly rent 36,000

Insurance premium being one per cent of market value of the property 200,000Repair maintenance expenditure 50,000 (10)

Q.6 (a) Briefly explain the salient features of deduction/collection of income tax atsource on the following:

Payment of dividend to a corporate shareholder

Payment of rent

Imports (06)

(b) What method of accounting is required to be employed by a company derivingincome from business. (02)

(c) Briefly state the provisions relating to the change in the method of accounting

of income from business. (03)

Q.7 Mr. Mushtaq has provided you with the following data for the computation of his

total income and tax thereon for the tax year 2003.Rupees

Basic salary 225,000

Bonus 50,000Conveyance allowance 50,000

House rent allowance 101,250Leave fare assistance 60,000

Cash paid to a non profit organization by way of donation Rs. 20,000.Motor vehicle provided by employer and used partly for personal and partly for

business purpose. Running cost borne by employee Rs. 30,000During the year Mr. Mushtaq was issued 5,000 shares under an employee share

option scheme whereby he was offered shares at 25% discount to the market value.

The market value of shares is Rs.11 per share.House loan taken by Mr. Mushtaq Rs.200,000. Interest paid on such loan during the

year amounted to Rs.6,000.

Required:

You are required to compute his taxable income and tax thereon. Show all

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(3)

Q.8 What is meant by the term amendment of assessments as laid down in Section

122 of the Income Tax Ordinance, 2001. (10)

Q.9 Star Enterprises has submitted the following data for the month of March 2003

Rupees

Total Sales-registered 1,000,000Total Sales-Unregistered 5,000,000

Export Sales 2,500,000Exempt Supplies 500,000

Gross Purchases-from Registered suppliers 6,500,000Gross Purchases-from Unregistered suppliers 500,000Purchase Return-to Registered suppliers 650,000

Required:

You are required to compute the sales tax liability of Star Enterprises for the monthof March 2003. Show proper workings. (10)

Q.10 Explain the term Manufacture as used in the Sales Tax Act 1990. (03)

Q.11 (a) Distinguish between the concept of zero-rating and exemption under theSales Tax Act, 1990. (05)

(b) What are the minimum information required to be given on Sales Tax invoice. (05)

(THE END)

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Intermediate Examinations Autumn 2003

September 02, 2003


Module C (3 hours)

Q.1 Define the following terms in the light of Income Tax Ordinance, 2001?

(a) Profit on Debt. (03)

(b) Income. (03)(c) Public Company. (03)

Q.2 Mr. Bashir Ahmed is an employee who had joined his current employment duringthe tax year 2003. His details of salary, allowance and perquisites received from

company A his previous employer and company B his present employer are asfollows :

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 employerpartly used for business and private use

- Cost of the carpurchased by the

companyRs.1,100,000

Leave encashment 77,783 NIL

Medical reimbursement as per the termsof employment

35,000 25,000

Ex-gratia payment received underGolden 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 1,545,850 371,2552002-2003 2 264 940 557 633

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(2)

During the year Company A had deducted tax under section 149 amounting toRs.270,000 and Company B had deducted tax under section 149 amounting toRs.800,000 from payments made to Mr. Bashir.

Required:

Compute the taxable income and tax liability of Mr. Bashir based on the data

provided above for the tax year 2003. (14)

Q.3 (a) Describe the method of accounting to be adopted by a person derivingbusiness income from a Long Term Contract? (04)

(b) Briefly explain the law relating to set-off and carry forward of losses? (07)

Q.4 Compute the projected advance tax liability and net advance tax payable inrespect of ABC Limited a public company, for the quarter ended September

30, 2003.

The data of turnover and tax liability assessed in respect of the latest

assessed tax year is as follows:

Rs.(i) Gross sales (including sale of imported goods and export

sales) 20,000,000

Sales of imported goods 2,000,000

Export sales 3,000,000Agency commission 1,000,000Sale of fixed assets 200,000

Dividend income 1,000,000Miscellaneous income 1,500,000

(ii) Gross Tax Liability 1,200,000Tax on export sales 30,000

Tax on Import of goods 108,000Tax on dividend income 50,000

The projected turnover and taxes expected to be withheld at source are asfollows:-

All figures are for the quarter ended September 30, 2003

(i) Gross sales 5,000,000Sale of imported goods 500,000

Export sales 1,000,000Dividend income Nil

Miscellaneous income 500,000

(ii) Tax collection/deduction:

- Under section 148 on goods imported for sale- Under section 153 on sale of imported goods

- Under section 154 on export sale

24,00095,000

10,000(10)

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(3)

Q.5 List down the taxes deducted/collected at source which are treated as full and finaldischarge of tax liability? (07)

Q.6 (a) Under what circumstances a resident individual is entitled to claim exemptionfrom tax on his foreign source salary, and when is the foreign tax treated as

having been paid? (04)

(b) Explain the basis on which a foreign tax credit would be allowed to a residenttax payer in respect of foreign tax paid on foreign source income. (04)

Q.7 Briefly state the time frame for filing the return of income by

(a) a company;(b) persons other than a company. (05)

Q.8 Briefly explain the requirements of payment of tax viz-a-viz filing an appeal beforethe Commissioner of Income-tax(Appeals)? (05)

Q.9 Briefly describe the minimum books of accounts, documents, and records that arerequired to be maintained by the following taxpayers?

(a) Taxpayer (other than a company) deriving business income upto Rs.200,000. (04)

(b) Taxpayer (other than a company) deriving business income exceedingRs.200,000. (04)

Q.10 Define the following terms in the light of Sales Tax Act, 1990.

(a) Manufacture or produce. (03)(b) Supply. (03)(c) Taxable activity. (03)

Q.11 Who are the persons liable to Turnover Tax and at what rate is the turnover tax

payable? Are there any exceptions. (09)

Q.12 List down the records that are required to be maintained by a person registered

under the Sales Tax Act, 1990 and for what period the records are to bemaintained? (05)

(THE END)

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THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

Intermediate Examinations Spring 2004

March 06, 2004

TAXATION (MARKS 100)Module C (3 hours)

Q.1 Define the following terms in the light of Income Tax Ordinance, 2001?

(a) Employment (03)

(b) Finance society (02)(c) Pre-commencement expenditure (03)

(d) Unit trust (02)

Q.2 Mr. A is an employee of a multinational company incorporated in Pakistan.

His remuneration during the year was as follows -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

The Company has provided him a car for personal and business use. The costof the car was Rs.1,100,000.

During the year Mr. A has paid interest on loan borrowed for construction of

a house amounting to Rs.115,000.

In addition to the above, Mr. A was granted Stock Option of 2500 shares by

the Head Office of the Company at US$ 36 per shares. Out of the abovestock option, 1250 shares vested to him during the year were immediately

exercised by him. The price of the share at the time of exercise was US$ 41per share. The exchange rate between US$ and Pak Rupee on the date onwhich Mr. A exercised his option was US$ 1 = Rs.58.

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. (14)

Q.3 You being tax consultant of ABC Company, a partnership firm, has been informedthat an order of assessment has been served on the firm under section 122 of theOrdinance on December 27, 2003 for the tax year 2003. The order is accompanied by

notice showing income tax payable of Rs. 10 million. The firms liability as perreturn of income was Rs. 15 million whereas tax assessed in the previous assessment

was Rs. 18.7 million.

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(2)

You are required to advise your client on the time by which the demand shown in thenotice is payable, the time by which the appellate authority may be approached and

the mandatory payment required for filing appeal. You are also required to advise onhow the client could extend the date of payment of demand shown in the notice. (10)

Q.4 (a) Briefly explain when the expenditure is considered as incurred with reference toaccrual basis of accounting defined in the Income Tax Ordinance, 2001. (03)

(b) Please mention the costing method(s) and stock valuation method(s) to beapplied by a person following accrual basis of accounting to account for income

chargeable to tax under the head income from business under the Ordinance. (03)

(c) Please mention the period for which advance tax is payable and the dates bywhich such advance tax is payable. (03)

(d) What would be the withholding tax rate on the payment of Rs. 50 million by acompany to a resident person for the execution of a turnkey contract. Please

also explain the taxability of income from such turnkey contract in the hands ofresident person. (03)

Q.5 Describe the provision relating to income splitting with reference to transfer ofassets between individual persons. (10)

Q.6 Mr. A and B are equal partners of a Registered Firm (RF). The profit and lossaccount 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 isliable to 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 no other source of income. Alsogive brief explanation of the treatment made in the computation. (05)

Q.7 (a) Please discuss the parameters of audit of income tax affairs of any person givenin the Income Tax Ordinance, 2001. (05)

(b) For how many years the tax payer is required to maintain accounts and

documents under the relevant provision of the Income Tax Ordinance, 2001. (02)

Q.8 Describe the requirements of Income Tax Ordinance, 2001 for persons who are about

to discontinue his business. (05)

Q.9 Define the following in the light of Sales Tax Act, 1990:

(a) Defaulter (02)

(b) Due Date (02)

(c) Similar supply (02)

(d) Retail price (02)

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(3)

Q.10 (a) Following is the pertinent data relating to sales tax return of the company:

Output tax

Input tax

claimable

Tax at

the rate

of 15%

Further tax at the

rate of 3% u/s 3(IA)

Rupees Rupees Rupees

July 2003 1,050,000 1,210,000 310,000

August 2003 1,450,000 1,175,750 150,000

September 2003 1,130,000 1,375,000 225,000

October 2003 1,200,100 1,300,750 175,050

November 2003 1,050,000 1,250,700 210,000

You are required to compute the sales tax payable alongwith the monthly

sales tax return for the tax period July 2003, August 2003 andSeptember 2003 with brief explanatory notes, where relevant. (05)

(b) With reference to data in (a) above, assuming that on October 20, 2003 it wasfound that input tax claim relating to tax period July 2003 amounting to Rs.

50,000 was inadvertently not claimed in the sales tax return filed for thatperiod. On November 10, 2003, it was also found out that there was anotherinput tax claim relating to tax period September 2003 amounting to Rs.

25,000 which was not claimed in the monthly return filed for that period.

You are required to advise as to whether such unclaimed amounts could beclaimed under the Sales Tax Act, 1990. If your answer is in affirmative, thenbriefly explain the procedure for claiming such amounts. (06)

(c) With reference to data (a) above, [and disregarding the errors given in (b)

above], assuming that in the month of November 2003, it was found thatoutput tax of Rs. 1,300,750 shown in the monthly return for tax periodOctober 2003 was infact Rs. 1,350,750 i.e. short declared by Rs. 50,000.

You are required to briefly explain the remedy, if any, available in the Sales

Tax Act, 1990 to account for this error. (04)

Q.11 Briefly explain the uses of debit and credit notes under the Sales Tax Act. 1990 (04)

(THE END)

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September 07, 2004

TAXATION (MARKS 100)MODULE C (3 hours)

Q.1 Define the following with reference to the Income Tax Ordinance, 2001?

(a) Fee for technical services (03)

(b) Non-profit organization (03)(c) Income (03)

(d) Taxpayer (02)

Q.2 Describe the common rules for treating the following under the Income TaxOrdinance, 2001?

(a) Receipt of income. (04)(b) Currency conversion. (04)

Q.3 (a) List down the assets on which Initial allowance can not be claimed? (04)

(b) What are the prescribed rates of normal depreciation on the following assets as

per the Third Schedule to the Income Tax Ordinance, 2001?

i) Factory building.

ii) Residential quarter for labour.iii) Furniture.

iv) Plant and machinery.

v) Computer and hardware.vi) Technical books.

vii) New ships.viii) Motor vehicle. (04)

Q.4 Describe the expenses which are allowable as a deduction on account of employeestraining and facilities? (04)

Q.5 Discuss the conditions required to be fulfilled for claiming a deduction on account

of bad-debts? (03)

Q.6 Describe the principles of taxation for an Association of Person? (06)

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(2)

Q.7 Describe the circumstances under which the following shall be treated as residentfor the purposes of charge of tax?

(a) An individual. (02)(b) A company. (03)

(c) An association of person. (01)

Q.8 Describe the provisions relating to set-off and carry forward of foreign losses underthe Income Tax Ordinance, 2001? (03)

Q.9 (a) Briefly state the time limit within which the Commissioner of Income-tax ispermitted to further amend an assessment? (02)

(b) Briefly state the time limit within which the Commissioner of Income-tax is

required to pass an order to give effect to the finding or directions of theCommissioner of Income-tax (Appeals)? (02)

Q.10 Briefly state the time limit for filing an Appeal/Reference before the following

forums?

(a) The Commissioner of Income-tax (Appeals). (01)

(b) Income Tax Appellate Tribunal (01)(c) Reference to the High Court. (01)

Q.11 Define the following with reference to the Sales Tax Act, 1990?

(a) Distributor (02)(b) Input-tax (04)

(c) Manufacture (04)(d) Similar supply. (02)

Q.12 Discuss the treatment provided under the Sales Tax Act, 1990 in respect of any

excess tax collected from the customer. (03)

Q.13 Describe the category of goods on which sales tax is chargeable at Zero rate? (03)

Q.14 (a) Discuss the salient features of a tax invoice? (05)(b) Who is permitted to issue a tax invoice? (02)

(c) State the period for which a person is required to maintain records for thepurpose of sales tax. (02)

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(3)

Q.15 Mr. A is the Chief Executive of a multinational company. Details of his emolumentsare as follows:

Rs.

(a) Basic salary 4,004,520(b) Bonus 1,980,642

(c) Utility allowance 400,452(d) Leave encashment 538,083(e) Other allowance 90,000

(f) House rent allowance 1,802,040

Apart from the above he has received Directors Fee amounting to Rs. 52,000During the year he has sold shares that were 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.

He also owns a property which has been let out on rent. The details of rent receivedand expenses incurred are as follows:

(a) Rent Rs.10,000 per month. The property was let out on rent for the wholeyear. The annual letting 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 (17)

(THE END)

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March 08, 2005


Q.1 Define the following with reference to the Income Tax Ordinance, 2001:

(a) Employer, employee and employment. (05)

(b) Principal Officer. (02)(c) Profit on debt. (04)

Q.2 Discuss the common rules with regard to the following under the Income TaxOrdinance, 2001:

(a) Fair Market Value. (03)

(b) Income of joint owners. (02)(c) Non-arms length transactions of disposal of assets. (02)

Q.3 Describe any five types of expenses that are not allowed to be deducted under thehead income from business. (05)

Q.4 (a) Describe the assets that are not eligible for the purpose of claiming initialdepreciation allowance. (04)

(b) Discuss which assets are not considered capital assets for the purpose ofdetermining income under the head Capital Gains. (05)

Q.5 One of your clients, a professional firm prohibited under the law to incorporate,

approached you to seek clarification on certain tax matters. You are required toexplain the following issues to them in the light of the provisions of section 93:

(a) Determination of members share in the total income of the firm. (03)(b) Treatment of loss sustained by the firm, which could not be set-off against its

other income. (03)

Q.6 Briefly discuss the time limit for claiming group relief by a holding company in

respect of loss surrendered by a subsidiary company? What conditions need to befulfilled in this regard? (04)

Q.7 Discuss under what circumstances an expenditure incurred by a person are required

to be apportioned for the purpose of claiming a deduction under the Income TaxOrdinance, 2001? (04)

Q.8 What is the status of a complete return of income filed under the Income TaxOrdinance, 2001? (05)

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(2)

Q.9 Define the following with reference to the Sales Tax Act, 1990:-

(a) Associated person. (03)

(b) Manufacturer or producer. (05)(c) Taxable supply. (02)

Q.10 What impact would a change in rate of Sales-tax have in case of:

(a) Supply of goods. (01)(b) Import of goods. (04)

Q.11 What are the precondition of claiming input tax against output tax by a registeredperson? (03)

Q.12 State under what circumstances the Collector of Sales-tax is empowered to black

list a registered person? (02)

Q.13 Define value of supply under the Sales Tax Act. 1990 for the following situations:

(a) Consideration for a taxable supply is partly in kind and partly in money. (03)

(b) Trade discounts. (02)

Q.14 Who is required to file a final return under the Sales Tax Act, 1990? When is it

required to be filed? (02)

Q.15 Mr B is the Chief Executive of a Multinational Company. Details of his

emoluments are as follows:Rupees

(a) Basic Salary 8,800,000(b) Bonus 5,000,000(c) Utility allowance 880,000

(d) 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 2100sq. yds.

(ii) Motor vehicle for both private and official use, cost of acquisition of whichwas Rs.2,000,000.

(iii) Children education fees for the year Rs.105,000.

(iv) House servant salaries for the year Rs.230,000.

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

Mr. B also owns a property which was let out on rent for a part of the year detailsof income and expenses incurred are as follows:

(a) Rent Rs.50,000 per month.(b) Th l f D b 2 2003 J 2004

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(3)

The Bank account of Mr. B was credited with profit during the year amounting to

Rs.6,300.

During the year the following amounts were withheld at source as Income Tax:

Rupees(a) From salary income 4,541,250

(b) Tax paid by the employer 446,820(c) From profit on bank account 630(d) 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.

Chart of prescribed addition on account of unfurnished accommodations as per

Rule 9 of the Income Tax Rules, 2002.

Accommodation or housing Value for areas fallingwithin the limits ofMetropolitan Corporation,

Municipal Corporation,Cantonment Board or theIslamabad Capital Territory.

Value forother areas.

With land area upto 250 sq. yards. Rs.40,000 Rs.27,000

With land areas exceeding 250 sq.

yards but not exceeding 500 sq. yards.

Rs.106,000 Rs.66,000

With land area exceeding 500 sq.yards but not exceeding 1000 sq.

yards.

Rs.199,000 Rs.106,000

With land area exceeding 1000 sq.yards but not exceeding 2000 sq.

yards.

Rs.370,000 Rs.198,000

With land area exceeding 2000 sq.yards.

Rs. 462,000 Rs.264,000(22)

(THE END)

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September 06, 2005


Q.1 Define the following with reference to the Income Tax Ordinance 2001:

(a) Small Company (02)(b) Public Company (03)(c) Association of Persons (02)(d) Income (02)(e) Taxpayer (02)

Q.2 Mr. Imran is a citizen of Pakistan. During the first nine months of the tax year 2005,he worked as financial controller of a Pakistan based subsidiary of a multinationalgroup. After that he was transferred and employed as Head of Finance of the UAE

based subsidiary of the Group. Mr. Imrans family stayed in Dubai throughout theyear. The detail of income earned by him during the tax year 2005 is given below:

From the UAE company

Mr. Imran earned US $ 30,000 during the three-months employment in the UAE.No tax is deducted from salary earned and paid in the UAE.

To relocate Mr. Imran in UAE, the UAE Company incurred one time miscellaneouscost of Rs. 100,000 to move the household items of Mr. Imran from Pakistan toDubai.

From Pakistan subsidiary

(a) Basic salary Rs. 500,000 p.m.

(b) Medical allowance Rs. 45,000 p.m (no free medical or hospitalization facilityis given to Mr. Imran under the terms of employment).

(c) The company has provided Mr. Imran a TV and VCR costing Rs. 40,000 onwhich the company charges depreciation at the rate of 20% in its books ofaccounts.

(d) Company has provided interest free loan to Mr. Imran amounting toRs. 5 million which remained outstanding throughout his employment with thecompany. Mr. Imran acquired a flat from the amount of loan and rented it outat the rate of Rs. 50,000 p.m for a period of seven months. He also paidRs. 35,000 as property tax during the period.

(e) His familys housing cost in Dubai, borne by the company amounts toRs. 30,000 p.m.

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(2)

(f) Mr. Imrans travelling and related cost borne by the Pakistan subsidiary tomeet his family, amounts to Rs. 30,000 p.m.

(g) During the employment with the Pakistan subsidiary, Mr. Imran had exercisedoption to acquire 300 shares of the parent company at the rate of US $ 8 pershare. At the time when the option was exercised, the value of the share wasUS $ 10 (Rs. 580) 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 norMr. Imran incurred any cost in this regard.

Required:

Compute the taxable income of Mr. Imran for the tax year 2005 based on the dataprovided above. (16)

Q.3 What is understood by the term, own estimate in the context of quarterly advancetax payment by an assessee. Explain the implications of an incorrect estimate by the

assessee. (05)Q.4 How will the tax be recovered if a private limited company fails to pay tax at the

time of winding up. (04)Q.5 Describe the relevant provisions of the Income Tax Ordinance 2001 to determine

the residential status of a Person. (07)

Q.6 Mr. Irfan intends to make a donation of Rs. 5 million in cash to certain institutions.Advise Mr. Irfan, what tax benefits may be available to him and the conditionsapplicable thereon. (10)

Q.7 Under what conditions is it necessary for an individual to file a return of income. (06)Q.8 A nationalized bank after privatization has announced a Golden Hand Shake

Scheme for its employees under which lump sum payments are proposed to be madeto employees who opt for the scheme. Discuss the chargeability of above amounts inthe hands of employees. (04)

Q.9 Explain the provisions of the Income Tax Ordinance 2001 regarding the principles

of taxation of Association of Persons. (07)Q.10 In the monthly sales tax return filed under the Sales Tax Act, 1990, input tax paid

for the month is adjusted against output tax payable. You are requested to commenton the following issues relating to input / output adjustment:

(a) Can input tax paid in prior periods be claimed in a monthly tax return. (03)

(b) What would happen, if input tax paid exceeds output tax payable for themonth.

(02)

(c) What recourse is available if output tax for the month is inadvertently

disclosed at a lesser amount. (03)


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(3)

Q.11 (a) Identify the persons required to be registered under the Sales Tax Act 1990. (03)

(b) Under what circumstances is a registered person liable to be de-registered?Also explain the procedure for de-registration. (07)

(c) Explain the provisions relating to black listing and suspension of registration. (06)

Q.12 Following information is extracted from the records of M/s Rainbow Enterprises

(Private) Limited. The information pertains to the month of July 2005:

Rupees

Supplies to registered person 5,000,000 Supplies to unregistered person 1,500,000 Export Supplies 3,000,000 Purchase from registered suppliers 4,000,000 Purchase from unregistered suppliers 1,000,000 Sales of exempt goods 1,000,000 Examination of creditors ledger reveals that an amount of Rs.100,000 is still

outstanding on account of the purchase made from a registered supplier onJanuary 12, 2005. The input tax on the said purchase was accounted for inthe relevant tax period.

Goods purchased from unregistered suppliers are exclusively used formaking taxable supplies.

Required:

Determine the amount of sales tax liability. (06)

(THE END)


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March 07, 2006


Q.1 Ms. Fatima Hasan was working as a Marketing Head with Consumer Products

Limited (CPL) at following emoluments:

(i) Basic salary Rs. 100,000 per month(ii) House rent allowance Rs. 40,000 per month(iii) Utilities allowance Rs. 15,000 per monthIn addition to the above cash emoluments, she was provided with a Honda Civic car,

exclusively for official use. The cost of car to the Company was Rs. 1,000,000. Asper Companys policy, the car was sold to Fatima in January 2005 at the written

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 higher salary and some extra benefits, alongwith

a one time payment of Rs. 200,000 as an inducement to accept their offer. Fatima

accepted PILs offer by resigning from CPL with effect from June 1, 2005. She

joined PIL from July 1, 2005. The amount of Rs 200,000 was, however, paid to her

on June 29, 2005.

During the year, Fatima has also undertaken the following transactions:

(i) Shares in Queens Pakistan (Pvt.) Limited were sold for Rs. 500,000. Theseshares were acquired in the year 1999 at a cost of Rs. 200,000.

(ii) A residential plot inherited in the year 2000 was sold for Rs. 1,000,000. Thefair 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 under section 156.

(v) Dividend of Rs. 50,000 was received on account of shareholding in a listedCompany. Tax of Rs. 5,000 was deducted under section 150.

(vi) She received a fee of Rs. 100,000 in consideration for preparing a researchpaper 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.In the light of above information, compute the taxable income of Ms. Fatima for the

tax year 2005 by giving brief explanation for the items not included in the taxable

income. (15)

Q.2 Define the following with reference to the Income Tax Ordinance, 2001:

(a) Depreciable Assets(b) Turnover for the purpose of computing minimum tax liability (05)(05)


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(2)

Q.3 (a) Explain with reasons, as to whether or not the following expenses are

admissible business expenditures:

(i) Penalty paid by a banking company on contravention of StateBank of Pakistans regulations.

(ii) Freight charges to forwarding agent amounting to Rs 60,000 paid incash

(iii) Payment of salary to an employee from which tax was not deducted bythe employer. However, the employee paid the tax himself.

(iv) Tax deducted under section 153 from payments received by a residentperson on account of services rendered.

(01)

(01)

(01)

(01)

(b) What is the basis of stock-in-trade computation under the Income Tax

Ordinance, 2001 when the taxpayer follows the cash basis of accounting? (02)

(c) Explain the provisions of section 29 with regard to the recovery of bad debts

in subsequent years. (05)

Q.4 (a) Under the Income Tax Ordinance, 2001, tax imposed on non residents in

respect of their incomes from Fees for Technical Services and Royalty shall be

a final tax on the amount in respect of which the tax is imposed.

State under what circumstances, such incomes of a non resident are not

considered to be final tax liability. (04)

(b) Mr. Ali, a Pakistani Citizen, returned to Pakistan in November 2004 aftercompleting his employment contract in United Arab Emirates (UAE). He

worked till October 2004 in UAE where there was no tax on salaries. Mr. Ali

is in Pakistan since then and has been employed by a local company.

Explain the tax implication on Mr. Alis income, earned in UAE and Pakistan,

for the tax year 2005. (04)

Q.5 (a) One of your clients, Mr. Nadir who is the legal representative of his deceased

uncle Mr. Ather, has approached you seeking your views with regard to his

legal obligations under section 87 on the following matters:

(i) Taxation of income earned by Mr. Ather prior to his death and the extentof tax liability of Mr. Nadir in respect of such income.

(ii) Legality of the tax assessment proceedings pending against Mr. Ather atthe time of his death. (04)

(b) What are the circumstances in which two or more persons shall be considered

as associates under the Income Tax Ordinance, 2001? (08)

Q.6 Describe the circumstances under which the Commissioner of Income Tax isempowered to issue a notice requiring a person to furnish a return of income for a

period of less than twelve months. (04)


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(3)

Q.7 (a) Mr. Ahmed is a senior executive of a company and has opted for an

Employee Share Scheme, announced by the company. As per the scheme,

the shares are compulsorily retained in a Trust and time of free right to transfer

has not arrived. However, the shares have been issued and he enjoys all rights

of ownership. During the retention period, he has received dividends and

bonus shares.

Comment on the chargeability of income tax on dividends and bonus shares

received by him. (03)

(b) The records of Mr. A show the following results:

Particulars Rupees

Loss under the head income from other source after setting

off dividend income of Rs. 30,000 (20,000)

Income from speculation business 10,000

Capital gains on disposal of shares of private limitedcompanies 20,000

Loss from business of textiles after considering tax

depreciation of Rs. 290,000 410,000

You are required to work out the following:

(i) taxable income;(ii) tax liability; and(iii) amount of loss that can be:

adjusted against any other head of income; carried forward for a maximum of six years; carried forward for indefinite period. (06)

Q.8 What are the time limits prescribed by the Income Tax Ordinance 2001, within

which the Commissioner is required to pass an order to give effect to the decision of

Income Tax Appellate Tribunal under the following circumstances?

(a) The ITAT has set aside the assessment and order of the ITAT was received bythe Commissioner on November 30, 2004.

(b) The ITAT has deleted the additions made by the assessing officer and theorder of the ITAT was received by the Commissioner on December 15, 2004.

(03)

(03)

Q.9 List down the exports which are outside the purview of zero rating under section 4

of the Sales Tax Act, 1990. (03)

Q.10 Explain the provisions of section 26 of Sales Tax Act, 1990 with regard to the

following:

(a) Change in rate of tax during a tax period(b)

Voluntary revision of return(c) Revision of return during audit or after issuance of a show cause notice bythe department.

(02)

(04)

(04)


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(4)

Q.11 Which date shall be considered as the date of payment of sales tax in the following

cases:

(a) Payment through cash or cheque(b) Payment through pay order or bank draft (01)(02)

Q.12 With reference to Sales Tax Rules 2005 relating to the apportionment of input tax,

explain the following:

(a) Residual input tax(b) Manner of computation of residual input tax credit on taxable supplies(c) Concepts of provisional and final adjustment

(03)

(03)

(03)

(THE END)


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September 05, 2006


Q.1 (a) Describe the term rent in the context of income from property. (02)

(b) Through Finance Act, 2006 income from property has been subjected to final tax

regime. However, the provisions relating to taxability of income from property shall

not apply to taxpayers who meet certain conditions. State these conditions. (03)

(c) Specify under which head of income, following amounts of rent would be chargeable

to tax:

(i) Rent in respect of lease of a building together with plant and machinery.

(ii) Amount included in the rent of a building for the provision of amenities,

utilities or any other service connected with the renting of such building. (02)

Q.2 (a) Explain the different types of tax years as enumerated in the Income Tax Ordinance,

2001. (06)

(b) Mr. Dollar has been working as a senior engineer in a local company. The detail of

his monthly emoluments is as under:Rupees

Basic salary 100,000

Medical allowance 15,000

Utilities allowance 10,000

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 theemployer.

(ii) Rent free accommodation having monthly rent of Rs 20,000 or cash in lieuthereof. However he has opted to take rent free accommodation.

(iii) Special allowance of Rs 15,000 to meet traveling, boarding and lodgingexpenses 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. Extracts from the First Schedule to the Income Tax

Ordinance, 2001 are given below: (10)

Taxable Income (Rs.) Rate of Tax (%)

1,050,001 1,200,000 11.00

1,200,001 1,500,000 12.50

1,500,001 1,700,000 14.00

1,700,001 2,000,000 15.00

2,000,001 3,150,000 16.003,150,001 3,700,000 17.50


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(2)

Q.3 (a) Every tax payer, whose income was charged to tax for the latest tax year, is liable to

pay advance tax in accordance with the Income Tax Ordinance, 2001. You are

required to list down the incomes which are excluded for the purpose of calculating

advance tax. (07)

(b) One of your clients, Japan and Company, a partnership having three partners, has

sent you its financial statements for the year ended June 30, 2006. Following items

are appearing under the head Other income:

(i) Accounting profit on disposal of fixed assets.(ii) Reversal of provision for doubtful debts pertaining to the year ended June 30,

2004.

(iii) Dividend received from a listed company.(iv) Profit on debt.You are required to explain with reasons as to how the above items will be treated in

the computation of taxable income. (04)

(c) A taxpayer can be represented by an Authorized Representative in a proceeding

before any Income Tax Authority.

You are required to list down the persons who can act as an Authorized

Representative under the Income Tax Ordinance, 2001. (03)

Q.4 (a) A company may account for income chargeable to tax under the head income from

business on cash basis or on accrual basis.

Briefly discuss the rules relating to accrual of income and expenditure as explained

in the Income Tax Ordinance, 2001. (04)

(b) Describe the conditions mentioned in the Income Tax Ordinance, 2001 under which

a loan will be classified as a consumer loan. (04)

(c) Explain the relevant provisions of the Income Tax Ordinance, 2001 regarding

applicability of minimum tax. (05)

Q.5 (a) Any income arising from any asset transferred by a person to his spouse is to be

treated as income of the transferor. Describe the circumstances under which this rule

shall not be applicable. (03)

(b) A transfer deed has been executed by Mr. Euro in favour of Mr. Dirham. The deedcontains a clause under which the assets will be given back to Mr. Euro after three

years. Explain the tax obligation in respect of income generated by the transferred

assets during this period. (02)

(c) A literary work was completed by an author in thirty months. He received a

lumpsum amount of Rs. 3.0 million as royalty, on March 31, 2006. Explain the tax

implication for the author. (03)

Q.6 (a) One of your clients has received a notice from the Taxation Officer demanding

payment of tax in respect of an order issued by the Commissioner against which your

client intends to file an appeal before the Income Tax Appellate Tribunal.

You are required to explain the provisions contained in the Income Tax Ordinance,

2001 regarding stay of demand by the Income Tax Appellate Tribunal. (06)


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(3)

(b) Under what circumstances, an assessment made can be amended or an amended

assessment can be further amended by the Commissioner of Income Tax? (05)

(c) The Income Tax Ordinance, 2001 empowers the Commissioner of Income Tax to

select a person for audit of his tax records.

You are required to list down the criteria under which the Commissioner of Income

Tax can select a person for tax audit. (05)

Q.7 (a) Where goods supplied are returned, the supplier is required to issue credit note. The

buyer responds by issuing a debit note.

You are required to specify the particulars to be mentioned on the debit note issued

by the buyer. (06)

(b) Describe the circumstances under which a registered person shall not be able to

claim or deduct input tax? (06)

Q.8 (a) What is the difference between zero-rated and exempt supplies? (04)

(b) A registered person is required to maintain certain records under the Sales Tax Act,

1990. You are required to:

(i) explain the provisions relating to maintenance of records.(ii) list down the records that are required to be maintained.(iii) specify the minimum period for which the records are required to be

retained. (10)

(THE END)


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March 8, 2007


Q.1 (a) Briefly explain the taxability or exemption of the following allowances or

perquisites:

(i) Free passage provided by a transporter to its employees;(ii) Leased motor vehicle provided to an employee, exclusively for his personal

use. Running and maintenance cost and drivers salary is also borne by theemployer.

(iii) Medical allowance paid at 10 percent of basic salary. (06)(b) Explain the principles of taxation and filing of return relating to members of

association of person where the association is:

a professional firm

other than a professional firm.

Also discuss the rules relating to set off and carry forward of associations losses. (08)

Q.2 (a) 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 fairmarket 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 hisresidential 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 oneof 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 Companys 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.

(v) Mr. Zubair provided consultancy services to a listed company. Inconsideration for his services, he received a net amount of Rs. 47,000 after tax

deduction of Rs. 3,000. (12)


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(2)

(b) Discuss the provisions of the Income Tax Ordinance, 2001 relating to the

computation of opening and closing stock. (04)

Q.3 (a) Explain the following terms with reference to the Income Tax Ordinance, 2001:

(i) Income(ii) Profit on debt (06)

(b) The income of Mr. Yousuf during the tax year 2006 amounted to Rs. 120 million

which included capital gains of Rs. 10 million and dividend income of Rs. 12

million. The tax liability for 2006 was Rs. 32 million out of which Rs. 4 million

related to tax on capital gains and dividend income.

The following information is available for the quarter ended December 31, 2006:

Rupees

in million

Tax deducted at source by the customers 3

Tax paid on import 2

Compute advance tax liability for the quarter ended December 31, 2006. (05)

Q.4 (a) Mr. Hamza intends to donate Rs. 5 million in cash to the following institutions:

An institution whose name is listed in the 2nd Schedule to the Income TaxOrdinance, 2001; and

a non profit organization working for the promotion of education in ruralareas of Pakistan.

Explain the impact of the above donations on the tax liability of Mr. Hamza. (07)

(b) What do you understand by the term speculation business as referred to in theIncome Tax Ordinance, 2001? Briefly discuss the rules relating to set off and carry

forward of losses arising out of speculation business. (04)

Q.5 (a) The residential status of a taxpayer may either be resident or non-resident. State

the relevant provisions contained in the Income Tax Ordinance, 2001, for

determining the residential status of a taxpayer. (08)

(b) Under the Income Tax Ordinance, 2001, the Commissioner may serve upon the

taxpayer, a notice requiring him to pay any tax due within such time as may be

specified in the notice.

Describe the modes of recovery available to the Commissioner, if the taxpayer fails

to pay the amount of tax within the time specified in the said notice. (04)

Q.6 (a) Under the Income Tax Ordinance, 2001, a deduction for capital loss is allowed

when consideration received on disposal of a capital asset is less than its cost. What

are the exceptions to this rule? (06)

(b) Every resident taxpayer whose last declared or assessed income is five hundred

thousand rupees or more is required to furnish a wealth statement for that year along

with the income tax return.

State the main particulars that are required to be included in the wealth statement. (04)


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(3)

Q.7 (a) There shall be charged, levied and paid a tax known as sales tax at the rate of 15%

of the value of taxable supplies made by a registered person in the course or

furtherance of any taxable activity carried on by him; and goods imported into

Pakistan.

Explain the term taxable supply and taxable activity used in the above

statement describing the scope of sales tax. (08)

(b) List down the persons who are required to be registered under the Sales Tax Rules,

2006. (05)

Q.8 Mr. Adam is a registered person and engaged in the supply of various types of appliances

for last many years. He has provided you the following information for the month of

February 2007:

(i) Supplies made during the month amount to Rs. 95 million. Details of supplies madeare as follows:

Rupees

in million

Exports 50

Exempt supplies 10

Supplies to registered person 30

Supplies to unregistered person 5

95

(ii) During the month, he has made an adjustment of Rs. 500,000 through credit note ina registered persons balance.

(iii) Following purchases were made during the month:Rupees

in million- From registered persons- From unregistered persons 4515

60

(iv) All goods purchased from unregistered persons are exclusively used for makingtaxable supplies.

(v) An amount of Rs. 3,000,000 is payable to a registered person since December 20,2006. The input tax on the purchase was accounted for in the relevant tax period.

(vi) Mr. Adam is also required to pay the following:Rupees

ArrearsSurcharge

Penalty

500,00070,000

30,000

Compute Mr. Adams sales tax liability. (13)

(THE END)


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September 08, 2007


Q.1 Mr. Ayub, after retirement from a multinational company as a senior executive, wasrehired on contract for a period of three years. However, due to certain reasons, thecontract was prematurely terminated six months earlier i.e. on December 31, 2006.

The detail of emoluments received by him during the tax year 2007 are given below:

Rupees

Basic salary (per month) 70,500

Rent of furnished accommodation (per month) 30,000

Utilities allowance (per month) 12,000

Medical benefits reimbursed during the year 25,000

House rent was paid by the company directly to the landlord. Medical benefits werereimbursed against bills submitted by Mr. Ayub.

On his retirement as a permanent employee, he had been paid gratuity from the approvedfund. According to the rules of the fund, he was also entitled to a special gratuity in lieu

of his services rendered under the contract. Accordingly, an amount of Rs. 120,000 wasalso paid out of the fund, on termination of the contract.

In lieu of premature termination, the following additional benefits were allowed toMr. 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 whichwas payable in lumpsum on March 31, 2007. 25% of the outstanding balance waswaived and remaining amount of loan was deducted from his final settlement. The

benchmark rate according to the Income Tax Ordinance, 2001 is 10%.

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

Required:

Compute the taxable income and tax liability for the tax year 2007. The rates of tax asgiven in the First Schedule to the Income Tax Ordinance, 2001 are as under:

Taxable Income (Rs.) Rate of Tax (%)

700,000 850,000 7.50

850,000 950,000 9.00

950,000 1,050,000 10.00

1,050,000 1,200,000 11.00 (14)

Q.2 (a) What do you understand by the concept apportionment of expenditures asexplained in the Income Tax Ordinance, 2001? (06)


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(2)

(b) One of your client which is a subsidiary of a foreign company wants to change itsaccounting year from June 30 to December 31 as the income year of its parentcompany ends on December 31. Advise the client about the requirements of theIncome Tax Ordinance, 2001 regarding change in tax year from normal to special. (03)

(c) Mr. Rafiq, a salaried individual, whose taxable income for previous year was morethan Rs. 500,000, has not filed the wealth statement. He is of the view that since hehas no other source of income besides salary and his employer has already filed theannual statement, he is not required to file a wealth statement.

Evaluate Mr. Rafiqs point of view in the light of Income Tax Ordinance, 2001. (03)

Q.3 (a) Mr. Zia inherited certain assets from his father in the year 2004. The fair marketvalues of the assets on the date of inheritance were as follows:

Fair Market Value (Rs.)

25,000 shares of a private limited company 2,500,000

21,000 shares of a public listed company 462,000Membership 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 andfair market values of the assets are 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 assetsfetched 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. (10)

(b) Every prescribed person is required to deduct tax while making payments onaccount of sale of goods, rendering of services and execution of contracts. Specifyany seven exceptions to this rule. (07)

Q.4 (a) In certain circumstances, the Income Tax Ordinance, 2001 empowers theCommissioner of Income Tax to make assessment based on any availableinformation or material, to the best of his judgment.

List down the conditions under which the Commissioner can exercise such powers.Also state the time limit within which such power can be exercised. (04)


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(3)

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

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

Note: Applicable Tax Rate in Pakistan = 25%; US$ 1 = Pak Rupees 60. (04)

Q.5 (a) Identify the situations in which two companies shall be considered to be associateswithin the meaning of the Income Tax Ordinance, 2001. (06)

(b) Briefly discuss the allowability of the following against business incomechargeable to tax:

(i) Payment of utility bills in cash amounting to Rs. 15,000.(ii) Penalty of Rs. 5,000 paid for late submission of quarterly statement under the

Income Tax Ordinance, 2001.

(iii) Depreciation on leased assets amounting to Rs. 150,000. (05)

(c) Explain the term Permanent Establishment with reference to the Income TaxOrdinance, 2001. (06)

Q.6 (a) A resident person is about to leave the country. Briefly explain the following in thelight of Income Tax Ordinance, 2001:

responsibility of such person in relation to filing of tax return; powers of the Commissioner of Income Tax in such situation; rules relating to assessment of income. (06)

(b) A person who places an eligible depreciable asset into service in Pakistan for thefirst time in a tax year shall be allowed initial depreciation allowance. List downthe assets which do not come under the purview of eligible depreciable assets forthe purpose of initial allowance.

(04)

Q.7 (a) How would the input tax on raw material be determined and claimed where aregistered person is engaged in making taxable as well as exempt supplies? (06)

(b) A contract has been signed on May 20, 2006 by Mr. Pervez and Mr. Farooq. Bothof them are registered persons. Under the contract, Mr. Pervez will supply brandedcomputers to Mr. Farooq within two months. At the time of entering into contract,the goods were exempt from sales tax. Through the Finance Act, 2006, the

Government withdrew this exemption with effect from July 1, 2006.

25% advance was paid on signing of contract and balance on the delivery of goodson July 15, 2006. Advise Mr. Pervez on the chargeability of sales tax. (03)

Q.8 (a) Every registered person making a taxable supply is required to issue a tax invoiceat the time of supply of goods. List down the particulars which are required to becontained in a sales tax invoice. (04)

(b) Describe the provisions of the Sales Tax Act, 1990 relating to filing of retail taxreturn and revision of retail tax return by a registered retailer. (06)

(c) What are the circumstances in which a person registered under the Sales TaxAct, 1990 may apply for cancellation of his registration? (03)

(THE END)


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March 8, 2008


Q.1 Saleem, Rashid and Moin are partners in a partnership concern carrying on the business

of manufacturing and sale of consumer goods. They share profit and loss in the ratio

2:3:5 respectively. The results of operations of the firm are as follows:

Rs. 000

Sales (including rental income) 76,000

Cost of sales 53,000

23,000

Selling, administrative and other expenses 16,250

Profit before tax 6,750

Tax deducted at source on import of raw material 900

Tax deducted at source on sale of goods 1,750

2,650

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 soleproprietor. 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 partnershipfirm 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:

Assuming that the above data pertains to the tax year 2008, compute the tax liability of

the firm and each of its partners and the amount of tax payable by them alongwith the

return of income.

Applicable tax rates are as follows:

Where the taxable income exceeds Rs.175,000 but does not exceed Rs.200,000 4.00%

Where the taxable income exceeds Rs.200,000 but does not exceed Rs.300,000 5.00%Where the taxable income exceeds Rs.300,000 but does not exceed Rs.400,000 7.50%

Where the taxable income exceeds Rs.400,000 but does not exceed Rs.500,000 10.00%Where the taxable income exceeds Rs.500,000 but does not exceed Rs.600,000 12.50%

Where the taxable income exceeds Rs.600,000 but does not exceed Rs.800,000 15.00%

Where the taxable income exceeds Rs.800,000 but does not exceed Rs.1,000,000 17.50%

Where the taxable income exceeds Rs.1,000,000 but does not exceed Rs.1,300,000 21.00%Where the taxable income exceeds Rs.1,300,000 25.00%

Tax on rental income from property 5.00%

Tax on dividends 10.00% (17)


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(2)

Q.2 (a) Mr. Anil is constructing his house and for the purpose of meeting construction

expenses, he intends to take a personal loan of Rs. 500,000 from Mr. Kamran who

is in the business of money lending. He has been advised by one of his friends

that such a loan may be included in his taxable income, under certain

circumstances.

You are required to advise Mr. Anil about the circumstances under which the loan

may be included in his taxable income. (04)

(b) Mr. Waseem received an amount of Rs. 50,000 as arrears of salary pertaining to

the tax year 2007 in the tax year 2008. Discuss the options available with

Mr. Waseem under the Income Tax Ordinance, 2001 and what matters should he

consider in deciding the best option. (04)

Q.3 (a) AAS (Pvt.) Ltd was incorporated on July 1, 2006 and commenced commercial

operations in the same month. It suffered losses in the first year of its operations.

Briefly explain how the company should determine the amount of advance tax to

be paid (if any) in the tax year 2008. (05)

(b) A company intends to launch an Employee Share Scheme for its employees and

for the purpose of educating its employees in this regard, the management wants

to prepare a summary containing the taxability of the following:

(i) Option granted to an employee.(ii) Disposal of the option to acquire shares under the employee share scheme.(iii) Shares issued to an employee under the option that are subject to

restriction on transfer.

Explain the timing and valuation aspects in respect of the above, with reference to

the Income Tax Ordinance, 2001. (09)

(c) Under what circumstances, the Commissioner of Income Tax can require a person

to furnish a return of income for a period of less than twelve months? (04)

Q.4 (a) Discuss the taxability of the following under the Income Tax Ordinance, 2001:

(i) Bad debts(ii) Non-adjustable rent(iii) Speculation business

(05)

(04)(04)

(b) Certain types of payments by a private company to their shareholders can be

treated as dividend under the Income Tax Ordinance, 2001. State the conditions

necessary for the application of this rule and the exceptions to it. (05)

Q.5 (a) Mr. Zulqarnain intends to make donations to certain charitable institutions. You

are required to advise him on the following:

(i) The types of institutions to whom the donation(s) would entitle him fortax credit.

(ii) The method of calculation of tax credit. (08)


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(3)

(b) There are various situations in the Income Tax Ordinance, 2001 when the rules

applicable to Companies are different from those applicable to other assessees.

Briefly discuss the differences in the tax laws for an Individual and a Company in

the following cases:

(i) Dividend income(ii) Rental income(iii) Method of accounting(iv) Payment for sale of goods or rendering of services (08)

Q.6 (a) Explain the following terms as given in the Sales Tax Act, 1990:

(i) retailer(ii) distributor(iii) cottage industry

(02)

(02)

(02)

(b) Narrate the circumstances under which, it becomes obligatory for a person to get

registered under the Sales Tax Act, 1990. (04)

(c) Under what circumstances can a person registered under the Sales Tax Act, 1990,

be de-registered? (04)

Q.7 (a) A registered person making a taxable supply has to issue a tax invoice at the time

of supply of goods. What are the particulars that are required to be mentioned on

the invoice? (03)

(b) Sales Tax Act, 1990 places certain restrictions on adjustment of input tax. You arerequired to explain the related provisions in respect of the following:

(i) Extent of restriction on admissibility of input tax;(ii) The conditions under which the amount of input tax which had been so

restricted, may subsequently be allowed;

(iii) Treatment of sales tax paid on acquisition of fixed assets. (06)(THE END)


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September 6, 2008


Q.1 Mr. Ali Raza is working as a Senior Executive in DD Pakistan Ltd. The details of his

income/receipts during the tax year 2008 are as follows:

(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 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 the 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. (15)

Applicable tax rates are as follows:

Where the taxable income exceeds Rs. 950,000 but does not exceed Rs. 1,050,000 10.0%

Where the taxable income exceeds Rs. 1,050,000 but does not exceed Rs. 1,200,000 11.0%



Q.2 (a) List the persons who are required to file a return of income under the Income Tax

Ordinance, 2001. (06)

(b) Explain the term long term contract and the method of computing the income from

long term contract, under the Income Tax Ordinance, 2001. (06)


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(2)

Q.3 (a) Mr. Henry is a UK national and provides independent consultancy services in his

individual capacity, to United Autos Limited, a Pakistani company. Mr. Henry has

entered into a contract with the company. The companys accountant has treated

payments under this contract as being under an employment contract with the

company.

Mr. Henry stayed in Pakistan for eight months during the tax year 2008. During the

said period, he was only involved in providing in-house independent consultancy

services to different departments of the Company. Mr. Henry is of the view that:

(i) Being a UK national, he will be a non-resident for Pakistan tax purposes;

(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 amou

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