Term Test 2 Solution

Answer-1
King and Lamda
Taxation of AOP (Resident) 0.5
Income and tax thereon
Rs in 000
Income from business Pakistan source (W-1) 34,452 0.5
Income from capital gain [S.37(3)] [100,000 x (85 – 50) + 100,000 x (78-50)] 6,300 1
Income from capital gain – separate block (W-1) 2,550 0.5
Income from business – FSI 600 0.5
Total Income 43,902
Less: Income from capital gain – separate block (2,550) 0.5
Taxable income 41,352

Tax payable 765,000 + 37,352,000 x 35% 13,838 0.5

Less: Foreign tax credit on income from business:
Lower of: [S.103]
a) Pakistan average rate of tax (13,838/41,352 x 600) 201
b) Foreign income tax paid 70 (70) 1
13,768
Add: Tax on securities (2,550 x 12.5%) 319 0.5
Tax payable to Government 14,087 0.5

(W-1) Income from business Pakistan source Rs. (000)

Profit before tax 45,385 0.5
Add: Inadmissible expenses
Individual payment of advertisement of Rs. 9,000 (90,000/10) (allowed) [S. 20(1)] - 0.5
Legal expense (being wholly and exclusively for business is allowed) [S. 20(1)] - 0.5
Unsuccessful court case (being wholly and exclusively for business is allowed) - 0.5
Contribution to unapproved pension fund being foreign [S.21(e)] 2,600 0.5
Capital expenditure for improvement of software wrongly expensed [S.21(n)] 1,800 0.5
Capital expenditure for building ramps wrongly expensed [S.21(n)] 650 0.5
Accounting Depreciation and amortization [S.22(1)] 1,875 0.5
Car running expense for private use [S.21(h)] (50 x 70%) 35 0.5
Production manager car running costs (allowed) [S.20(1)] - 0.5
Parking fines paid [S.21(g)] 30 0.5
Mark up bank loan (allowed) [S.20(1)] - 0.5
Mark up short term loan (allowed) [S.20(1)] - 0.5
Tax Gain on disposal of vehicles at market value (5,250 - 3,320) 1,930 0.5
Tax bad debt recovery [S.29] (W-2) 0
8,920
Less: Gain on sale of securities 30,000 x (120 – 35) 2,550 0.5
Accounting gain on vehicle 0
Gain on disposal of shares in ML 100,000 x (85 – 50) + 100,000 x (75-50) [S.37] 6,000 1
Accounting Bad debt recovery [S.29] 90 0.5
Foreign source business income 600 0.5
(9,240)
Income from Business before depreciation and amortization – PSI 45,065 0.25

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Term Test 2 Solution
Less: b/f business loss before depreciation [S.57] ( 3,550 + 2,900) (6,450) 0.5
38,615
Less: Depreciation and amortization c/y (W-3) (1,613) 0.25
37,002
Less: un- absorbed depreciation and amortization b/f (lower) (2,550) 1
- Actual 2,550
- 50% of 37,002
34,452

(W-2) Tax bad debt recovery

Amount received 90
Less: Actual amount of bad debt 90
Less: Previously allowed as deduction (0) (90)
0 0.5
(W-3) Tax amortization, depreciation and initial allowance
Depreciation on ramp (building) [S.22] 650 x 10% 65 0.5
Amortization on improvement of intangible [S.24] **(1,800/25 x 243/366) 48 1
Tax amortization and depreciation on other assets 1,500 0.5
1,613
** In tax year 2016 in February there were 29 days [S.24(4)]

Answer-2
Mr. Junaid
Taxable income and Tax Thereon
Tax Year 2018 0.5
Rs.
Income from salary (W-l) 8,729,583 0.25
Income from property (W-3) 228,000 0.25
Income from capital gain
Pakistan source – NTR (W-2) 432,000 0.25
Pakistan source – separate block (W-4) 169,000 0.25
Foreign source 600,000 0.5
Income from other source (W-5) 69,500
Total Income 10,186,083 0.25
Less: Gain on securities – separate block (169,000) 0.25
Total Income 10,017,083
Less: Deductible allowance Education expenses (not allowed as inc.>1,500,000) (-) 0.25
Taxable income 10,017,083
Tax Liability (1,095,000 + 4,017,083 x 35%) 2,500,979 0.5
Foreign tax credit (lower of) [Sec.103]
- 30,000
- 2,500,979/ 10,017,083 x 600,000 = 149,803 (30,000) 1
2,470,979
Tax credit on charitable donations [Sec. 61] (2,470,979 /10,017,083 ) x 23,000 (5,674) 1
C is lower of: 23,000 or 30% of 10,017,083

Add: Tax liability on income from disposal of securities (169,000 x 12.5%) 21,125 0.5
Payable to Government 2,486,430 0.5

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Term Test 2 Solution
Workings
(W-1) Income from salary
Nestle
Basic Salary [Sec.12(2)(a)] (500,000 x 7) 3,500,000 0.25
Utility allowance [Sec.12(2)(c)] (3,500,000 x 10%) 350,000 0.25
Medical allowance [Sec.12(2)(c)] (75,000 x 7) 525,000 0.5
Less: Exempt up to 10% of basic salary (3,500,000 x 10%) (350,000) 175,000 0.5
(Clause 139 of 2nd Schedule)
Medical facility (Fully chargeable being not as per terms) (Clause 139 of 2nd Schedule) 200,000 0.25
Accommodation provided (N-1) (3,500,000 x 45%) 1,575,000 0.5
[Rule 4 of ITO 2001]
Conveyance provided [Sec.13(3)] (500,000 x 5% x 7/12) 14,583 0.5
Interest benefit [Sec.13(7)] (1,400,000 x 10% x 5/12) + (700,000 x 10% x 2/12) 70,000 1
Loan waived [Sec.13(9)] 700,000 0.5
Refrigerator, cooking range etc. [Sec.13(13)] (200,000 x 15% x 6/12) 15,000 0.5
Gratuity received (As amount is received outside Pakistan, so fully chargeable) 20,000 0.25
[Clause 13 of 2nd Schedule]
Pension (As he joined in associate of Nestle, so fully taxable) (22,000 x 5)(Feb -June) 0.25
[Clause 8 of 2nd Schedule] 110,000
6,729,583
Associate of Nestle 2,000,000 0.25
Salary income [Sec. 12(2)(a)] 8,729,583

(W-2) Income from capital gain- NTR

Gain(loss)
Shares of Sajid Private Co. [Sec.37(2)] (405,000-30,000) 375,000 0.5
Shares of Anjum Private Co. [Sec.37(2)] (127,000-70,000) 57,000 0.5
Jewellery (Loss not allowed as deduction) [Sec. 38(5)] - 0.5
432,000

(W-3) Income from property

Rental from February 2018 to June 2018[Sec. 15(1)] (60,000 x 5) 300,000 0.5
Less:
Repair expense (1/5 x 300,000) (60,000) 0.5
Amount paid to defend the title of property (12,000) 0.5
228,000

(W-4) Income from Capital Gain -Gain on Securities

Shares of Asim Public Listed Co. [Sec.37A(1A)] (123,000 - 80,000) 43,000 0.5
Shares of Ali Public Listed Co. [Sec.37A(1A)] (104,000 - 70,000) 34,000 0.5
Arbab Public Listed (67,000 – 25,000) 42,000 0.5
Modaraba certificates [Sec.37A(1A)] (200,000 - 150,000) 50,000 0.5
169,000
(W-5) Income from Other Source
- Gift in cash [Sec.39(3)] 56,500 0.5
- Amount received for vacating possession (200,000- 70,000) / 10
[Sec.39(1)(k)] 13,000 69,500 0.5

Notes
N-1: As amount that would have been paid had no accommodation been provided is not given, so I have 0.5
only added 45% of basic salary in respect of accommodation.

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Term Test 2 Solution

Answer-3

i. A pension received by a citizen of Pakistan from a former employer shall be exempt. However if
person continues to work for the employer (or an associate of the employer) then it will be chargeable.
Therefore Rs. 15,000/month pension is chargeable to tax.
ii. As the loan amount is less than Rs. 1,000,000 so nothing will be added in income from salary.
iii. As per Section 51(2) where a citizen of Pakistan leaves Pakistan during a tax year and remains abroad
during that tax year than salary income earned outside Pakistan during that year shall be exempt from
tax. As per above provision nothing will be chargeable to tax in respect of foreign source salary
income.
(2 marks for each point)

Answer-4
a)
(1) The Federal Government is not liable to pay tax on its property or income under any Act of Provincial
Assembly.
A Provincial Government is not liable to pay tax on its property or income under:
 Act of Majlis-e-Shoora (Parliament) or
 Act of the Provincial Assembly of other Province.
(2) If any trade/business is carried on by a Provincial Government outside Province, that income may be taxed
under Act of Majlis-e-Shoora (Parliament) or Act of the Provincial Assembly where business is carried on.
(3) However fee for services can be imposed.

b)

If property is transferred by a person to his spouse or minor child (other than a married daughter) or to
another person for benefit of spouse or minor child, property income will be income of transferor.
However, in case transfer is:
(a) for adequate consideration or
(b) in connection with an agreement to live apart
then it will be income of transferee.

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Term Test 2 Solution
Answer-5

Mr. Zahid Lal

Taxable income and Tax Thereon
Tax Year 2014
Rs in 000
Income from business (adjusted) (500 - 85) 415 1
Add: Tax Depreciation [S.57(4)] 490 0.5
Income from business before depreciation 905
Less: b/f Loss TY 2012 [S.57(1),(3)] (130) 0.5
Less: b/f Loss TY 2013 [S.57(1),(3)] (200) 0.5
575
Less: depreciation b/f (135)
Less: depreciation c/y (490) - 0.5

Capital Gain 800 0.5

Less: b/f loss 2008 [S.59] (65) 735 0.5

Income from other source (100 + 85) 185 1

Taxable income 920 0.5
c/f unabsorbed depreciation [S.57(4)] (575-135-490) 50 1
c/f speculation loss [S.58] 100 0.5
- 2007 capital loss is already dead [S.59]

Answer-6
(i). Where taxable supplies are made to a person who has not obtained registration number, a further
tax shall be charged at the rate of 4% of the value in addition to 18%. However, further tax will
not be charged to those persons who are not liable to be registered. As cottage industries and end
consumer are not liable to be registered, no further tax will be charged on supplies made to both.
[Sec. 3(1A)] (Marks = 2)
(ii). If a registered person is liable to pay any tax, default surcharge or penalty under any law
administered by Board, the refund under Sales Tax Act shall be made after adjustment of that
amount. Therefore, Hiba will receive refund of Rs. 85,000 after adjustment of Rs. 15,000.

[Sec. 10(2)] (Marks = 2)

(iii). Where goods declaration is presented in advance of the arrival of conveyance, the tax shall be
calculated at the rate applicable on the date the manifest of the conveyance is delivered. [Sec. 5]
(Marks = 2)

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