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TOPIC WISE ICAP’s PAST PAPERS Income Tax-Preliminary Define the following with reference to the Income Tax Ordinance 2001:
Q1 a)
Assesses
b)
Capital asset
c)
Dividend
d)
Public Company (08)
a)
Please define the terms ‘Co-operative Society’ and ‘Finance Society’ with reference to the Income Tax Ordinance, 2001 and compare the same. (03)
b)
Under what circumstances Advance or Loan to a shareholder by a private company would be treated as ‘dividend’ with reference to the provision of the Income Tax Autumn 2002 Ordinance, 2001. (03)
Spring2002
Q2
Define the following:
Q3 (a)
Person
(b)
Resident company
(c)
Tax Year
(d)
Intangibles (08)
Spring 2003
Define the following terms in the light of Income Tax Ordinance, 2001?
Q4 (a)
Profit on Debt. (03)
(b)
Income. (03)
(c)
Public Company. (03)
Autumn2003
Define the following terms in the light of Income Tax Ordinance, 2001?
Q5 (a)
Employment (03)
(b)
Finance society (02)
(c)
Pre-commencement expenditure (03)
(d)
Unit trust (02)
Spring2004
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Define the following with reference to the Income Tax Ordinance, Ordinance , 2001?
Q6
Q7
(a)
Fee for technical services (03)
(b)
Non-profit organization (03)
(c)
Income (03)
(d)
Taxpayer (02)
Autumn2004
Describe the circumstances circumstances under which the following shall be treated as resident for the purposes of charge of tax? (a)
An individual. (02)
(b)
A company. (03)
(c)
An association of person. (01)
Autumn2004
Define the following with reference to the Income Tax Ordinance, Ordinance , 2001:
Q8 (a)
Small Company (02)
(b)
Public Company (03)
(c)
Association of Persons (02)
(d)
Income (02)
(e)
Taxpayer (02)
Autumn2005
Q9
Describe the relevant provisions of the Income Tax Ordinance, 2001 to determine the residential status of a ‘Person’. (07) Autumn2005
Q 10
Define the following with reference to the Income Tax Ordinance, Ordinance , 2001: (a)
Employer, employee and employment. (05)
(b)
Principal Officer. (02)
(c)
Profit on debt. (04)
Spring2005
Q 11 What are the circumstances in which two or more persons shall be considered as “associates” under the Income Tax Ordinance, 2001? (08) Spring2006 Q 12 Mr. Ali, a Pakistani Citizen, returned to Pakistan in November 2004 after completing 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. Ali’s income, earned in UAE and Pakistan, for the tax year 2005. (04) Spring2006
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Define the following with reference to the Income Tax Ordinance, Ordinance , 2001:
Q 13 a)
Depreciable Assets (05)
b)
Turnover for the purpose of computing minimum tax liability. (05) Spring2006
Q 14 Explain the different types of tax years as enumerated in the Income Tax Ordinance, 2001. (06) Autumn2006 Q 15 Identify the situations in which two companies shall be considered to be associates within the meaning of the Income Tax Ordinance, 2001. (06) Autumn2007 Q16
One of your clients which is a subsidiary subsidiar y of a foreign company wants to change its accounting year from June 30 to December 31 as the income year of its parent company ends on December 31. Advise the client about the requirements of the Income Tax Ordinance, 2001 regarding change in tax year from normal to special. (03) Autumn2007
Q17
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 Spring2008 application of this rule and the exceptions to it. (05)
Q18
Explain the term “Permanent Establishment” with reference to the Income Tax Ordinance, 2001.(06) Autumn2007
Q19
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 Spring2007 residential status of a taxpayer. (08) Explain the following terms with reference to the Income Tax Ordinance, 2001:
Q 20 a)
Income (03)
b)
Profit on debt (06)
Spring2007
Q21
State the circumstances when two companies shall be considered as associates, under the Autumn 2008 Income Tax Ordinance, 2001. (04)
Q22
Explain the term “Small Company” and the privileges available to it under the Income Tax Ordinance, 2001. (06) Autumn 2008
Q23
Hijazi Limited is a multinational unquoted company. Presently, the company closes its financial year on June 30. The company is now considering to change its income year from June 30 to March 31. Mr. Safi is the tax consultant c onsultant of the Company. Write a memorandum on his behalf, explaining the following: (i) Requirements of the Income Tax Ordinance, 2001 regarding change in tax year from normal to special. (ii) The tax year corresponding to the income year ended on March 31, 2009 and the due Spring 2009 date for filing the return of income. (09)
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Q24
A company engaged in manufacturing activities has decided to provide loan to one of its shareholders. Explain the tax implication on the company as well as the shareholder if the Company: a) Is registered under the Companies Ordinance, Ord inance, 1984 as a private limited company. Is an unlisted public company. (06) Autumn 2009 b)
Q25
What do you understand by the term “Taxpayer” as described in the Income Tax Ordinance, 2001? (03) Spring 2010
Q26
State the provisions of the Income Tax Ordinance, 2001 regarding the residential status of Spring 2010 companies and association of persons. (05)
Q27
What is the difference between a public company and a private company within the meaning of the Income Tax Ordinance, 2001? (05) Autumn 2010
Income Tax Authorities State the classes of income tax authorities under the Income Tax Ordinance, 2001. Spring 2002
Q1 (05) Q2 a)
What is binding on all authorities to follow for the purpose of administration of law of Income Tax under the Income Tax Ordinance 2001? (02)
b)
What is specifically prohibited for CBR (FBR) when issuing its orders, instructions for its subordinate officers? (03) Autumn 2002
Scope of Tax Q1
Describe the provision relating to income splitting with reference to transfer of assets between individual persons. (10) Spring 2004
Q2
Describe the common rules for treating the following under the Income Tax Ordinance, 2001? (a)
Receipt of income. (04)
(b)
Currency conversion. (04)
Autumn2004
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Exemptions and Concessions \Q1 (04) FILTER
Under what conditions income from a building shall be treated as agricultural income? PAC
Taxation of Persons Describe the principles of taxation for an ‘Association of Person’? (06) Q1 Autumn2004 Q2
Explain the provisions of the Income Tax Ordinance 2001 regarding the principles of taxation of Association of Persons. (07) Autumn2005
Q3
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 to explain the issue to them in the light of the provisions of section 93: •
Q4
Determination of member’s share in the total income of the firm. (03) Spring 2005
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: Taxation of income earned by Mr. Ather prior to his death and the extent of tax liability of Mr. Nadir in respect of such income. (04)
(i)
Legality of the tax assessment proceedings pending against Mr. Ather at the time of his death. (3) Spring2006 (ii)
Q5
Mr. Zia’s father expired in March 2009. Being the only heir, he received all his father’s business and assets. In August 2009, a notice was received from the income tax department in the name of his father to pay unpaid tax liabilities along with penalty and additional tax. Mr. Zia is of the view that since his father expired, the notice is irrelevant. In the light of Income Tax Ordinance, 2001, explain the correct legal position of Mr. Zia with regard to his father’s income tax liabilities and the related income tax proceedings. (06) Autumn 2007
Salary Income Q1
A nationalized bank after privatization has announced a Golden Hand Shake Scheme for its employees under which lump sum payments are proposed to be made to employees who opt
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for the scheme. Discuss the chargeability of above amounts in the hands of employees. (04) Autumn2005 Briefly explain the taxability or exemption of the following allowances or p erquisites:
Q2
(i)
Free passage provided by a transporter to its employees;
Leased motor vehicle provided to an employee, exclusively for his personal (ii) use. Running and maintenance cost and driver’s salary is also borne by the employer. (iii)
Medical allowance paid at 10 percent of basic salary. (06) Spring2007
Q3
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 Discus s the options available with Mr. Waseem under the Income Tax Ordinance, 2001 and what matters should he consider in deciding the best option. (04) Spring2008
Q4
A company intends to launch an Employee Share Scheme for its employees and for the purpose of educating its employees in this regard; reg ard; 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. Shares issued to an employee under the option that are subject to restriction on (iii) transfer.
Explain the timing and valuation aspects in respect of the above, with reference to the Spring2008 Income Tax Ordinance, 2001. (09)
Property Income Q1 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) Autumn2006 Specify under which head of income, following amounts of rent would be chargeable
Q2 to tax: (i)
Rent in respect of lease of a building together with plant and machinery.
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(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) Autumn2006 Discuss the taxability of under the Income Tax Ordinance, 2001 Non-adjustable rent. Spring2008
Q3 (04)
Business Income Q1
Explain whether the following are admissible as business expenditure under the Income Tax Ordinance 2001: 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) e)
Provision in respect of doubtful debts. Penalty levied under Section 108 of the Income Tax Ordinance, 2001 for failure to file statement under Section 139. (10) Spring 2002
Q2
Describe the expenses which are allowable as a deduction on account of employees training and facilities? (04) Autumn2004
Q3
Discuss the conditions required to be fulfilled for claiming a deduction on account of ‘badAutumn2004 debts’? (03)
Q4
Describe any five types of expenses that are not allowed to be deducted under the head “income from business”. (05) Spring2005
Q5
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 Tax Ordinance, 2001? (04) Spring2005
Q6
Explain the provisions of section 29 with regard regar d to the recovery of bad debts in subsequent Spring2006 years. (05)
Q7
Explain with reasons, as to whether or not the following expenses are admissible business expenditures: 1.
Penalty paid by a banking company on contravention of State Bank of Pakistan’s regulations. (01)
2.
Freight charges to forwarding agent amounting to Rs 60,000 paid in cash (01)
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3.
Payment of salary to an employee from which tax was not deducted by the employer. However, the employee paid the tax himself. (01)
4.
Tax deducted under section 153 from payments received by a resident person on account of services rendered. (01) Spring2006 Briefly discuss the allowability of the following against business income chargeable to
Q8 tax: (i)
Payment of utility bills in cash amounting to Rs. 15,000. Penalty of Rs. 5,000 paid for late submission of quarterly statement under the (ii) Income Tax Ordinance, 2001.
(iii)
Q9
Depreciation on leased assets amounting to Rs. 150,000. (05) Autumn2007
During the tax year 2007, Mr. Yahya, a resident person, derived an income of Rs. 1,500,000 from his business in Pakistan. He has also earned an amount of US$ 30,000 from his business in a foreign country on which he paid income tax to tax 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) Autumn2007
Q10
What do you understand by the concept “apportionment of expenditures” as explained in the Autumn2007 Income Tax Ordinance, 2001? (06)
Q11
What do you understand by the term “speculation business” as referred to in the Income Tax Ordinance, 2001? Briefly discuss the rules relating to set off and carry forward of losses arising out of speculation business. (04) (04) Sprin Spring2 g200 007 7
Q12
Mr. Sajid is a sole proprietor involved in the distribution of fans manufactured by a Pakistani Company. He is in the process of computing his business income for tax year 2008 but is not clear about the tax treatment of the following items: (i)
Commission of Rs 20,000 was paid to his employee but no tax was deducted by him on the presumption that individuals are not required to deduct tax from commission payments.
(ii)
In his books of accounts, an expense of Rs 50,000 has been charged on account of various household expenses.
(iii) During the year, he purchased a car at a cost of Rs 1,200,000 which has been used for personal as well as business purposes. Mr. Sajid wants to claim depreciation (including initial allowance) on the full amount of cost. (iv) Computer software was purchased on January 1, 2008 at a cost of Rs. 900,000. The software is likely to be used for twelve years.
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(v)
His business assets worth Rs. 500,000 were destroyed by the earthquake in October 2005. He claimed the loss in his return for tax year 2006 but an amount of Rs. 150,000 was disallowed by the Taxation Officer. In tax year 2008, the Government gave him a compensation of Rs. 400,000 on this account.
(vi) Professional tax of Rs. 100,000 was paid to the Government of Punjab. Such tax is to be paid by every person who is engaged in the trading business in the territory of Punjab. He considers it inadmissible as it is a tax paid to a provincial government.
Explain the correct tax treatment of the above items under the Income Tax Ordinance, 2001. (12) Autumn2008 Discuss the taxability of the following under the Income Tax Ordinance, 2001:
Q13 (i)
Bad debts
(05)
(ii)
Speculation business
(04)
Spring2008
Q14
List the situations referred to in Income Tax Ordinance, 2001 where expenditure is required to be apportioned for the purpose of claiming a deduction. (04) Autumn 2010
Q14
You are the tax consultant of Ideal Associates who are engaged in the business of manufacture and sale of electronic goods for the last twenty years. The firm has requested for your opinion in respect of the following: (i)
Provision for bad debts.
(ii) Payment against a liability which was outstanding since 2006 and had been added
back into the taxable income of the firm in 2009. (iii) Initial depreciation allowance on ajjrree-year old plant, which has been imported from
China. The remaining useful life of the plant is 7 years. Required:
Advise the management on the treatment of the above transactions, under the Income Tax Ordinance, 2001. (07) Autumn 2010
Assets and Depreciation Q1 a)
List down the assets on which ‘Initial allowance’ can not be claimed? (04)
b)
What What are are the the pres prescri cribe bed d rates rates of norm normal al dep deprec recia iati tion on on on the the foll follow owin ing g asset assets s as per per the Third Schedule to the Income Tax Ordinance, 2001?
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(i)
Factory building.
(ii)
Residential quarter for labor.
(iii)
Furniture.
(iv)
Plant and machinery.
(v)
Computer and hardware.
(vi)
Technical books.
(vii)
New ships.
(viii) Motor vehicle. (04)
Q2
Autumn2004
Discuss the common rules with regard to the following under the Income Tax Ordinance, 2001: a)
Fair Market Value. (03)
b)
Income of joint owners. (02)
c)
Non-arms length transactions of disposal of assets. (02)
Spring2005
Q3
Describe the assets that are not eligible for the purpose of claiming initial depreciation Spring2005 allowance. (04)
Q4
Discuss which assets are not considered con sidered capital assets for the purpose of determining income under the head Capital Gains. (05) Spring2005
Q5
A person who places an eligible depreciable asset into service in Pakistan for the first time in a tax year shall be allowed allowed initial depreciation depreciation allowance. List down the assets which do not come under the purview of “eligible depreciable assets” for the for the purpose of initial allowance. (04) Autumn2007
Q6
State the conditions which a tangible asset should meet to qu alify as a depreciable asset. (04) Autumn 2009
Method of Accounting Q1
Method of accounting is required to be employed by a company deriving income from Autumn2002 business. (02)
Q2 a)
Describe the method of accounting to be adopted by a person deriving business Autumn2003 income from a ‘Long Term Contract’? (04)
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b)
Q3
Briefly state the provisions relating to the change in the method of accounting of Spring2003 income from business. (03)
Briefly describe the minimum books of accounts, documents, and records that are required to be maintained by the following taxpayers? a)
Taxpayer (other than a company) deriving business income up to Rs.200, 000. (04)
b)
Taxpayer (other than a company) deriving business income exceeding Rs.200, 000. (04) Autumn2003
a)
Briefly explain when the expenditure is considered as incurred with reference to accrual basis of accounting defined in the Income Tax Ordinance, 2001. (03)
b)
Please mention the costing method(s) and stock valuation method(s) to be applied 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 by which such advance tax is payable. (03)
d)
What would be the withholding tax rate on the payment of Rs. 50 million by a company 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 of resident person. (4) Spring2004
Q4
Q5
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) Spring2006
Q6
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 Autumn2006 expenditure as explained in the Income Tax Ordinance, 2001. (04)
Q7
Discuss the provisions of the Income Tax Ordinance, 2001 relating to the computation of opening and closing stock. (04) Spring2007
Q8
Explain the term “long term contract” and the method of computing the income from long term contract, under the Income Tax Ordinance, 2001. (06) Autumn2008
Capital Gain Q1
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) Spring2007
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Q2
Explain the term “Capital Assets” as referred to in the Income Tax Ordinance, 2001. (05) Spring 2010
Income from Other Sources Q1
Identify the circumstances when rent received is taxed under the head “Income from other Sources” rather tan “Income from Property”. (4)
Tax Credit Mr. Ashraf made the following donations during the income year 2000-2001:
Q1 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 claimed by him keeping in view the requirement of Section 47 of the Income Tax Ordinance 2001 if his income for the relevant income year has been assessed at Rs. 800,000. (08) Spring 2002 Q2
Q3
Q4
a)
Under what circumstances a resident individual is entitled to claim exemption from 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 resident tax payer in respect of foreign tax paid on foreign source income. (04) Autumn2003
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 conditions applicable thereon. (10) Autumn2005 Mr. Hamza intends to donate Rs. 5 million in cash to the following institutions: (i) An institution whose name is listed in the 2nd Schedule to the Income Tax Ordinance, 2001; and (ii) A nonprofit organization working for the promotion of education in rural areas of Pakistan.
Explain the impact of the above donations on the tax liability of Mr. Hamza. (07)
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Spring2007 Q5
Mr. Zulqarnain intends to make donations to certain charitable institutions. You are required to advise him on the following: The types of institutions to whom the donation(s) would entitle him for tax (i) credit. The method of calculation of tax credit. (08) Spring2008 (ii)
Q6
State the provisions of Income Tax Ordinance, 2001 pertaining to foreign tax credit available Autumn 2009 to a resident taxpayer. (06)
Q7
Mr. Qamar intends to donate an amount of Rs. 10 million to certain educational and welfare institutions. In your capacity as his tax consultant, explain the tax relief which may be available in respect of such donation and the conditions he must fulfill to avail such relief. (09) Spring 2010
Q8
Mr. Faisal is a resident taxpayer and has been providing consultancy services to local and foreign clients since 2003.. A friend has informed him that under the Income Tax Ordinance, 2001 he can claim a tax credit against any foreign income tax paid by him on his foreign source income. Required:
Explain the provisions of the Income Tax Ordinance, 2001 pertaining to foreign tax credit available to a resident taxpayer. (06) Autumn 2010
Set off and carry forward of losses Q1
Q2
Please write a brief note about the adjustment of loss incurred under any head of income in the current year. (03) Autumn2002 Briefly explain the law relating to set-off and carry forward of losses? (07) Autumn2003
Q3
Describe the provisions relating to set-off and carry forward of foreign losses under the Autumn2004 Income Tax Ordinance, 2001? (03)
Q4
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 be fulfilled in this regard? (04) Spring2005
Q5
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 to explain the issue to them in the light of the provisions of section 93:
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Treatment of loss sustained by the firm, which could not be set-off against its Spring other income. (03) 2005 •
Q6
Explain the principles of taxation and filing of return relating to members of association of person. Also discuss the rules relating to set off and carry forward of association’s losses. (08) Spring2007
Payment of Tax Q1 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 2001 for recovery of tax if an Assessee fails to voluntarily pay the assessed tax liability? (04) Spring 2002 How would you make deduction of tax at source on payment of dividend to-
Q2 •
A resident individual
•
Public company listed in Pakistan
•
A nonresident individual
•
A nonresident company (04)
Autumn2002
Q3 a)
Explain the law applicable in special case for recovery of income tax from a defaulted partner of a firm. (04)
b)
Elaborate the provision of Section 50(1) relating to withholding of tax on Salary. (03) Autumn2002
Explain the provisions relating to payment of advance tax by an individual. (06) Q4 Spring2003 Q5
Briefly explain the salient features of deduction/collection of income tax at source on the following: •
Payment of dividend to a corporate shareholder
•
Payment of rent
•
Imports (06)
Spring2003
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Q6
What is understood by the term, ‘own estimate’ in the context of quarterly advance tax payment by an Assessee. Explain the implications of an incorrect estimate by the Assessee. (05) Autumn2005
Q7
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) Autumn2006
Q8
Every prescribed person is required to deduct tax while making payments on account of sale of goods, rendering of services and execution of contracts. Specify any seven exceptions to this rule. (07) Autumn2007
Q9
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 Spring2007 the amount of tax within the time specified in the said notice. (04)
Q10 a)
Quarterly advance tax payable under section 147 is computed on the basis of estimated taxable income. Prepare a list of various types of income which are not taken into consideration while calculating the amount of advanc e tax. (07)
b)
Discuss the procedure required to be followed by a resident company if it intends to make payments to a non-resident individual without deduction of tax. (08) Autumn2008
Q11
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) Spring2008
Q12
List the prescribed persons as specified by the Income Tax Ordinance, 2001 who are required to deduct tax while making payment for supply of goods. (03) Autumn 2009
Q13
Hanif Limited (HL) has commenced its commercial business operations with effect from January 1, 2010. Since no assessment of HL has yet been finalized, the management is of the view that HL is not required to pay any quarterly advance tax. Required: Discuss the management’s point of view under the Income Tax Ordinance, 2001. i. What are the consequences of non-payment of advance tax? (05) Spring2010 ii.
Q14
On February 15, 2010 Income Tax Department initiated proceedings against Zaman Enterprises (Private) Limited (ZEL) for monitoring of withholding taxes. After examining the statements filed up to January 2010 and the information submitted by ZEL, the Commissioner has issued a show cause notice in respect of the following:
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a. No tax was deducted on payments of Rs. 5.5 million made to Shahid & Co. who is one of
the main suppliers of packing materials to ZEL. Shahid & Co. imports and sells the imported products in local market in the same condition in which they are imported. b. ZEL deducted withholding tax from the payments made to Mansoor Sons against supplies of various accessories. However, withholding tax was deducted on amount excluding sales tax of Rs. 192,000. c. Rs. 50,000 was paid to Mujahid Engineering as advance against services but no tax was deducted at the time of payment. d. ZEL deducted tax at the rate of 10% from payment of commission to its sales staff. Required: With respect to each of the above transactions, comment on ZEL’s position including Spring2010 consequences (if any) in the light of Income Tax Ordinance, 2001. (10) Q15
Tax imposed at the rate of 15% on every non-resident person who receives Pakistan source royalty or fee for technical services is considered to be a final tax on the amount in respect of which the tax is imposed. Required: Identify the exceptions to the above rule, as referred to in the Income Tax Ordinance, 2001. (04) Spring2010
Q16 Mr. Abid has received a notice from the Income Tax Department for the payment outstanding tax dues. However, due to liquidity problems he wants to delay the payment. Required:
Q17 Advise Mr. Abid about the actions which the Department may take to recover the tax dues, if the Autumn 2010 payment is not made within the time specified in the notice. (5)
Q18
Every employer is required to deduct tax from salary paid to the employees. Required:
In the above context, (i) explain the term "Employee's average rate of tax". (ii) list the adjustments which the employer should consider while withholding the tax from Autumn 2010 salary. (06)
Q19
Mr. Hyder is the legal representative of his deceased uncle since January 5, 2010 and manages his estate worth Rs. 10 million approximately. On August 10, 2010, he received two notices from the Income Tax Department requiring him to: submit details of his uncle's income for the tax year 2009. ■ make payment of Rs. 12 million against his uncle's income for the tax year 2007 and 2008. ■
Required:
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Advise Mr. Hyder about the extent of his tax liability in respect of the income earned by his uncle before January 5, 2010. Also advise him about his obligations relating to the tax assessment proceedings pending/arising against his uncle. (05) Autumn 2010
Assessment Procedure Q1
Explain whether income tax authorities can rectify their ord ers, if so, under what circumstances and is there any limitation of time for doing so? (04) Autumn2002
Q2 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? Please explain. (05) Spring2003
Q3
What is meant by the term ‘amendment of assessments’ as laid down in Section 122 of the Spring2003 Income Tax Ordinance, 2001.(10) Briefly state the time frame for filing the return of income by
Q4 a) b)
Q5
a company; Persons other than a company. (05)
Autumn2003
Describe the requirements of Income Tax Ordinance, 2001 for persons who are about to discontinue his business.(05) Spring2004
Q6
Q7
a)
Please discuss the parameters of audit of income tax affairs of any person given in 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) Spring2004
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a)
Briefly state the time limit within which the Commissioner of Income-tax is permitted 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 the Commissioner of Incometax (Appeals)?(02) Autumn2004 Under what conditions is it necessary for an individual to file a return of income. (06)
Q8 Autumn2005 Q9
How will the tax be recovered if a private limited company fails to pay tax at the time of winding up? (04) Autumn2005
Q10
What is the status of a complete return of income filed under the Income Tax Ordinance, 2001? (05) Spring2005
Q11
Describe the circumstances under which the Commissioner of Income Tax is empowered to issue a notice requiring a person to furnish a return of income for a period of less than twelve months. (04) Spring2006
Q12
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 by the
Commissioner on November 30, 2004. (03) b) The ITAT has deleted the additions made by the assessing officer and the order of the
ITAT was received by the Commissioner on December 15, 2004. (03)
Spring2006
Q13
Under what circumstances, an assessment made can be amended or an amended assessment can be further amended by the Commissioner of Income Tax? (05) Autumn2006
Q14
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) Autumn2006
Q15
A resident person is about to leave the country. Briefly explain the following in the light of Income Tax Ordinance, 2001:
Q16
•
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)
Autumn2007
PAC
a) In certain circumstances, the Income Tax Ordinance, 2001 empowers the
Commissioner of Income Tax to make assessment based on any available information 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) b) Mr. Rafiq , a salaried individual, whose taxable income for previous year was more
than Rs. 500,000, has not filed the wealth statement. He is of the view that since he has no other source of income besides salary and his employer has already filed the annual statement, he is not required to file a wealth statement. Evaluate Mr. Rafiq’s point of view in the light of Income Tax Ordinance, 2001. (03) Autumn2007 Q17
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) Spring2007
Q18
List the persons who are required to file a return of income under the Income Tax Ordinance, 2001. (06) Autumn2008
Q19
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) Spring2008
Q20
State the provisions of the Income Tax Ordinance, 2001 with regards to rectification of mistakes. (05) b) Ayub Industries Limited has been selected for the audit of its income tax affairs. The management is of the opinion that since their tax affairs were audited last year also, they should not have been selected for audit this year. Discuss the management’s point of Autumn 2009 view in the light of Income Tax Ordinance, 2001. (05) Q20 Mr. Sami has recently received a notice from the Commissioner of Income Tax to file return of income for the tax years 2003 and 2006 within 20 days of receiving the notice. In your capacity as a tax consultant, advise Mr. Sami on the following issues along with appropriate explanations. a)
i. ii.
Is the Commissioner justified in issuing the above notice? If Mr. Sami is not in a position to meet the deadline for filing the returns, can he get an extension? (07) Spring 2010
Q21 a) List down the circumstances under which an original assessment can be amended or an amended assessment can further be amended, by the Commissioner of Income Tax. (05) b) State the procedures to be followed when a person intends to make payment to a non-resident person without deduction of tax. (08) Autumn 2010
PAC
Appeals and Revisions Q1
You have received a letter from Mr. Zubair Ansari who is seeking your advise regarding the mode and procedure of filing an appeal under the Income Tax Ordinance 2001. Please draft a suitable reply briefly describing the appellate procedure and incorporate the following chart in your reply.
Name of Appellate Authority
Authority whose order may be appealed against
Filing fee
Limitation period for filing appeal
(12)
Decision in appeal
Limitation period for decision
Spring
2002 Q2
Name of Appellate Authority whose order may be appealed Against Filing Fee Limitation period for filing appeal Decision in appeal Limitation period for decision. (3 Spring 2002
Q3
Briefly explain the requirements of payment of tax viz-a-viz filing an appeal before the Commissioner of Income-tax (Appeals)? (05) Autumn2003
Q4 a) You being tax consultant of ABC Company, a partnership firm, has been informed that an order of assessment has been served on the firm under section 122 of the Ordinance on December 27, 2003 for the tax year 2003. The order is accompanied by notice showing income tax payable of Rs. 10 million. The firm’s liability as per return of income was Rs. 15 million whereas tax assessed in the previous assessment was Rs. 18.7 million. (2) b) You are required to advise your client on the time by which the demand shown in the
notice 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 on how the client could extend the date of payment of demand shown in the notice. (10) Spring2004 Briefly state the time limit for filing an Appeal/Reference before the following forums?
Q5 a)
The Commissioner of Income-tax (Appeals). (01)
b)
Income Tax Appellate Tribunal (01)
c)
Reference to the High Court. (01)
Spring2004
PAC
Q6
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) Autumn2006
Q7
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) Autumn2006
Q7
Under the Income Tax Ordinance, 2001 a taxpayer can be represented by an Authorized Representative in a proceeding before the Income Tax Authority. You are required to list down the persons who: can act as an Authorized Representative. i. are not allowed to represent a taxpayer in any proceedings before the Income Tax ii. Authority. (05) Spring 2010
Final Tax Regime Q1
For assesses enjoying resident status, presumptive tax regime is applicable only on that earning business income. Comment (07) Spring 2002
Q2
List down the taxes deducted/collected at source which is treated as full and final discharge of tax liability? (07) Autumn2003
Q3
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) Spring2006
Sales tax Sales Tax Definitions Q1
Elaborate the term ‘input tax’ as defined in the Sales Tax Act, 1990 (05) Autumn2002
Q2
Define the following in the light of Sales Tax Act, 1990: a)
Defaulter (02)
b)
Due Date (02)
c)
Similar supply (02)
PAC d)
Retail price (02)
Spring2004
Describe the category of goods on which sales tax is chargeable at Zero rate? (03)
Q3
Autumn2004
Define the following with reference to the Sales Tax Act, 1990?
Q4 a)
Distributor (02)
b)
Input-tax (04)
c)
Manufacture (04)
d)
Similar supply. (02)
Autumn2004
Define the following with reference to the Sales Tax Act, 1990 :-
Q5 a)
Associated person. (03)
b)
Manufacturer or producer. (05)
c)
Taxable supply. (02)
Spring2005
What impact would a change in rate of Sales-tax have in case of :
Q6 a)
Supply of goods. (01)
b)
Import of goods. (04)
Spring2005
Define ‘value of supply’ under the Sales Tax Act, 1990 for the following situations:
Q7 a)
Consideration for a taxable supply is partly in kind and partly in money. (03)
b)
Trade discounts. (02)
Spring2005
Q8 List down the exports which are outside the purview of zero rating under section 4 of the Sales Tax Act, 1990. (03) Spring2006 Q9 a)
What is the difference between zero-rated and exempt supplies? (04)
b)
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) Spring2007 Explain the following terms as given in the Sales Tax Act, 1990:
Q10 a)
retailer (02) (02)
PAC b)
(02) distributor (02)
c)
cottage industry(02)
Spring2008
Scope of Tax Explain the term “time of supply" with reference to the Sales Tax Act 1990. (03) Q1 Spring 2002 Q2
Mr. Omar has recently registered himself under the Sales Tax Act 1990. He has written a 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)
Q3 Explain the incidence of Sales Tax, if any, for exporters? (07)
Spring 2002 Spring 2002
Q4 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) Autumn2002
a)
Explain the term “Manufacture” as used in the Sales Tax Act 1990. (03)
b)
Distinguish between the concept of ‘zero-rating’ and ‘exemption’ under the Sales Tax Act, 1990. (05) Spring2003
Q5
Q6 Define the following terms in the light of Sales Tax Act, 1990. a)
Manufacture or produce. (03)
b)
Supply. (03)
c)
Taxable activity. (03)
Autumn2003
PAC
Q7 Who are the persons liable to Turnover Tax and at what rate is the turnover tax payable? Are there any exceptions? (09) Autumn2003 Q8 Briefly explain the uses of debit and credit notes under the Sales Tax Act. 1990 (04) Spring2004
Sale s Tax Act, 1990 in respect of any ‘excess tax’ Q9 Discuss the treatment provided under the Sales Autumn2004 collected from the customer. (03) Q10 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 comment on 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 the month? (02)
c)
What recourse is available if output tax for the month is inadvertently disclosed at a lesser amount? (03) Autumn2005
Q11 What is the precondition of claiming input tax against output tax by a registered person? (03) Spring2005 Q12 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 (09)
Spring2006
Q13 Which date shall be considered as the date of payment of sales tax in the following cases:
a)
Payment through cash or cheque (01)
b)
Payment through pay order or bank draft (01)
Q14
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 (02)
b)
Voluntary revision of return (04)
Spring2006
Spring2006
Q15
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)
PAC
b)
Describe the circumstances under which a registered person shall not be able to claim or deduct input tax? (06) Autumn2006
Q16 a)
How would the input tax on raw material be determined and claimed where a registered 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 . Both of them are registered persons. Under the contract, Mr. Pervez will supply branded computers 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 goods on July 15, 2006. Advise Mr. Pervez on the chargeability of sales tax. (03) Autumn2007
Q17 a)
Explain the concept of ‘Value of Supply’ under the Sales Tax Act, 1990. (08)
b)
Certain food items supplied by Pakistan Distributors (Pvt.) Ltd. (PDL) have been returned by the customers after the expiry date. PDL wishes to destroy them. Specify the procedure which would have to be followed in this regard. (04) Autumn2008
Q18
Sales Tax Act, 1990 places certain restrictions on adjustment of input tax. You are required to explain the related provisions in respect of the following:
Q19
Q19
(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)Spring2008
Where for any valid reason the value of supply or the amount of sales tax mentioned in the sales tax invoice issued has changed, the supplier shall issue Debit Note or a Credit Note. Discuss the rules relating to adjustment of input and output tax on issuance of Debit or Credit Note, as specified in the Sales Tax Rules, 2006. (06) Autumn 2009 List the type of exports which are outside the purview of zero rating . (03) Spring 2010
Q20 State the situations when a registered person shall not be entitled to claim or deduct input tax a) under the Sales Tax Act, 1990 (06) Mr. Rizwan, a sales tax registered person, per son, is carrying on business in the name of Rizwan Enterprises. On February 15, 2010, he sold certain goods to his customer against which he intends to issue a credit note in the month of September 2010.
b)
PAC Required:
Explain whether Mr. Rizwan can issue the credit note in the month of September 2010, under the Sales Tax Rules, 2006. (04) c)
Explain the provisions of Sales Tax Act, 1990 with regard to the following:
i).
Change in rate of tax during a tax period
(04)
ii).
Excess tax collected from the customer
(03)
Autumn 2010
Registration Q1 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) Autumn2005
Q2
State under what circumstances the Collector of Sales-tax is empowered to black list a registered person? (02) Spring2005
Q3
What are the circumstances in which a person registered under the Sales Tax Act, 1990 may apply for cancellation of his registration? (03) Autumn2007 Autumn2007
Q4
List down the persons who are required to be registered under the Sales Tax Rules, Spring2007 2006. (05)
Q5 a)
Under what circumstances can a person registered under the Sales Tax Act, 1990, be de-registered? (04)
b)
Narrate the circumstances under which, which , it becomes obligatory for a person to get registered under the Sales Tax Act, 1990. (04) Spring2008
Q6 a) b)
Identify the situations under which a person registered under the Sales Tax Act, 1990 is liable to be de-registered. (04) Briefly explain the procedure for de-registration as specified by the Sales Tax Rules, 2006. (03)
PAC
c)
Comment whether the following persons are required to be registered under the Sales Tax Act, 1990. (i) (i) Mr. Yahya Yahya is a who whole lesal saler er and and his his ann annua uall busi busine ness ss turn turnov over er is is Rs. Rs. 4.9 4.9 mill millio ion. n. (ii) (ii) Mr. Mr. Faza Fazall is opera operati ting ng a gener general al sto store re and and his his mon month thly ly ave averag rage e turn turnov over er is Rs. 0.4 million. (iii) (iii) Mr. Mr. Isha Ishaq q is plann planning ing to to impo import rt raw raw materi material als s for bus busin ines ess s use. use. The The annual imports are estimated at Rs. 3.0 million. (iv) Mr. Pervez Pervez is is a commer commercia ciall expo exporte rter. r. All his busines business s purc purchase hases s are are either exempt supplies or from unregistered suppliers. (v) Mr. Mr. Faroo Farooq q is a dist distrib ribut utor or of of consu consume merr goods goods and and his his annu annual al turn turnove overr is Rs. 15 million. Mr. Rafiq is a manufacturer of candles. His turnover in last twelve tax (vi) periods was below Rs. 5 million. His utility bills during the same period were Rs. Autumn 2009 550,000. (06)
Books and Records Q1
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) Autumn2002
Q2
What is the minimum information required to be given on Sales Tax invoice? (05) Spring2003
Q3
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 be maintained? (05) Autumn2003
Q4 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 the
purpose of sales tax.(02) Autumn2004 Q5
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) Autumn2006
PAC
Q6
Every registered person making a taxable supply is required to issue a tax invoice at the time of supply of goods. List down the particulars which are required to be contained in a sales tax invoice (04) Autumn2007
Q7
Mr. Kazim has recently started a business and has been registered under the Sales Tax Act, 1990. You are required to explain to him the provisions of Sales Tax Act, 1990 relating to maintenance and retention of records.(10) Autumn2008
Q8
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) Spring2008
Q9
State the provisions of Sales Tax Act, 1990 relating to maintenance and retention of records by a registered person making taxable supplies. (09) Spring 2010
Returns Q1
Who is required to file a final return under the Sales Tax Act, 1990? When is it required to be filed? (02) Spring2005
Q2
Revision of return during audit or after issuance of a show cause notice by the department. (04) Spring2006
Q3
Describe the provisions of the Sales Tax Act, 1990 relating to filing of retail tax return and revision of retail tax return by a registered retailer.(06) Autumn2007
Q4
Under the Sales Tax Rules, 2006 the Federal Board of Revenue has prescribed certain rules for filing the electronic return. You are required to briefly explain these rules. (06) Autumn2008
Miscellaneous Q1
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 tra nsfer 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) Spring2006
PAC
Q2
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) Autumn2006 Q3 a)
Describe the conditions mentioned in the Income Tax Ordinance, 2001 under which a loan will be classified as a ‘consumer loan’. (04)
b)
Explain the relevant provisions of the Income Tax Ordinance, 2001 regarding applicability of minimum tax. (05) Autumn2006
Q4 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 deed contains 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 lump sum su m amount of Rs. 3.0 million as royalty, on March 31, 2006. Explain the tax implication for Autumn2006 the author. (03)
Q5
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) Spring2008
Q6
There are various situations in the Income Tax Ordinance, 2001 when the rules applicable to Companies are different from those applicable to other assesses. a ssesses. Briefly discuss the differences in the tax laws for an Individual and a Company in the following cases:
PAC
a)
Dividend income
b)
Rental income
c)
Method of accounting
d)
Payment for sale of goods or rendering of services (08)
Spring2008
