Tax Past Papers

The Institute of Chartered Accountants of Pakistan
Foundation/Modular Examinations
Autumn 2001
September 04, 2001 TAXATION FE-2 (Paper-3)/Module C, SM 1, 5, 7 & 9 (MARKS 100) (3 hours)
Q.1
Define and explain the following with reference to the Income Tax Ordinance, 1979: (a) Assessment Year (b) Special Income Year (c) Resident (d) Tax (e) Average rate of tax
(03) (02) (03) (02) (02)
Q.2
Discuss briefly the legal position with respect to the admissibility or otherwise of the following 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) In the light of provisions of Income Tax Ordinance 1979, who is liable to discharge the tax liability of a deceased person, and to what extent? (06) 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) 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) Describe briefly the provisions relating to re-opening of a completed assessment, including period of limitation, if any? (10) Mr Amir Ali is manager finance in a multinational company. He has received the following salary and other perquisites during the year ended on June 30, 2000: Basic salary Rs. 35,000 p.m. Bonus 180,000 House 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 facility worth Rs.25,000 during the year. Compute the total income of Mr Amir Ali and tax payable thereon. (10)
Q.3
Q.4
Q.5
Q.6
Q.7
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(2) Q.8 T & H Enterprises is a registered firm comprising of two equal partners named Tariq and Hamid. During the year ended on 30th June 2001 the partners besides their shares in the firm enjoyed income and sustained losses from the sources given below: Tariq (a) (b) (c) Hamid (a) (b) (c) z(d)
Income accrued abroad but not remitted to Pakistan. Shares of loss from an association of persons Zakat paid Speculation loss Profit on sale of car Income tax refund Zakat paid
Rs.72,000 5,000 26,500 25,000 13,000 5,000 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. 250,000 Repairs 38,000 Provision for bad debts 14,000 Super tax paid for last year 5,000 Legal expenses 15,000 Commission to Tariq 16,000 Premium of life policies of Partners 5,000 Depreciation 34,000 Net profit: Tariq 149,000 Hamid 149,000 298,000 730,000 730,000 Notes (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. 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? An individual has transferred its property for an inadequate consideration for his benefit. Describe the consequences of the same under the Wealth Tax Act. (05) A non-resident person has obtained funds from a Pakistani bank and purchased a property outside Pakistan with that funds. Describe the impact of assets held abroad and admissibility of debt incurred in Pakistan for the purposes of determination of his net wealth. (05) (THE END)
(20)
(05)
b)
c)
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN
Foundation/Modular Foundation Examinations
Spring 2002
March 5, 2002 TAXATION FE-2 Paper 3 Modular C8 (Module : C, SM 1, 5, 7 & 9) (MARKS 100) (3 hours)
Q.1
Define the following with reference to the Income Tax Ordinance 1979 : a) Assessee b) Capital asset c) Dividend d) Public Company State the classes of income tax authorities under the Income Tax Ordinance, 1979. Briefly explain the provisions of Income Tax Ordinance regarding the claim of : a) rebate for legal and educational expenditure incurred during the income year by an assessee. b) allowance for sum expended by an assessee on the purchase of books. Mr. Ashraf made the following donations during the income year 2000-2001: a) b) Rs. 200,000 in cash to a relief fund sponsored by the Government. 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.
(08) (05)
Q.2 Q.3
(06)
Q.4
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 1979 if 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 the Income 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. Mr. Javaid, Managing Director of a multi national Company has submitted the following data for the income year ending 30 June 2001: Basic Salary Bonus House rent allowance Utilities Rs. 130,500 p.m 325,500 43,500 p.m 13,050 p.m
(10)
Q.6
(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 foreign tour 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. Q.7 What are the requirements for advance payment of tax by an individual under the Income Tax Ordinance 1979? (a) (b) (10)
(05)
Q.8
What are the consequences for non-payment or short payment of advance tax? (05) What powers are provided in the Income Tax Ordinance 1979 for recovery of tax if 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 regarding The mode and procedure of filing an appeal under the Income Tax Ordinance 1979. 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 Decision in appeal Limitation period for decision
(12)
Q.10
For assessees enjoying resident status, presumptive tax regime is applicable only on those earning business income. Comment Explain the term " time of supply" with reference to the Sales Tax Act 1990.
(07) (03)
Q.11 Q.12
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) (07)
Q.13
Explain the incidence of Sales Tax, if any, for exporters? (THE END)
Foundation/Modular Intermediate Examinations
Autumn 2002
September 03, 2002 TAXATION FE-2 Paper 3 Module C Paper C8 Q.1 (a) (MARKS 100) (3 hours)
(b)
(c)
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 Ordinance, 1979. (03) 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. The official liquidator realized Rs.6,500,000 and distribution among the shareholders was made at the rate of Rs.13 per share. Shewani Group owns 200,000 shares in the company. How much of the amount received by Shewani Group is dividend? Please explain your answer. (04) Please define the terms Co-operative Society and Finance Society with reference to the Income Tax Ordinance, 1979 and compare the same. (03) What is binding on all authorities to follow for the purpose of administration of law of Income Tax under the Income Tax Ordinance 1979? What is specifically prohibited for CBR when issuing its orders, instructions for its subordinate officers? What is chargeable to tax under the head income from house property? Elaborate the terms house property and annual value. What is the rationale for allowing vacancy allowance? What are the rules prescribed for the allowability of unrealized rent?
Q.2
(a) (b)
(02) (03)
Q.3
(a) (b) (c) (d)
(01) (04) (02) (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 (agreements with tenants provide that tenants should pay the taxes, cost to be allocated proportionately) 100,000 General and administration expenses 200,000 Rent received includes Rs. 600,000 for three years commencing from July 01 of the current year. 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 house property. (10)
(2) Q.5 Dreamland (Pvt) Ltd. has requested you to advice as regards the important aspects of law for 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. (a) (b) Elaborate the provision of Section 50(1) relating to withholding of tax on Salary. 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 2,300 300 Utility allowance 4,000 2,500 1,000 Recovery of Provident Fund Loan 2,000 1,500 500 Additional information is as follows: i. S is provided a fully maintained car of 1000cc which is used both for private and business purpose. ii. G owns his conveyance and also incurs its running and maintenance cost. The conveyance is used partly for business and private purposes. iii. S,G and O all were entitled for annual bonus due in Sept. 2001, the term of bonus is one basic pay. On the basis of above, compute tax withholding per month under the Income Tax Ordinance read with the Income Tax Rules, 1982 Q.8 Explain whether income tax authorities can rectify their orders, if so, under what circumstances and is there any limitation of time for doing so? How would you make deduction of tax at source on payment of dividend too A resident individual o Public company listed in Pakistan o A non resident individual o A non resident company Explain the law applicable in special case for recovery of income tax from a defaulted partner of a firm. (03)
Q.7
(03)
(16)
(04)
Q.9
(04)
Q.10
(04) (05)
Q.11 Elaborate the term input tax as defined in the Sales Tax Act,1990 Q.12 (a) (b) (c)
What is the significance of Third Schedule to the Sales Tax Act? (03) Define Retail Price in the context of Third Schedule of the Sales Tax Act (02) 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) (THE END)
Modular Intermediate/Old Foundation Examinations Spring 2003
March 04, 2003 TAXATION Module C Paper C8/FE-2 Paper 3 (MARKS 100) (3 hours)
Q.1
Define the following: (a) Person (b) Resident company (c) Tax Year (d) Intangibles Explain the provisions relating to payment of advance tax by an individual.
(08) (06)
Q.2 Q.3
(05) (a) Who is required to furnish a return under the Income Tax Ordinance, 2001. Can the commissioner order a person to file a return of Income. Please (05) (b) explain. (a) Mercury & Co. has provided you the following data: Fair value of leased asset Interest rate Security Deposit paid Depreciation of leased asset Term of lease Yearly rental in arrears Required: You are required to compute the amount available for deduction from the (05) taxable income of Mercury & Co for each year. Please show proper working. (b) Sun & Moon have recently registered as partnership. They have incurred the following expenditure. Fees paid to consultants for preparation of registration deed Rs.50,000 Preparation of feasibility report Rs.100,000 Purchase of office equipment Rs.150,000 Purchase of machinery Rs.1,000,000 Trial run cost Rs.200,000 Installation cost Rs.50,000 Rs. 225,000 20.5% 10% of fair value 33% per annum 3 years 96,890
Q.4
Rs.
Required: You are required to explain the tax treatment by computing the amount allowable as deduction in accordance with the provisions of Income Tax Ordinance 2001 (05)
(2) Q.5 Mr Amir-ud-din has recently constructed an office complex for the purposes of letting out. The office complex is also equipped with its own electric generators for which 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 nonrefundable. 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 1,150,000 50,000 100,000 20,000 50,000 10,000 36,000 200,000 50,000 (10)
Rent for the year already received Rent for the year though due but irrecoverable Signing amount (non-adjustable non-refundable) Fire and water tax paid to the local authority Lawyers fee for suit to recover rent Lawyers fee for drafting master rent agreement Salary of the caretaker who also collects monthly rent Insurance premium being one per cent of market value of the property Repair maintenance expenditure Q.6 (a) Briefly explain the salient features of deduction/collection of income tax at source on the following: (b) Payment of dividend to a corporate shareholder Payment of rent Imports
(06)
What method of accounting is required to be employed by a company deriving income from business. (02) Briefly state the provisions relating to the change in the method of accounting (03) of income from business.
(c) 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 50,000 Conveyance allowance 50,000 House rent allowance 101,250 Leave 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. 30,000 During 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 computations and assumptions, as necessary. (12)
(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) Star Enterprises has submitted the following data for the month of March 2003 Rupees Total Sales-registered Total Sales-Unregistered Export Sales Exempt Supplies Gross Purchases-from Registered suppliers Gross Purchases-from Unregistered suppliers Purchase Return-to Registered suppliers Required: You are required to compute the sales tax liability of Star Enterprises for the month of March 2003. Show proper workings. Q.10 Q.11 Explain the term Manufacture as used in the Sales Tax Act 1990. (a) 1,000,000 5,000,000 2,500,000 500,000 6,500,000 500,000 650,000
Q.9
(10) (03)
Distinguish between the concept of zero-rating and exemption under the Sales Tax Act, 1990. (05) (05)
(b) What are the minimum information required to be given on Sales Tax invoice.
(THE END)
Intermediate Examinations Autumn 2003
September 02, 2003 TAXATION Module C Q.1 Define the following terms in the light of Income Tax Ordinance, 2001? (a) (b) (c) Q.2 Profit on Debt. Income. Public Company. (03) (03) (03) (MARKS 100) (3 hours)
Mr. Bashir Ahmed is an employee who had joined his current employment during the tax year 2003. His details of salary, allowance and perquisites received from company A his previous employer and company B his present employer are as follows : Description Company A Rs. 714,158 150,000 258,663 71,415 Company B Rs. 572,572 71,800 222,746 57,257 Cost of the car purchased by the company Rs.1,100,000 NIL 25,000
Basic Salary Bonus House Rent Allowance Utility Allowance Conveyance provided by employer partly used for business and private use
Leave encashment Medical reimbursement as per the terms of employment Ex-gratia payment received Golden Handshake Scheme under
77,783 35,000
2,048,300
The details of assessed income and assessed tax in respect of past three years is as follows:Assessment year 2000-2001 2001-2002 2002-2003 Assessed Income Rs. 1,309,570 1,545,850 2,264,940 Tax assessed Rs. 269,902 371,255 557,633
(2) During the year Company A had deducted tax under section 149 amounting to Rs.270,000 and Company B had deducted tax under section 149 amounting to Rs.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 deriving business income from a Long Term Contract? (04) Briefly explain the law relating to set-off and carry forward of losses? (07)
(b) Q.4
Compute the projected advance tax liability and net advance tax payable in respect 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) Sales of imported goods Export sales Agency commission Sale of fixed assets Dividend income Miscellaneous income (ii) Gross Tax Liability Tax on export sales Tax on Import of goods Tax on dividend income 20,000,000 2,000,000 3,000,000 1,000,000 200,000 1,000,000 1,500,000 1,200,000 30,000 108,000 50,000
The projected turnover and taxes expected to be withheld at source are as follows:All figures are for the quarter ended September 30, 2003 (i) Gross sales Sale of imported goods Export sales Dividend income Miscellaneous income 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 5,000,000 500,000 1,000,000 Nil 500,000
(ii)
24,000 95,000 10,000(10)
(3)
Q.5
List down the taxes deducted/collected at source which are treated as full and final discharge of tax liability? (a)
(07)
Q.6
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) 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.
(b)
(04)
Q.7
Briefly state the time frame for filing the return of income by (a) (b) a company; persons other than a company.
(05)
Q.8
Briefly explain the requirements of payment of tax viz-a-viz filing an appeal before the Commissioner of Income-tax(Appeals)? Briefly describe the minimum books of accounts, documents, and records that are required to be maintained by the following taxpayers? (a) (b)
(05)
Q.9
Taxpayer (other than a company) deriving business income upto Rs.200,000. (04) Taxpayer (other than a company) deriving business income exceeding Rs.200,000. (04)
Q.10
Define the following terms in the light of Sales Tax Act, 1990. (a) (b) (c) Manufacture or produce. Supply. Taxable activity. (03) (03) (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) 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)
Q.12
(THE END)

Intermediate Examinations Spring 2004
March 06, 2004
TAXATION
Module C
Q.1 Define the following terms in the light of Income Tax Ordinance, 2001? (a) (b) (c) (d) Q.2 Employment Finance society Pre-commencement expenditure Unit trust
(MARKS 100) (3 hours)
(03) (02) (03) (02)
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 cost of 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 above stock 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$ 41 per share. The exchange rate between U S$ and Pak Rupee on the date on which 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 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 firms liability as per return of income was Rs. 15 million whereas tax assessed in the previous assessment was Rs. 18.7 million.
(2) 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) Q.4 (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) Please mention the period for which advance tax is payable and the dates by which such advance tax is payable. (03) 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. (03) Describe the provision relating to income splitting with reference to transfer of assets between individual persons. (10) Mr. A and B are equal partners of a Registered Firm (RF). The profit and loss account of RF shows profit before tax of Rs. 10 million for the year ended June 30, 2003. Assuming no other tax adjustment, the profit shown in the accounts is liable to tax. You are required to compute the tax, if any, p ayable by the RF, Mr. A and Mr. B, assuming Mr. A and B have no other source of income. Also give brief explanation of the treatment made in the computation. (05)
(c)
(d)
Q.5
Q.6
Q.7
(a)
Please discuss the parameters of audit of income tax affairs of any person given in the Income Tax Ordinance, 2001. (05) 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)
(b)
Q.8
Describe the requirements of Income Tax Ordinance, 2001 for persons who are about to discontinue his business. (05) Define the following in the light of Sales Tax Act, 1990: (a) (b) (c) (d) Defaulter Due Date Similar supply Retail price (02) (02) (02) (02)
Q.9
(3)
Q.10
(a)
Following is the pertinent data relating to sales tax return of the company: Output tax Further tax at the rate of 3% u/s 3(IA) Rupees 310,000 150,000 225,000 175,050 210,000
Input tax claimable Rupees July 2003 August 2003 September 2003 October 2003 November 2003 1,050,000 1,450,000 1,130,000 1,200,100 1,050,000
Tax at the rate of 15% Rupees 1,210,000 1,175,750 1,375,000 1,300,750 1,250,700
You are required to compute the sales tax payable alongwith the monthly sales tax return for the tax period July 2003, August 2003 and September 2003 with brief explanatory notes, where relevant. (05) (b) With reference to data in (a) above, assuming that on October 20, 2003 it was found 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 that period. On November 10, 2003, it was also found out that there was another input 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 be claimed under the Sales Tax Act, 1990. If your answer is in affirmative, then briefly 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 that output tax of Rs. 1,300,750 shown in the monthly return for tax period October 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)

September 07, 2004
TAXATION
MODULE C
Q.1
Define the following with reference to the Income Tax Ordinance, 2001? (a) (b) (c) (d) Fee for technical services Non-profit organization Income Taxpayer (03) (03) (03) (02)
Q.2
Describe the common rules for treating the following under the Income Tax Ordinance, 2001? (a) (b) Receipt of income. Currency conversion. (04) (04)
Q.3
(a) (b)
List down the assets on which Initial allowance can not be claimed? What are the prescribed rates of normal depreciation on the following assets as per the Third Schedule to the Income Tax Ordinance, 2001? i) ii) iii) iv) v) vi) vii) viii) Factory building. Residential quarter for labour. Furniture. Plant and machinery. Computer and hardware. Technical books. New ships. Motor vehicle.
(04)
(04) (04)
Q.4
Describe the expenses which are allowable as a deduction on account of employees training and facilities?
Q.5
Discuss the conditions required to be fulfilled for claiming a deduction on account of bad-debts? (03) Describe the principles of taxation for an Association of Person? (06)
Q.6
(2) Q.7 Describe the circumstances under which the following shall be treated as resident for the purposes of charge of tax? (a) (b) (c) Q.8 An individual. A company. An association of person. (02) (03) (01)
Describe the provisions relating to set-off and carry forward of foreign losses under the Income Tax Ordinance, 2001?
(03)
Q.9
(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 Income-tax (Appeals)? (02)
Q.10
Briefly state the time limit for filing an Appeal/Reference before the following forums? (a) (b) (c) The Commissioner of Income-tax (Appeals). Income Tax Appellate Tribunal Reference to the High Court. (01) (01) (01)
Q.11
Define the following with reference to the Sales Tax Act, 1990? (a) Distributor (b) Input-tax (c) Manufacture (d) Similar supply.
(02) (04) (04) (02)
Q.12
Discuss the treatment provided under the Sales Tax Act, 1990 in respect of any excess tax collected from the customer. (03) Describe the category of goods on which sales tax is chargeable at Zero rate? (03)
Q.13
Q.14
(a) (b) (c)
Discuss the salient features of a tax invoice? Who is permitted to issue a tax invoice? State the period for which a person is required to maintain records for the purpose of sales tax.
(05) (02) (02)
(3)
Q.15
Mr. A is the Chief Executive of a multinational company. Details of his emoluments are 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. 52,000 During 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 sale amounts to Rs.4,206,000. He also owns a property which has been let out on rent. T he details of rent received and expenses incurred are as follows: (a) (b) (c) Rent Rs.10,000 per month. The property was let out on rent for the whole year. The annual letting value of the house is Rs.100,000. He has paid property tax amounting to Rs. 11,500. 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) (b) From salary income Rs. 3,600,000 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)

March 08, 2005
TAXATION
Module C Q.1 Define the following with reference to the Income Tax Ordinance, 2001: (a) (b) (c) Q.2 Employer, employee and employment. Principal Officer. Profit on debt.
(05) (02) (04)
Discuss the common rules with regard to the following under the Income Tax Ordinance, 2001: (a) (b) (c) Fair Market Value. Income of joint owners. Non-arms length transactions of disposal of assets. (03) (02) (02)
Q.3
Describe any five types of expenses that are not allowed to be deducted under the head income from business. (05) (a) (b) Describe the assets that are not eligible for the purpose of claiming initial depreciation allowance. Discuss which assets are not considered capital assets for the purpose of determining income under the head Capital Gains.
Q.4
(04) (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 to explain the following issues to them in the light of the provisions of section 93: (a) (b) Determination of members share in the total income of the firm. (03) 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 be fulfilled in this regard? (04) 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) What is the status of a complete return of income filed under the Income Tax Ordinance, 2001?
Q.7
Q.8
(05)
(2) Q.9 Define the following with reference to the Sales Tax Act, 1990:(a) (b) (c) Q.10 Associated person. Manufacturer or producer. Taxable supply. (03) (05) (02)
What impact would a change in rate of Sales-tax have in case of: (a) (b) Supply of goods. Import of goods. (01) (04)
Q.11
What are the precondition of claiming input tax against output tax by a registered person? (03) State under what circumstances the Collector of Sales-tax is empowered to black list a registered person? (02) Define value of supply under the Sales Tax Act. 1990 for the following situations: (a) (b) Consideration for a taxable supply is partly in kind and partly in money. Trade discounts. (03) (02)
Q.12
Q.13
Q.14
Who is required to file a final return under the Sales Tax Act, 1990? When is it required to be filed? (02) 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 2100 sq. yds. Motor vehicle for both private and official use, cost of acquisition of which was Rs.2,000,000. Children education fees for the year Rs.105,000. House servant salaries for the year Rs.230,000.
Q.15
(ii)
(iii) (iv)
According to the terms of employment the tax liability of Mr. B on the above benefits and perquisites from (i) to (iv) above is borne by the employer. Tax liability on other remuneration is borne by himself. Mr. B also owns a property which was let out on rent for a part of the year details of income and expenses incurred are as follows: (a) Rent Rs.50,000 per month. (b) The property was let out on rent from December 2, 2003 to June, 2004 (c) Property tax paid Rs.35,000.
(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 falling Value for within the limits of other areas. Metropolitan Corporation, Municipal Corporation, Cantonment Board or the Islamabad Capital Territory. With land area upto 250 sq. yards. Rs.40,000 Rs.27,000 With land areas exceeding 250 sq. Rs.106,000 Rs.66,000 yards but not exceeding 500 sq. yards. With land area exceeding 500 sq. Rs.199,000 Rs.106,000 yards but not exceeding 1000 sq. yards. With land area exceeding 1000 sq. Rs.370,000 Rs.198,000 yards but not exceeding 2000 sq. yards. With land area exceeding 2000 sq. Rs. 462,000 Rs.264,000 yards. (22)
(THE END)

September 06, 2005
TAXATION
Module C Q.1 Define the following with reference to the Income Tax Ordinance 2001: (a) (b) (c) (d) (e) Q.2 Small Company Public Company Association of Persons Income Taxpayer
(02) (03) (02) (02) (02)
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 multinational group. 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 the year. 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 miscellaneous cost of Rs. 100,000 to move the household items of Mr. Imran from Pakistan to Dubai. From Pakistan subsidiary (a) (b) Basic salary Rs. 500,000 p.m. Medical allowance Rs. 45,000 p.m (no free medical or hospitalization facility is given to Mr. Imran under the terms of employment). The company has provided Mr. Imran a TV and VCR costing Rs. 40,000 on which the company charges depreciation at the rate of 20% in its books of accounts. Company has provided interest free loan to Mr. Imran amounting to Rs. 5 million which remained outstanding throughout his employment with the company. Mr. Imran acquired a flat from the amount of loan and rented it out at the rate of Rs. 50,000 p.m for a period of seven months. He also paid Rs. 35,000 as property tax during the period. His familys housing cost in Dubai, borne by the company amounts to Rs. 30,000 p.m.
(c)
(d)
(e)
(2) (f) Mr. Imrans travelling and related cost borne by the Pakistan subsidiary to meet his family, amounts to Rs. 30,000 p.m. During the employment with the Pakistan subsidiary, Mr. Imran had exercised option to acquire 300 shares of the parent company at the rate of US $ 8 per share. At the time when the option was exercised, the value of the share was US $ 10 (Rs. 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 nor Mr. Imran incurred any cost in this regard.
(g)
Required: Compute the taxable income of Mr. Imran for the tax year 2005 based on the data provided above. (16) Q.3 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) How will the tax be recovered if a private limited company fails to pay tax at the time of winding up. (04) Describe the relevant provisions of the Income Tax Ordinance 2001 to determine the residential status of a Person. (07) 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) Under what conditions is it necessary for an individual to file a return of income. (06)
Q.4
Q.5 Q.6
Q.7 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 made to employees who opt for the scheme. Discuss the chargeability of above amounts in the hands of employees. (04) Explain the provisions of the Income Tax Ordinance 2001 regarding the principles of taxation of Association of Persons. (07) 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) (b) Can input tax paid in prior periods be claimed in a monthly tax return. What would happen, if input tax paid exceeds output tax payable for the month. (03) (02)
Q.9
Q.10
(c)
What recourse is available if output tax for the month is inadvertently disclosed at a lesser amount. (03)
(3) Q.11 (a) (b) Identify the persons required to be registered under the Sales Tax Act 1990. (03)
Under what circumstances is a registered person liable to be de-registered? Also explain the procedure for de-registration. (07) Explain the provisions relating to black listing and suspension of registration. (06)
(c) 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 5,000,000 1,500,000 3,000,000 4,000,000 1,000,000 1,000,000
Supplies to registered person Supplies to unregistered person Export Supplies Purchase from registered suppliers Purchase from unregistered suppliers Sales of exempt goods
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 on January 12, 2005. The input tax on the said purchase was accounted for in the relevant tax period. Goods purchased from unregistered suppliers are exclusively used for making taxable supplies.
Required: Determine the amount of sales tax liability. (06)
(THE END)

March 07, 2006
TAXATION
Module C Q.1
Ms. Fatima Hasan was working as a Marketing Head with Consumer Products Limited (CPL) at following emoluments: (i) (ii) (iii) Basic salary Rs. 100,000 per month House rent allowance Rs. 40,000 per month Utilities allowance Rs. 15,000 per month
In 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. As per 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) (ii) (iii) (iv) (v) (vi) Shares in Queens Pakistan (Pvt.) Limited were sold for Rs. 500,000. These shares were acquired in the year 1999 at a cost of Rs. 200,000. A residential plot inherited in the year 2000 was sold for Rs. 1,000,000. The fair market value of the plot at the time of inheritance was Rs. 200,000. A painting purchased at a cost of Rs. 100,000 was sold for Rs. 75,000. 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. Dividend of Rs. 50,000 was received on account of shareholding in a listed Company. Tax of Rs. 5,000 was deducted under section 150. She received a fee of Rs. 100,000 in consideration for preparing a research paper for a foreign University. Fatima incurred Rs. 10,000 on the printing of research paper and courier charges for sending the paper abroad. An amount of Rs. 50,000 was donated to an approved charitable institution.
(vii)
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) (b) Depreciable Assets Turnover for the purpose of computing minimum tax liability (05) (05)
(2) Q.3 (a) Explain with reasons, as to whether or not the following expenses are admissible business expenditures: (i) (ii) (iii) (iv) Penalty paid by a banking company on contravention of State Bank of Pakistans regulations. Freight charges to forwarding agent amounting to Rs 60,000 paid in cash Payment of salary to an employee from which tax was not deducted by the employer. However, the employee paid the tax himself. Tax deducted under section 153 from payments received by a resident person 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) Explain the provisions of section 29 with regard to the recovery of bad debts in subsequent years. (05)
(c)
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 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. 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) (ii) 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. Legality of the tax assessment proceedings pending against Mr. Ather at the 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 is empowered to issue a notice requiring a person to furnish a return of income for a period of less than twelve months. (04)
(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 Loss under the head income from other source after setting off dividend income of Rs. 30,000 Income from speculation business Capital gains on disposal of shares of private limited companies Loss from business of textiles after considering tax depreciation of Rs. 290,000 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. 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) (b) The ITAT has set aside the assessment and order of the ITAT was received by the Commissioner on November 30, 2004. (03) 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) Rupees (20,000) 10,000 20,000 410,000
(06)
Q.9
List down the exports which are outside the purview of zero rating under section 4 of the Sales Tax Act, 1990. (03) Explain the provisions of section 26 of Sales Tax Act, 1990 with regard to the following: (a) (b) (c) Change in rate of tax during a tax period Voluntary revision of return Revision of return during audit or after issuance of a show cause notice by the department. (02) (04) (04)
Q.10
(4) Q.11 Which date shall be considered as the date of payment of sales tax in the following cases: (a) (b) Q.12 Payment through cash or cheque Payment through pay order or bank draft (01) (02)
With reference to Sales Tax Rules 2005 relating to the apportionment of input tax, explain the following: (a) (b) (c) Residual input tax Manner of computation of residual input tax credit on taxable supplies Concepts of provisional and final adjustment (THE END) (03) (03) (03)

September 05, 2006
TAXATION
Module C
Q.1 (a) (b) Describe the term rent in the context of income from property.

(02)
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. Specify under which head of income, following amounts of rent would be chargeable to tax: (i) (ii) Rent in respect of lease of a building together with plant and machinery. 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.
(03)
(c)
(02)
Q.2
(a) (b)
Explain the different types of tax years as enumerated in the Income Tax Ordinance, 2001. 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) (ii) (iii) A car for his personal and official use, having cost of Rs. 700,000 to the employer. Rent free accommodation having monthly rent of Rs 20,000 or cash in lieu thereof. However he has opted to take rent free accommodation. Special allowance of Rs 15,000 to meet traveling, boarding and lodging expenses to be incurred by him in the normal course of his employment duties.
(06)
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: Taxable Income (Rs.) 1,050,001 1,200,000 1,200,001 1,500,000 1,500,001 1,700,000 1,700,001 2,000,000 2,000,001 3,150,000 3,150,001 3,700,000 Rate of Tax (%) 11.00 12.50 14.00 15.00 16.00 17.50
(10)
(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) (ii) (iii) (iv) Accounting profit on disposal of fixed assets. Reversal of provision for doubtful debts pertaining to the year ended June 30, 2004. Dividend received from a listed company. Profit on debt. (04)
You are required to explain with reasons as to how the above items will be treated in the computation of taxable income. (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. 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. (b) Describe the conditions mentioned in the Income Tax Ordinance, 2001 under which a loan will be classified as a consumer loan. (c) Explain the relevant provisions of the Income Tax Ordinance, 2001 regarding applicability of minimum tax. 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)
(04) (04) (05)
Q.5
(a)
(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. (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. 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.
(02)
(03)
Q.6
(a)
(06)
(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? (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. 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. (b) Describe the circumstances under which a registered person shall not be able to claim or deduct input tax? Q.8 (a) What is the difference between zero-rated and exempt supplies? (06) (06) (04) (05)
(05)
(b) A registered person is required to maintain certain records under the Sales Tax Act, 1990. You are required to: (i) (ii) (iii) explain the provisions relating to maintenance of records. list down the records that are required to be maintained. specify the minimum period for which the records are required to be retained.
(10)
(THE END)

March 8, 2007
TAXATION
Module C
Q.1 (a) Briefly explain the taxability perquisites:

or exemption of the following allowances or
(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 the employer. (iii) Medical allowance paid at 10 percent of basic salary. (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.
(06)
Also discuss the rules relating to set off and carry forward of associations losses. 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 fair market value of Rs. 200,000 on the date of inheritance. In February 2007, the sculpture was sold by him at Rs. 500,000. In December 2006, Mr. Yahya entered into an agreement for sale of his residential plot to Mr. Moosa, who paid an advance of Rs. 500,000. According to the agreement, Mr. Moosa was required to pay the balance by February 28, 2007. However, instead of paying the balance amount, he terminated the sale agreement. Mr. Yahya forfeited the advance of Rs. 500,000 in accordance with the terms of the agreement.
(08)
(ii)
(iii) In September 2006, Mr. Saleem sold his personal car, Toyota Corolla, to one of his cousins at a price of Rs. 50,000 whereas the fair market value of the car was Rs. 200,000. The car was purchased by him in the year 2000 at a cost of Rs. 300,000. (iv) Mr. Ibrahim was working as a Chief Financial Officer in Dawood Pakistan (Pvt) Limited, which is a wholly owned subsidiary of Dawood AG, Germany. According to the 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. In consideration for his services, he received a net amount of Rs. 47,000 after tax deduction of Rs. 3,000.
(12)
(2)
(b) Discuss the provisions of the Income Tax Ordinance, 2001 relating to the computation of opening and closing stock. Explain the following terms with reference to the Income Tax Ordinance, 2001: (i) Income (ii) Profit on debt 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 3 2 (05) (04)
Q.3
(a)
(06)
(b)
Tax deducted at source by the customers Tax paid on import
Compute advance tax liability for the quarter ended December 31, 2006. 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 Tax Ordinance, 2001; and a non profit 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. (b) 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. 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. 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. 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? 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.
(07)
(04)
Q.5
(a)
(08)
(b)
(04)
(06)
(b)
(04)
(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. (b) List down the persons who are required to be registered under the Sales Tax Rules, 2006. (08) (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 made are 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 in a registered persons balance. (iii) Following purchases were made during the month: Rupees in million 45 15 60
- From registered persons - From unregistered persons (iv) (v) (vi)
All goods purchased from unregistered persons are exclusively used for making taxable supplies. 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. Mr. Adam is also required to pay the following: Arrears Surcharge Penalty Rupees 500,000 70,000 30,000 (13)
Compute Mr. Adams sales tax liability.
(THE END)

September 08, 2007
TAXATION
Module C
Q.1
Mr. Ayub, after retirement from a multinational company as a senior executive, was rehired on contract for a period of three years. However, due to certain reasons, the contract 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: Basic salary (per month) Rent of furnished accommodation (per month) Utilities allowance (per month) Medical benefits reimbursed during the year Rupees 70,500 30,000 12,000 25,000
House rent was paid by the company directly to the landlord. Medical benefits were reimbursed against bills submitted by Mr. Ayub. On his retirement as a permanent employee, he had been paid gratuity from the approved fund. 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 was also paid out of the fund, on termination of the contract. In lieu of premature termination, the following additional benefits were allowed to Mr. Ayub: (i) (ii) A compensation for early termination of Rs. 150,000 was paid. Mr. Ayub had obtained an interest free loan of Rs. 200,000 on July 1, 2006 which was payable in lumpsum on March 31, 2007. 25% of the outstanding balance was waived and remaining amount of loan was deducted from his final settlement. The benchmark rate according to the Income Tax Ordinance, 2001 is 10%.
(iii) He was allowed to retain a 1600cc car which was in his use, at accounting book value of Rs. 650,000. The fair market value of the car at the time of settlement was Rs. 700,000. Required: Compute the taxable income and tax liability for the tax year 2007. The rates of tax as given in the First Schedule to the Income Tax Ordinance, 2001 are as under: Taxable Income (Rs.) 700,000 850,000 850,000 950,000 950,000 1,050,000 1,050,000 1,200,000 Q.2 (a) Rate of Tax (%) 7.50 9.00 10.00 11.00
(14)
What do you understand by the concept apportionment of expenditures as explained in the Income Tax Ordinance, 2001? (06)
(2)
(b) One of your client which is a subsidiary 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) 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. Rafiqs point of view in the light of Income Tax Ordinance, 2001. Q.3 (a) Mr. Zia inherited certain assets from his father in the year 2004. The fair market values of the assets on the date of inheritance were as follows: 25,000 shares of a private limited company 21,000 shares of a public listed company Membership card of Karachi Stock Exchange Jewellery Fair Market Value (Rs.) 2,500,000 462,000 20,000,000 1,500,000 (03)
(c)
During the tax year 2007, Mr. Zia undertook the following transactions: (1) He gifted some of the assets to his 20-year old son Mr. Ishaq. The detail and fair market values of the assets are as follows: Fair Market Value (Rs.) 10,000 shares of the private limited company 2,000,000 10,000 shares of the public listed company 1,700,000 Membership card of Karachi Stock Exchange 40,000,000 (2) The remaining shares were sold as follows: shares of private limited company for Rs. 3,000,000, shares of public limited company for Rs. 1,500,000. Mr. Ishaq sold all the assets transferred through gift in the same year. The assets fetched the following amounts: Sales Proceeds (Rs.) 10,000 shares of a private limited company 2,500,000 10,000 shares of a public listed company 1,500,000 Membership card of Karachi Stock Exchange 55,000,000 Required: (i) Based on the above information, compute the taxable income of Mr. Zia and Mr. Ishaq for the tax year 2007. (ii) Give brief explanation for the items not included in the taxable income. (10) (b) 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) 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)
Q.4
(a)
(3)
(b) 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. Q.5 (a) (b) (04)
Identify the situations in which two companies shall be considered to be associates within the meaning of the Income Tax Ordinance, 2001. (06) Briefly discuss the allowability of the following against business income chargeable to tax: (i) (ii) (iii) 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 Income Tax Ordinance, 2001. Depreciation on leased assets amounting to Rs. 150,000. (05)
(c)
Explain the term Permanent Establishment with reference to the Income Tax Ordinance, 2001. (06) A resident person is about to leave the country. Briefly explain the following in the light 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; (06) rules relating to assessment of income. A person who places an eligible depreciable asset into service in Pakistan for the first time in a tax year shall be allowed initial depreciation allowance. List down the assets which do not come under the purview of eligible depreciable assets for (04) the purpose of initial allowance. 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) 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)
Q.6
(a)
(b)
Q.7
(a) (b)
Q.8
(a)
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) 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) What are the circumstances in which a person registered under the Sales Tax Act, 1990 may apply for cancellation of his registration? (03) (THE END)
(b) (c)

March 8, 2008
TAXATION
Module C
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) Cost of sales Selling, administrative and other expenses Profit before tax Tax deducted at source on import of raw material Tax deducted at source on sale of goods 76,000 53,000 23,000 16,250 6,750 900 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 sole proprietor. He also sold his personal car for a loss of Rs. 50,000. (iii) Mr. Rashid earned a gross income of Rs. 200,000 from another partnership firm where he is entitled to 25% of the total profit of the firm. He also earned dividend of Rs. 50,000 from a listed company. (v) Mr. Moin has no other source of income. Required: 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 Where the taxable income exceeds Rs.200,000 but does not exceed Rs.300,000 Where the taxable income exceeds Rs.300,000 but does not exceed Rs.400,000 Where the taxable income exceeds Rs.400,000 but does not exceed Rs.500,000 Where the taxable income exceeds Rs.500,000 but does not exceed Rs.600,000 Where the taxable income exceeds Rs.600,000 but does not exceed Rs.800,000 Where the taxable income exceeds Rs.800,000 but does not exceed Rs.1,000,000 Where the taxable income exceeds Rs.1,000,000 but does not exceed Rs.1,300,000 Where the taxable income exceeds Rs.1,300,000 Tax on rental income from property Tax on dividends 4.00% 5.00% 7.50% 10.00% 12.50% 15.00% 17.50% 21.00% 25.00% 5.00% 10.00%
(17)
(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) (ii) (iii) Option granted to an employee. 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 transfer.
Explain the timing and valuation aspects in respect of the above, with reference to the Income Tax Ordinance, 2001. (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?
(09)
(04)
Q.4
(a)
Discuss the taxability of the following under the Income Tax Ordinance, 2001: (i) (ii) (iii) Bad debts Non-adjustable rent 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) (ii) The types of institutions to whom the donation(s) would entitle him for tax credit. The method of calculation of tax credit.
(08)
(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) (ii) (iii) (iv) Dividend income Rental income Method of accounting 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) (ii) (iii) retailer distributor 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. Under what circumstances can a person registered under the Sales Tax Act, 1990, be de-registered?
(04)
(c)
(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? 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: (i) (ii) (iii) Extent of restriction on admissibility of input tax; The conditions under which the amount of input tax which had been so restricted, may subsequently be allowed; Treatment of sales tax paid on acquisition of fixed assets.
(03)
(b)
(06)
(THE END)

Intermediate Examinations
September 6, 2008
Autumn 2008
TAXATION
Module C
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) (ii) (iii) He received basic salary of Rs. 65,000 per month. He was provided with furnished accommodation for which DD Pakistan Limited paid a rent of Rs. 25,000 per month. 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. 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. 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. 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. He incurred the following expenses on the apartment: Repairs Share of rent to House Building Finance Corporation (viii) (ix) (x) (xi) Rupees 8,000 15,000
(iv) (v) (vi)
(vii)
Gross dividend of Rs. 12,000 was received from a listed company. Provident fund was deducted @ 12% of his basic salary. An equal amount was contributed by the company. He withdrew cash from the bank on which the bank deducted tax of Rs. 400. Tax deducted by the company amounted to Rs. 170,000. (15)
Compute his taxable income, total tax payable and tax payable with the return. Applicable tax rates are as follows: Where the taxable income exceeds Rs. 950,000 but does not exceed Rs. 1,050,000 Where the taxable income exceeds Rs. 1,050,000 but does not exceed Rs. 1,200,000 Where the taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 1,500,000 Where the taxable income exceeds Rs. 1,500,000 but does not exceed Rs. 1,700,000
10.0% 11.0% 12.5% 14.0%
Q.2
(a)
List the persons who are required to file a return of income under the Income Tax Ordinance, 2001. Explain the term long term contract and the method of computing the income from long term contract, under the Income Tax Ordinance, 2001.
(06)
(b)
(06)
(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) (ii) Being a UK national, he will be a non-resident for Pakistan tax purposes; 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; No tax was deducted from his remuneration. However, United Autos deposited an amount of Rs. 275,000 in the government treasury on his behalf. Mr. Henry believes that taxes deposited on Mr. Henrys behalf does not attract any additional tax incidence for him as he has not received the amount in cash, from the company. Since his remuneration was agreed to be paid in Pound Sterling, the rate of conversion for tax purpose shall be the rate applicable on the date of agreement. Any increase in value of Pound Sterling against Pakistan Rupee should be non-taxable.
(iii)
(iv)
Briefly explain whether or not Mr. Henrys assumptions in (i) to (iv) above are in accordance with relevant provisions of the Income Tax Ordinance, 2001. (08) (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)
Q.4
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. In his books of accounts, an expense of Rs 50,000 has been charged on account of various household expenses. 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. 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. 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. 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.
(ii) (iii)
(iv) (v)
(vi)
(12)
(3)
Q.5 (a) Explain the term Small Company and the privileges available to it under the Income Tax Ordinance, 2001. 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 advance tax. State the circumstances when two companies shall be considered as associates, under the Income Tax Ordinance, 2001.
(06)
(b)
(07)
(c)
(04)
Q.6
(a)
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)
(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)
Q.7
(a) (b)
Explain the concept of Value of Supply under the Sales Tax Act, 1990. 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. (THE END)
(08)
(06)

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THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

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