02 Income Tax 1

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INCOME TAX LAW

MOST IMPORTANT QUESTIONS
1. What do you mean by Agricultural Income? Is it Taxable in Pakistan? Give at least five examples of
Agricultural Income and five examples of Non-Agricultural Income. (2006)
2. What are the Legal provisions governing the Residential and Non-Resident Status of various
Taxpayer in Pakistan. (2003)
3. What is Provident Fund? Discuss the treatment of various types of Provident Fund for inclusion in
Total Income and Exemption from Income Tax. (2003, 2005)
4. What are the different types of perquisites enjoyed by the salaries individual? Discuss.
5. What do you mean by Rent Chargeable to Tax? What are the allowable deductions for determining
Taxable Income from Property under Income Tax Ordinance? (2004
6. Define Capital and Revenue Receipts and Expenditures. Explain the Test applies with regard to
Capital and Revenue Expenditures.
7. Define Capital and Revenue Receipts and Expenditures. Explain the Test applies with regard to
Capital and Revenue Receipts.
8. Define the term Business and Profession and discuss the Taxability and scope of Business or
Profession also writes the deductions admissible under this Head.
9. What are the conditions laid down under the income tax ordinance for depreciation allowance?
10. Define the term Capital Gains and Capital Assets or what is the Procedure of computing the
Capital Gains also explain the deductions and exemptions?
11. Explain the term Income from Other Sources with examples or what are the Allowable Deductions
under Income from Other Sources?
12. Briefly explain the legal provisions governing the filing of total income under the Income Tax
Ordinance 2001.
13. Explain various types of Assessment made by Income Tax Authorities under the Law.
1. Return of Income in Assessment 2. Amendment in Assessment 3. Provisional Assessment 4.
Assessment if Return not Furnished 5. Assessment of Disputed Property.
14. How the Income Tax is recovered from the Defaulters and Refunded?
15. Define Set Off and Carry Forward of Losses and how these can be set off and Carry Forward?
16. Discuss the power and function of Deputy Commissioner Inland Revenue or Assistant
Commissioner Inland Revenue.
17. Discuss the power and function of Commissioner Inland Revenue.
18. Discuss the power and function of Chief Commissioner Inland Revenue.
19. Discuss the power and function of Federal Board of Revenue.
20. Discuss the composition of Appellate Tribunal Inland Revenue. What are the functions performed
by it?
21. Discuss the legal provisions regarding the filling of appeal to Appellate Commissioner or how he
disposes of the appeal
Q. 1. What do you mean by Agricultural Income? Is it Taxable in Pakistan? Give at least five
examples of Agricultural Income and five examples of Non-Agricultural Income. (2006)
Agricultural Income means income:

1. derived from land
2. land is situated in Pakistan; and
3. land is used for agricultural purposes.
Any income received as rent, revenue, or from sale of any produce which is grown on a Pakistani
Land is Agricultural Income.
That the land must be used for agricultural purposes, which means that some human efforts are
necessary to be employed. If a produce is grown wild or spontaneously on land without any human
efforts or labor, it will not be treated as agricultural income.
Prof. M. Hafeez Ch. (M.Com. DCMA. ITP,CA)
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Is it Taxable in Pakistan?
Agricultural income is completely exempt from tax. Although many changes have been brought
since past few years but presently the agricultural income received by a person is fully exempt
from tax.
Types of Agricultural Income
1. Rent or revenue received from agricultural land.
2. Income received from such land by agricultural.
3. Income received from such land by the performance of a process ordinarily employed
by a receiver of rent in kind to render the produce fit for market.
4. Income received from such land by the sale of produce by a cultivator or receiver of
rent in kind.
5. Income received from any building required for agricultural purposes.
Examples of Agricultural Income
1. Income from cultivation of tobacco, wheat, sugarcane, rubber etc.
2. Income from growing tea.
3. Land revenue assigned to Jagirdar.
4. Income from sale of honey or its products.
5. Fee paid by tenant for renewal of lease.
6. Income from building used for agricultural purposes.
7. Rent received by lesser of agricultural land.
8. Income received by lessee of agricultural land.
9. Receipt of an amount for compromise of a dispute regarding agricultural land.
Examples of Non-Agricultural Income

1. Income from stone quarries.
2. Income from fisheries and ferries.
3. Income from mining and mining royalties.
4. Income from land used as market.
5. Income from a flour mill.
6. Income from land used for storing timber.
7. Income received from a cotton ginning factory.
8. Profits from a contract of cutting and selling trees.
9. Income from sale of earth for brick making.
10. Income from markets.
Examples of partly Agricultural and Partly Non-Agricultural Income

1. Income of a person who grows tea leaves on his own farms in Pakistan and then
manufactures it into tea.
2. Income of a sugar mill which grows sugarcane and manufactures sugar.
3. Income of a cigarette company growing tobacco on its own lands and manufacturing
cigarettes.

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Q. 2. What are the legal provisions governing the Residential and Non-Resident Status of various
Assesses in Pakistan. (2003)
Resident and Non-Resident Persons
1. The term is purely used for tax purposes; there is no distinction on the basis of
Nationality or Domicile.
2. The status of Resident or Non-Resident may change from year to year, if it is
determined in a particular income year.
3. The status of Resident or Non-Resident is determined on the basis of his period of stay
in Pakistan in the tax year. The purpose of stay is immaterial.
4. The Federal Government is treated him as Resident.
Reasons for Distinguishing Resident and Non-Resident Person

There are two basis reasons to determine whether a person is a Resident or Non-Resident during
the Tax Year:
1. Incident of Taxation
The income of a Resident Person is calculated by taking into account both the Pakistan source
income and the foreign source income.
The income of Non-Resident Person is calculated by taking into account only Pakistan source
income.
2. Rates of Tax
There is difference in rates of tax for Resident and Non-Residents.
Resident Individual
A person is a Resident Individual in Pakistan if it fulfills the following two conditions:
1. If the stay of a person in Pakistan is 183 days or more he is treated a Resident.
2. He is an employee or official of the Federal or Provincial Government posted abroad in
the tax year.
Resident Company
A company will be treated as Resident Company in a Tax Year if it fulfills the following conditions:
1. It is incorporated or formed by or under any law in Pakistan.
2. The control and management of the company is situated wholly in Pakistan at any time
in the tax year.
3. It is a Provincial or Local Government in Pakistan.
Association of Persons
An Association of Persons shall be Resident for any tax year if the control and management of the
Affairs of the Association are situated wholly or partly in Pakistan at any time in the Tax Year.
Resident Persons
A person shall be a Resident Person for a tax year if the person is:
1. A Resident Individual, Resident Company or Resident Association of person for the tax
year.
2. The Federal Government.
Non-Resident Persons
Under the Income Tax Ordinance, 2001 a person shall be a Non-Resident Person for a tax year if
the person is not a Resident Person for the year.
Non-Resident Tax Payers

A Non-Resident Tax Payer means a taxpayer who is a Non-Resident Person.

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Q. 3. What is Provident Fund? Discuss the treatment of various types of Provident Fund for
inclusion in Total Income and Exemption from Income Tax. (2003, 2005)
Provident Fund
Provident Funds are maintained by many organizations for the benefit of their employees.
Types of Provident Funds

1. Government Provident Funds
A Provident Fund maintained by a Government or Semi Government Organization is known

as Government Provident Fund or a Statutory Provident Fund. The Provident Fund
maintained by Pakistan Armed Forces, Central or Provincial Government, Railways, WAPDA,
etc. are examples of such funds. The Provident Fund Act, 1925, applies to such Provident
Fund.
2. Recognized Provident Fund

If a Provident Fund maintained by a Private Organization and fulfills the conditions
prescribed in the Law for recognition of the funds and on an application made, and the
Commissioner of Income Tax grants recognition to such funds, it is known as recognized
provident funds. If the Commissioner of Income Tax refuses the recognition and appeal can be
made to the Federal Board of Revenue. Recognized Provident Fund is beneficial for both
Employers and Employees.
3. Unrecognized Provident Fund

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If a Provident Fund maintained by a Private Organization which has not been granted
recognition by the Income Tax Authorities because:
1. The conditions prescribed in the law regarding the Provident Fund are not fulfilled.
2. No application for recognition has been made by the organization.
3. The application is turned down on some technical grounds by the Income Tax
Authorities.
Working of Provident Fund

Employees Contribution
The Employees of the organizations contribute some amount monthly to the Provident
Fund out of their salaries. Normally, it is deducted from salary of Employees before making
payment.
Employers Contribution
Employer also contributes certain amount to the Provident Fund monthly or annually.
Interest Credited on Provident Fund
The amount collected from Employer and Employees contribution is invested in some
profitable securities or any other business, ensuring some profit over the Original Investment.
A fixed rate of interest is credited to the Provident Fund Account of each Employee every year.
Receipt of Accumulated Balance
The amount collected from Employee and Employer Contribution and Interest Credited is
paid to Employee on his retirement, leaves or is discharged from the organization or in the
event of his death paid to his family.
Treatment of Provident Fund
Items Govt. P. Fund R.P.Fund Un-R.P.Fund

Employees Included in Taxable Included in Taxable Included in Taxable
Contribution Income Income Income
Employers Not Included in Not included if Not Included in

Contribution Taxable Income amount up to 10% Taxable Income
Of Basic Salary
Or Rs.100000
If Exceeds 10%
Excess Included
Interest Not Included not included if not included

Credited interest is 16% and
Amount is less than
1/3 of basic salary
Receipt of Not Included Not Included Included employers

Accumulated contribution and
Balance interest thereon.
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Q. 4.What is the Perquisites, Allowances and Benefits provided by the Employer to his Employee?
Valuation of Perquisites, Allowance and Benefits

To determine the above value, first of all the following terms must be clearly understood.
Minimum of Time Scale of Basic Salary (MTS)
The amount from where the salary scale of the employee starts.
Basic Salary
Basic salary means the pay and allowances payable monthly or otherwise but does not include:
 Dearness allowance or Dearness pay
 Employer’s contribution to the provident fund.
 Special Allowance, Conveyance Allowance, Accommodation Allowance, Medical Allowance,
Entertainment allowance, Utilities Allowance, etc.
Salary
For the purpose of determining the value of perquisites, allowance and benefits, salary:
 Include Basic Salary, Overseas Allowance, Dearness Allowance, Cost of Living Allowance,
Bonus and Commission.
 Does not include Employer’s contribution to a recognized provident fund, superannuation
fund or gratuity fund.
FACILITIES PROVIDED BY EMPLOYER
The facilities provided by the employer to employees will be taxable in the following manner:
1. ACCOMMODATION
(a) House Rent Allowance
If an employer provides any accommodation allowance or house rent allowance in cash, the whole
amount so received will be taxable.
(b) Accommodation Facility
If the employer provides a furnished or unfurnished accommodation, the following amount will be
added in the total income of the employee as value of this perquisite:
-The amount that would have been paid by the employer in case such accommodation was
not provided; or
-45% of the MTS of the basic salary;
-whichever of (1) or (2) is higher.
© Accommodation Facility in the Areas Other than Big Cities Where House Rent
Allowance is Admissible @ 30%
-The amount that would have been paid by the employer in case such accommodation was
not provided; or
-30% of the MTS of the basic salary;
-whichever of (1) or (2) is higher
2. CONVEYANCE
Sometimes, an employer provides the employee either a conveyance for his use or conveyance
allowance is provided. The value of facility/allowance can be determined for the purpose of tax
treatment is as under:
(a) Conveyance Allowance

If the employer provides Conveyance Allowance to his Employee, the whole allowance will be fully
taxable.
(b) Conveyance Provided by Employer for Personal Use of Employee

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If the employer has provided a Conveyance to Employee for purely personal use, 10% of the cost
which employer paid for acquiring the Motor Vehicle will be included in the Taxable Income of
Employee, every year.
© Conveyance Provided by Employer Partly for Personal and for Official Use
When a Motor Vehicle is provided by the Employer to be used by the Employee both for official
and personal purposes, 5% of the cost paid by the Employer for acquiring the Motor Vehicle will
be included in the income of the Employee.
(d) Employer Acquires the Conveyance on Lease
In case the Motor Vehicle is acquired by the Employer on Lease, the Fair Market Value at the
commencement of the Lease will be ascertained. In case for Personal Use 10% of Fair Market
Value and in case of both official and personal 5% of Fair Market Value.
Note: If Cost of Vehicle or Fair Market values are not available then nothing will be included in
the Taxable Income of Employee.
3. MEDICAL, HOSPIOTAL CHARGES OR MEDICAL ALLOWANCE
Medical Allowance in Cash

Any Medical Allowance given by the Employer to his Employee in terms of Cash without
providing any Medical Facility will be exempt up to 10% of the Basic Salary of Employee; above
will be included in Taxable Income.
Medical Treatment or Hospitalization Facility
If Employee receives Free Medical Treatment or Hospitalization or both by the Employer or
receives Re-imbursement of the Medical Expenses under the term of employment whole such
benefit will be Exempt from Tax.
-It is necessary that NTN of Hospital or Clinic is provided and Employer also certifies and attests
the Medical Hospital Bill.
4. ENTERTAINMENT
(a) Actual entertainment expenditures incurred by employee for entertainment on behalf of the
organization and then reimbursed to him by Employer will be Totally Exempt.
(b) If any Employee is provided Free Tea, Coffee etc. at the office premises during the course of his
work, it is Totally Exempt.
© Free or Subsidized Food provided to an employee of hotel or restaurant during duty hours, it
will be Totally Exempt from Tax.
(d) In all the remaining cases, the entire amount of Entertainment Allowance received by the
Employee will be included in his Total Income for tax purpose.
5. LOAN TO EMPLOYEE
If loan is paid on or after the 1st day of July 2012 by an Employer to an Employee and no profit on
loan is payable by the Employee or the rate of profit on loan is less than 10% will be calculated as:
(a) If no profit on loan is taken by the Employer then 10% of loan will be included in Total Income
of Employee.
(b) If the profit on loan taken by the Employer is less than 10% then difference of rate on loan
amount will be included in Total Income of Employee.
Note: If the amount of loan will be up to Rs.500000 then nothing will be taxable. If the amount of
loan exceeds Rs.500000 then above rule will be applicable.
6. SPECIAL ALLOWANCE
Special Allowance received by Employee, granted to meet expenses which are incurred in the
performance of Official Duties are completely exempt from Tax. Examples of such allowance are
Traveling Allowance, Daily Allowance, and Uniform Allowance etc.

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7. PROVIDENT FUND
Provident funds are maintained by many organizations for the benefit of their employees. The
treatment of Provident Fund for Tax purpose as under:
Types of Provident Funds:

Government Provident Funds
Recognized Provident Funds
Un-recognized Provident Funds
Treatment of Provident Fund
Items Govt. P. Fund R.P.Fund Un-R.P.Fund

Employees Included in Taxable Included in Taxable Included in Taxable
Contribution Income Income Income
Employers Not Included in Not included if Not Included in

Contribution Taxable Income amount up to 10% Taxable Income
Of Basic Salary
If Exceeds 10%
Excess Included
Interest Not Included not included if not included

Credited interest is 16% and
Amount is less than
1/3 of basic salary
Receipt of Not Included Not Included Included employees

Accumulated contribution and
Balance interest thereon.
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Q. 5. What do you mean by Rent Chargeable to Tax? What are the allowable deductions for
determining Taxable Income from Property under Income Tax Ordinance? (2004)
Rent Chargeable to Tax

The rent received or receivable by a person for a tax year is the 2nd source of income and is
chargeable under the head Income from Property, other than the rent which is exempt from tax.
Property means constructed building or land.
Building means block of brick or stone work covered by roof.
Land means vacant plot used for erecting temporary huts or for storing materials.
Rent means any amount received or receivable by the owner of land or a building for its use or the
right to use its occupation. The amount of rent shall not be less than the fair market rent.
If the actual amount of rent received or receivable is less than the fair market rent then fair
market rent shall be taken as the amount of rent.
Fair Market Rent means the amount of rent determined on the basis of a rent received by similar
property in the same or similar locality at that time.
Procedure for Computing the Amount of Rent

1. The amount received or receivable by the owner of land or a building for its use or right to
use its occupation is the amount of rent.
2. Any forfeited deposit paid under a contract for the sale of land or building is also included
in the amount of rent.
Unadjusted Advance Received by the Owner

The unadjustable advance received by the owner is chargeable under the head Income from
Property according to the following procedure:
If the owner of a building receives advance from his tenant and the amount is unadjustable
against the rent payable such advance amount shall be treated as rent and is chargeable to tax
under the head income from property for the tax year in which it was received and the following
Nine Tax Years in Equal Proportion.
Liability in case of Co-owner

If the property is owned by two or more persons. In this
case, the share of each person is the income from property ad shall be included in his individual
income. Such person shall not be assessed as an association of persons.
Income from Property not Taxable under section 15

1. Ground Rent
2. Rental income from building kept on lease together with plant and machinery.
3. Rental income received by subletting a building or land by a tenant.
4. Mining right and Royalty.
5. Provisions of amenities, utilities or any other service connected with renting of building.
Income from Property Exempt from Tax

1. Income from agricultural building.
2. Income from property held under Trust.
3. Rental value of owner’s occupied business property.
4. Rental value of owner’s occupied residential property.
5. Fair market rent will be exempt.
Taxation of Income from Property

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Once the Fair Market Rent of the property is calculated, the amount will be reduced by certain
statutory deductions. After the above deductions, the remaining amount will be included in the
total income of a person, and will be taxed at the rates applicable for the tax year 2014.
(a) In case the rent is being paid to an individual or association of persons:
S.No. Gross Amount of Rent Rate of Advance Tax

1. Upto Rs. 150000 Nil
2. Rs. 150001 to 1000000 10% of the amount exceeding Rs.150000
3. More than Rs. 1000000 Rs. 85000 + 15% of the amount exceeding
Rs. 1000000
(b) If the rent is being received from Government, Local Authority, Company, Non-profit
organization or a diplomatic mission, it is necessary that the payer should deduct the tax at the
rate of 15% of the Gross Rent and deposit it with the Government. In all other cases the tax be
payable by the recipient himself.
Foreign Tax Credit

If a Resident Tax Payer receives income from Foreign Country chargeable to tax and he has paid
tax in Foreign Country. The Tax Payer shall be allowed a Tax Credit on the amount of tax paid in
Foreign Country.
Formula:
1. Foreign Income Tax Paid; or
2. Pakistan Income Tax on Total Income
Including foreign source income x Foreign Income
Total Income including Foreign Income
DEDUCTIONS ALLOWED UNDER THE HEAD INCOME FROM PROPERTY
With effect from 1st July 2013, in computing the income, the following deductions shall be allowed
under the Head Income from Property.
1. Repairs Allowance
A deduction of 1/5th of rent chargeable to tax for the year will be allowed as repairs allowance.
This amount will be calculated before any deduction is made.
2. Insurance Premium
The amount of any premium paid or payable by the person in the year to insure the building
against the risk of damage or destruction will be allowed.
3. Municipal Taxes and Other Local Taxes
The amount paid or payable to any local authority, any local rate, tax, charge, or cess in
respect of property is allowed as deductions.
4. Ground Rent
Any amount paid as ground rent paid or payable by the person is allowable deductions.
5. Profit Paid or Payable on Borrowed Money
Any profit paid or payable on the amount borrowed by the person for the purchase,
construction, renovation, extension or reconstruction of the property is allowable deductions.
6. Share of Rental Income Paid to Financial Institution
If the property is purchased, constructed, renovated, extended or reconstructed by the loan
taken from HBFC or a Scheduled Bank, the amount of any rental shared paid to such institute
is deductible.
7. Collection Charges
Any sum paid or payable by the person on account of collecting the rent or 6% of the rent
chargeable to tax is allowable deduction, before allowing any other deductions.
8. Legal Expenses
Any amount paid or payable to lawyer for legal services to defend the persons title of property
or any suit connected with this matter in a court of law is also allowable deductions.
9. Unrealized Rent
If the rent is unrecoverable and unpaid, it is allowable deductions subject to the following
conditions:
a. The tenancy is bona fide.
b. Defaulting tenant has vacated the property or compel to vacate the property.
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c. Defaulting tenant is not occupied on any other property of the owner.
d. The owner has taken all necessary legal steps for recovery of unpaid rent.
10. Recovery of Unpaid Rent
If unpaid rent is allowed as deductions but if rent is recovered wholly or partly such recovered
rent will be chargeable to tax in that tax year.
Q. 6. Why is the distinction between Capital and Revenue considered to be of vital important?
How would you differentiate between Capital and Revenue Expenditure? (2003, 2006)
Importance or Necessity of Differentiation
It is necessary to differentiate between capital and revenue receipts because income tax is levied on
revenue receipts only and not on capital receipts.
On the other hand, it is also necessary to differentiate between capital and revenue expenditures,
because it is revenue expenditures which are deductible from revenue receipts and not on capital
expenditures.
There is no hard and fast rule which separate capital receipts from revenue receipts and capital
expenditures from revenue expenditures.
The following test has to be applied while determining whether this expenditure is revenue or
capital.
DEFFERENTIATION BETWEEN CAPITAL AND REVENUE EXPENDITURE
1. PURCHASE AN ASSET
When certain expenditures are spent to purchase an asset, we must know that whether it is a fixed
asset or a floating asset.
Fixed Asset: an asset purchased for the purpose of keeping and earning profit and it is not for the
purpose of re-sale in the business.
Floating Asset: an asset purchased for the purpose of re-sale on profit in the business.
The amount spent on the purchase of Fixed Assets is Capital Expenditure whereas amount spent
for the purchase of floating assets is Revenue Expenditure.
-A purchase of Cotton Ginning Machinery is a Fixed Asset so, it is Capital Expenditure.
-A purchase of Cotton is a circulating asset so, it is Revenue Expenditure.
2. PERIOD OF BENEFIT
Another Test which differentiates Capital and Revenue is the period for which it benefits.
If the expenditure provides continuous benefit and spread over a number of years, it is considered
Capital Expenditure but if it will provide benefits to the organization for less than one year or one
accounting period, it is Revenue Expenditure.
-Advertising expenditures spent to introduce new product or boost a new business, it will be
Capital Expenditure.
-Advertising expenditures spent on day-to-day benefit and restrict to only one accounting period,
it is Revenue Expenditures.
3. INITIATION OF BUSINESS
All the expenditures incurred at the Initiation of business are called Capital Expenditures. Initial
expenditures are treated Capital Expenditures because these are not incurred in earning profits,
rather incurred for setting the profit earning machinery in motion.
The cost of Land, amount spent on construction of Building, Cost of issue of Shares and
Debentures, purchase of Equipment are all Capital Expenditures.

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A legal fee paid to legal adviser for drafting Memorandum and Articles of Association of a
company is Capital Expenditure because amount spent for Initiation of Business.
When the business gets going, the salary of legal adviser shall be Revenue Expenditure.
4. EXPENSION OF BUSINESS
Expenditures incurred on Extension of Business are also called Capital Expenditures.
Construction of new Building, erection of new Machinery, purchasing of new patents or
copyrights to extend the business are all Capital Expenditures.
-A company wants to extend its business and for that purpose it issues more shares. The
advertising expenditures spent on these shares will be treated Capital Expenditures.
5. PRINCIPLE OF EARNING CAPACITY
If an expenditures results in increasing the Earning Capacity of the business, it will be treated as
Capital Expenditure. On the other hand, if the expenditure is incurred for maintaining the
Earning Capacity, it is Revenue Expenditure.
EXAMPLES OF CAPITAL EXPENDITURES
 Cost of freehold land and building and the legal charges for purchasing them.
 Cost of patents, trade marks, copyrights, designs, etc.
 Cost of experiments.
 Repairs on purchase of dilapidated asset to put it into workable condition.
 Cost of issuing shares and debentures.
 Amount paid as compensation for securing cancellation of a contract.
EXAMPLES OF REVENUE EXPENDITURES
 Legal expenses spent in defending a suit for breach of contract to supply goods.
 Expenses on overhauling the old machinery.
 Rent paid for hired machinery.
 Pension paid to employee.
 Exhibition expenses.
 Payment made for use of a right.
Q. 7. Why is the distinction between Capital and Revenue considered to be of vital important?
How would you differentiate between Capital and Revenue Receipts?
Importance or Necessity of Differentiation
It is necessary to differentiate between Capital and Revenue receipts because income tax is levied
on revenue receipts only and not on capital receipts.
On the other hand, it is also necessary to differentiate between Capital and Revenue expenditures,
because it is revenue expenditures which are deductible from revenue receipts and not on capital
expenditures.
There is no hard and fast rule which separate capital receipts from revenue receipts and capital
expenditures from revenue expenditures.
The following test has to be applied while determining whether this Receipt is Revenue or Capital.
DEFFERENTIATION BETWEEN CAPITAL AND REVENUE RECEIPTS
1. SLAE OF AN ASSET
When an amount is being received due to sale of an asset, it has to be decided, it is a Fixed or
Circulating Asset. Any amount received on account of Fixed Assets which meant for keeping
earning profit, is a Capital Receipts.
-On the other hand, a receipt on account of a floating or circulating asset is a Revenue Receipt.

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-An organization sells a building which was being used for business purpose; the amount received
will be Capital Receipt.
-If stock-in-trade is sold, the amount received will be a Revenue Receipt.
2. AMOUNT RECEIVED ON ACCOUNT OF A RIGHT
-If a person is owner of a right, e.g. copyright, patent, trademark, etc. and he receives certain
amount on sale of such rights and completely surrenders his right, it will be Capital Receipt.
-If a right is not surrender by the owner and is given for use, for a specific period, the amount will
be a Revenue Receipts.
3. SUBSTITUTION OF SOURCE OF INCOME
An amount received in substitution of source of income is a Capital Receipt, but where it is a
substitution of income alone, it will be a Revenue receipt.
-A person after retiring from service decides to get whole of his pension commuted. The amount
received is a Capital Receipt because it represents substitution of source of income.
On the other hand, if due to some reason, he is unable to receive his pension for a few months and
ultimately receives it collectively the amount is a Revenue receipt because it is a substitution of
income, the source of income is still present.
4. RECEIPT TO BE JUDGED IN THE HANDS OF RECIPENT
While differentiating between Capital and Revenue Receipts, one should always judge it from the
point of view of the person who is receiving it. It should not be considered from the point of view
of a payer.
-A legal practitioner received his fee for drafting a partnership deed. The amount received by him
is a Revenue Receipt because it is his income.
-We should not consider it a Capital Expenditure for the business making the payment.
5. LUMPSUM RECEIPT
A lump sum receipt can be a Revenue Receipt and in certain cases, an amount received monthly or
annually can be a Capital Receipt.
-Mr. B sold a trademark for Rs.60000. The amount will be paid in equal installments of Rs.1000
per month. For Mr. B this Receipt is a Capital Receipt because he has completely surrendered a
right; whether the amount is received in lump sum or in installments does not change its Capital
nature.
6. ISOLATED TRANSACTIONS
The motive behind the transaction is of immense importance. The motive of the person receiving
the amount will decide whether it is a Capital or Revenue Receipt.
-A person purchases shares of a company for investment purposes. After some period of time, he is
in need of money and, in order to fulfill his need, he sells the shares; the amount received by him is
a Capital Receipt.
-On the other hand, if a person purchases the shares with a motive of reselling them at profit, the
amount realized on the sale will be a Revenue Receipt.
EXAMPLES OF CAPITAL RECEIPTS
 Insurance amount received which insured building against loss by fire.
 Damage awarded to a railway passenger who become permanently disabled.
 Royalty received from sale of mining rights.
 Premium on issue of shares.
 Amount received by a director by virtue of a contract between him and the company in
which he undertook not to do a particular business.
EXAMPLES OF REVENDUE RECEIPTS
 Profit on sale of a house by a property dealer.
 Receipt of three year’s rent of building in advance.
 Compensation received on temporary disability.
 Salary received by an employee engaged in construction of a building for business.
 Royalty received from the user of a right.

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Q.8 Define the term Business and Profession and discuss the taxability and
scope of business or profession also writes the deductions admissible
under this head
Business; -
Business means any trade, commerce, marketing, manufacturing process or commercial activity which
deals with the sale and purchase of goods.
Profession;-
Intellectual skill or manual labor controlled by intellectual ability is called profession.
Example;-
Income of doctors or professors.
Note;- All the professions are business but all type of business are not professions.
Tax ability of Business Income:
If a taxpayer receives the income from business or profession it will be chargeable to tax under this head.
Following are the important incomes which are chargeable to tax under this head.
(1) During the income year at any time profits and gains received by taxpayer from any business
profession, will be taxable.
(2) Any benefit or perquisite arising from business or profession is also chargeable to tax.
(3) Income of trade professional association received from specific services which were performed, for
its members are also chargeable to tax.
Income from Business Exempt from Tax
1. Income of University or Educational Institution established not for profit.
2. Income from Computer Training or Scheme Exempt for a period of 5 years.
3. Income from export of Computer Software and its services developed in Pakistan.
4. Agricultural Income.
5. Income of Trust, Welfare Institutions or non-profit organizations.
6. Profit on debt of Hub Power Company Ltd. On its bank deposits or accounts.
Income from Business not Taxable
Under the head of ‘business or profession’’ following incomes are not taxable.
1. Professional dues realized after discontinuance of business.
2. Income of non – professional artist, writer to a newspaper is not taxable.
3. Casual Income, prize on prize bonds, winning from raffle, lottery or cross word puzzle.
4. Income of a professional examiner is not taxable.
Deductions Admissible Following deductions are admissible.
(1). Depreciation
If any building furniture or plant is used for the business purposes and its value depreciates such
depreciation is allowable for deduction.
(2). Loss of Animal
If any animal is kept for business purposes and it dies or becomes disabling such loss is also allowable
deduction.
(3). Interest on Loan
If the loan is borrowed for the business purpose then interest paid on that loan will be allowable
deduction.
(4). Rent of Building
If building is used for the business purposes then its rent which is paid will be allowable deduction.
Note:-
The building should not be for the residential purposes by the assesses.
(5). Bonus or Commission;-
Amount paid in the from of bonus or commission to the employees of the business, such
amount is allowable deduction.
(6). Irrecoverable Debts
the amount of bad debt which is actually written off by the assesses will be decided by the income tax
officer and it will be deductible.
(7) Insurance Premium
if insurance premium is paid against the risk of damage or destruction to the asset of the business such
amount is deductible from the profit of the business.
(8) Research Expenditure
if the amount is spent by the taxpayer on the scientific research of business related to Pakistan will be
also deductible.
(9) Special Reserve

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Special reserve is maintained only with the approval of central board of revenue, the amount may not
exceed then 10 of the total income including the amount of special reserve, it will be also deductible
amount.
(10) Expenditure on trade Development
Any amount which spent on trade fares trade delegations and sampling are allowable deduction. But
important condition is that such expenditure should be only for the business purposes.
(11) Expenditure on hospital & Education;-
Any assessee spends the money on the establishment of hospital or educational institutions for the
welfare of his employees. Such amount will be deductible.
(12) Payment to Modarba
The amount which is paid to a modarba or PTC holder for the borrowed funds purposes is deductible.
(13) Payment under Musharika Scheme
Payment made under musharika scheme bank is also deductible, provided that such scheme should
represent its share in the profits of the musharika.
(14) Industrial worker Training Expenditure
If any organization (govt. or recognized) spends the money on the training of industrial worker that will be
also deductible.
(15) Other Business Expenses
All the revenue expenses like electricity bill, telephone bill, are allowable deductions up to certain limits
(16) Payment of Local Tax
if any local tax is paid to any local authority or Govt. on account of such business is an allowable
deduction.
(17) Current Repairs
The amount which is spent on the current repair of any plant or machinery which is used
for the business purpose is deductible.
DEDUCTIONS NOT ALLOWED

1. CESS, RATE, TAXES
Any sum paid or payable by the person in Pakistan or Outside Pakistan on account of any cess, rate or
tax levied on the profits or gains of the business.
2. TAX DEDUCTED AT SOURCE
Any amount of Tax Deducted at Source u/s 149 to 158 from any amount received by the person.
3. PAYMENT TO NON-RESIDENT
Any amount paid to non-resident on account of Salary, Rent, Brokerage or Commission, profit on debt,
payment for services or fee chargeable and deducted u/s 149 to 158.
4. EXPENDITURE ON ENTERTAINMENT IN EXCESS OF PRESCRIBED LIMITS
Any entertainment expenditure in excess of prescribe limit is not allowed as deduction.
5. SUM PAID TO UNRECOGNIZED OR UNAPPROVED FUND
Unrecognized Provident Fund, Superannuation Fund, Pension or Gratuity Fund not allowed as
deduction.
6. EMPLOYER’S CONTRIBUTION TO A PROVIDENT FUND OR OTHER FUND
Established for the benefit of employee is not deductible under this head.
7. FINE OR PENALTY PAID OR PAYABLE FOR VIOLATION OF LAW
Any fine or penalty paid or payable for the violation of any law, rule or regulation is not allowed as
deduction.
8. PERSONAL EXPENDITURE INCURRED BY THE PERSON
Any personal expenditure incurred by the person is not allowed as deduction.
9. AMOUNT TRANSFERRED TO RESERVE FUND OR CAPITALIZED
Any amount transfer to a reserve fund or capitalized is not allowed as deduction.
10. REMUNERATION PAID TO A MAMBER OF THE ASSOCIATION
Any profit on debt, brokerage, commission, salary or other remuneration paid by an association of
persons to a member of the association is not allowed as deduction.
11. PAYMENT EXCEEDING 50000 TO BE MADE BY CROSSED CHEQUES

Any amount paid under a single account head which in aggregate exceed 50000 rupees other than by a
crossed cheque, bank draft and pay order is not allowed as deduction.
12. PAYMENT OF SALARY EXCEEDING RS.15000 PER MONTH
Any amount paid or payable exceeding Rs. 15000 per month other than a crossed cheque or direct
transfer of funds to the employee’s bank account is not allowed as deduction.
13. CAPITAL NATURE EXPENDITURES
Any expenditure paid or payable of a capital nature is not allowed as deduction.

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Q.9. Explain the term depreciation or discuss those conditions which are laid
down under the ordinance for depreciation allowance
Depreciation:-
A decrease in the value of asset through wear and tear is called depreciation.
The income tax law allows the deduction of depreciation up to certain conditions which computing the
taxable profit.
Conditions:-
Following are the important conditions for the admissibility of the depreciation:
1. Entitled Assets For Depreciation: - Building, Machinery, Plan and furniture are eligible assets for
depreciation.
Building: - It means a constructed structure and not a land. For example, the building of factory.
Machinery: - All kind of machines which are used for the business purposes are called machinery.
Furniture: - All the fittings are included in the furniture.
Plant: - Vehicle aircraft or ship and surgical equipment which are used in business profession are also
included in plant.
Note: Those books on which investment allowance not been given are also included in the plant.
2. Use for the Business Purpose: - Depreciation is allowed only those assets which have been used
completely for the business or profession purposes.
If one asset is being used for both the purposes business and personal then depreciation will be allowed
according to the business proportion.
3. Use during Income: - It is also necessary that such assets have been used only during the income year.
4. Tangible Assets: - In tangible assets like good will are not entitled for depreciation. Only tangible assets like
building and machinery are eligible for depreciation.
5. Depreciation Rate: - In the income ordinance schedule III and rule two rates of depreciation had been
prescribed.
6. Sale Of Asset :-
(i). No any depreciation is allowed if the asset is sold of by the assessee in that income year.
(ii). At the time of sale if the value of asset exceeds then the depreciated value the surplus will be
considered the income of assessee.
(iii). If the sale proceed is less than the depreciated value the deficit shall be deducted from the income of
a business or profession.
Note: If the above conditions are fulfilled then depreciation will be provided.
7. Should Not Exceed Than The Cost: - The aggregate depreciation shall not exceed then original cost of any
asset.
8. Particulars of the Depreciable Asset: - Depreciation claim may be allowed if the assessee has provided all the
particulars of the depreciated assets at the time of filling a return of total income.
9. Ownership of the Assets: - If the assessee is not the owner of the asset then he will not be allowed for the
depreciation allowance.
VARIOUS TYPES OF DEPRECIATION ALLOWANCE
Initial allowances for depreciation:-

One person can avail this allowance if the fulfills the following conditions:
1. Eligible Assets: This allowance is allowed only for those assets which are depreciated assets.
2. Years Allowed: In respect of the following years initial allowance of depreciation is allowed.
(i). The year in which first time in the business or profession.

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(ii). The year in which commercial production was produced.
3. Rate: This allowance is allowed at the rate of 50% of the cost of asset (50%).
4. Ownership of the Asset: This allowance is allowed if the same asset is owned by the same person.
Allowances Not Allowed:-
Initial allowance for depreciation is not allowed in the following assets.
(i). Any furniture or fitting.
(ii). Already used machinery or plant.
(iii). A road transport vehicle not lying for hire.
(iv). If any asset deduction is allowed under any other income tax ordinance.
Normal Depreciation:-
The above depreciation is calculated at the prescribed rate for various typed of assets on the written
down value of a depreciable asset. According to the following rates normal depreciation allowed.
Class Of Assets Description Rate Of The Written Down

1. Building (all types) 10%
2 Furniture or Fitting, Motor 15%

Vehicles, Mahinery, Plant
Ships, technical or Profession books
3 Personal Computer & Allied items 30%
4 Mineral Oil, Below Ground Installation 100%

Offshore platforms and production 20%
5 A ramp built to provide access to the 100%
Persons with disabilities not exceeding Rs. 250000
Q.10 Define the term Capital gains and capital assets or what is the procedure
of computing the capital gains also explain the deductions and
exemptions
Capital Gains:-
It is the fourth important source of income. Such income is chargeable under the head capital gains.
Meaning: Any profits or gains arising from the transfer of capital asset are called capital gains.
Such income is also chargeable to tax.
Capital Asset:-
Any kind of property held by the person is called capital asset. Such property may be connected with his
business or not.
Example:
(i). Shares of companies.
(ii). Modarba certificates.
(iii). Musharika certificates.
(iv). Leasehold rights.
(v). Patent and copy rights.
(vi). Term finance certificate.
(vii). PTC vouchers.
Procedure Of Computing The Capital Gains:-
When the capital assets are disposed off by the person, then capital gain is computed according the
following procedure.
Capital asset is disposed off with in 12 months of its acquisition.
Formula: Consideration received on the disposed of the asset less the cost of asset.
Balance = Gain/Loss
Explanation:
(i). The assets fair market value on the date of its transfer is treated cost of the assets.
(ii). Expenditure on the disposal of assets is included in the cost.
Note: Following assets are not included in the cost of asset.
(i). Expenses of a person which are allowed as deduction under any other provision of the ordinance.
(ii). Expenses which are not spent for the disposal of assets.
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Disposal after 12 Month:-
When the capital asset is disposed off after 12 month of the acquisition then 75% of the actual gain is
taken for income.
Deduction of Capital Losses:-
Under the head capital gains when we compute the income chargeable to the tax the losses on
disposable of capital asset shall be treated as under.
(1). Capital loss shall be deducted from the capital gain received on the disposal of any other asset.
(2). If capital gain is not chargeable to tax then no loss should be deducted on the disposal of the capital
asset.
(3). On the disposal of the following capital asset no loss should be recognized.
(i). Jewelry.
(ii). An Antique.
(iii). A coin.
(iv) A painting.
(v). A work of art.
(vi). A postage stamp.
(4). On the disposal the disposal of any.
Exemptions:-
In the following cases capital gain is not included in taxable income.
(i). Income from the sale of Modarba certificates.
(ii). Shares of public company.
(iii). PTC vouchers derived by any ending.
(iv). If any foreign investor derives capital gain by selling the shares of public company which are
approved by the Federal govt. is exempt from tax.
(v). Industrial undertaking set up in a special industrial zone declared by the federal govt. is exempt from
tax 5 years.
(vi). Capital gain derived from an industrial under taking set up in export processing zone is exempt from
tax.
Q.11 Explain the term Income from other sources with examples or what are
the allowable deductions from Income from other sources
Income from Other Sources:-

Any taxable income which can not be included in the previous five heads, Such as salary income from
property, business or profession and capital gain is chargeable under the head “Income from other
sources”.
Example:-
1. Dividend received.
2. Income from rented machinery plant or furniture.
3. Royalties received by an author.
4. Fees for technical services.
5. Rent of ground.
6. Any unrecovered investment & expenditure.
7. Interest on received on various accounts like profit and loss account or saving or fixed deposits.
8. Rent from the sub-lease land or building.
9. Prize or prize bonds or lottery, puzzles.
10. Sale of irrigation water for agricultural land.
11. Income from non-professional writers.
12. Income received as tips.
13. Any pension or annuity.
14. Insurance commission received by person who is not employee of insurance company.
15. Any consideration received for the use or exploitation of property.
Following are the important examples which are not taxable under any other head but rather treated as
income from other sources.
1. Under Salaries Head Not Taxable :-
(i). Director’s fees received from company.
(ii). Tips received by waiters or servants.
(iii). Annuities granted by a life insurance company.
(iv). Examiner ship fee received by the teacher from board or university.

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(v). Fee and commission not in lieu of salary.
2. Under Income From House Property Is Not Taxable :-
(i). Rent received from a vacant plot of land.
(ii). Income received from building kept in lease.
(iii). Rent received by a tenant from sub-letting house.
(iv). Income from any building which is used for the business or profession purposes.
(v). Rent received from the grassing field.
3. Under The Head Income From Business Or Profession Is Not Taxable :-
(i). Income of a professional examiner is not taxable under this head.
(ii). Income of non-professional writer of newspaper.
(iii). Share of good will received from the new partner by the old partners.
(iv). Examination and enrollment fee received by the bar council.
(v). Income of an expert of crossword-puzzles.
(vi). Professional dues received after the disconnection of profession.
4. Under Capital Gains Not Taxable :-
Depreciated assets salvage value is not taxable under this head.
Income profit on sale or transfer of assets used for business or profession in respect of which
depreciation is allowed under third schedule is not taxable under the head capital gains.
Deductions Allowed:-
While computing the income from other sources following deductions are allowed.
1. Any expenditure spent exclusively for the purpose of earning such income.
2. Depreciation allowance with a right to carry forward of unadjusted loss of such assets.
3. Interest paid on capital borrowed to earn such income.
4. Insurance premium paid to cover the risk, provided the income should fall under the above head.
5. Current repair of asset, the income of such asset should be treated under the head “Income from other
sources”.
6. Initial allowance as per third schedule.
Q.12. Define the term Assessment and explain the procedure of filling the
return under the income tax ordinance. Who should file the return and
when it should be submitted
Assessment:-
It means a complete scrutiny of the information’s provided by the taxpayer in his return.
So the work assessment has the following meanings in the income tax ordinance.
(i). To compute the total income.
(ii). To compute taxable income.
(iii). To compute the tax.
(iv). To compute the refund.
(v). To adjust the loss or to carry forward of loss.
Assessment Officer:-
Deputy Commissioner Inland Revenue of that area where principal place of business is situated will make
the assessment.
PROCEDURE:-
Step 1: A person files the return of his total income.
Step 2: Assessment is made and tax payable is computed.
Step 3: Tax payer makes the payment.
Step 4: If tax payer is defaulter then recovery proceedings is taken against him.
Step 5: If excess amount is paid by the taxpayer then excess tax is refunded.
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How The Return Is Finished:-
(i). It is necessary for certain persons that they should inform the tax deportment about the total income
which they have earned during the year.
(ii). They will also show that income which is exempt from tax.
(iii). All the information’s they will provide at the end of the year.
(iv). All those details they will provide on the prescribed form which is called return.
(v). Businessman also includes the income statement, balance sheet and any other document required in
the form.
(vi). This form return should be signed by the person or his representative.
(vii). When the form which is technically called return is duly completed and submitted to the income tax
authorities, it is called furnishing the return of income.
Who Should File the Return:-
Following persons are required to submit the return according the income tax ordinance.
(i). Every company.
(ii). Any person whose income is chargeable to tax.
(iii). Any person who has been charged tax in any of the 4 proceeding income years.
(vi). Any person who traveled abroad.
(v). Any person who owns a motor vehicle.
(vi). Any person who is owner of immovable property with land area 250 square or mors.
(vii). Every person who is subscriber of a telephone.
Note: In the above cases (v.vi.vii), a widow, a disabled, orphan below 25 years are not required to file the
return.
When One Should File Return:-
According the following schedule a taxpayer should file the return.
1. Companies: - If the tax year of the company ends between 1st January to 30th June then income return should
be submitted up to 31st December of the same year.
2. Other Persons: - All other taxpayers should submit the return up to 30 thSeptember next following end of their
tax year.
3. Business Discontinued: - If the business discontinued by any person and commissioner has issued the
notice to furnish the return then he will submit the return according the date of notice.
Extension of Date: - The period of filling the return can be extended up to 15 days by the commissioner
income tax. But this time can be extended if reason of not submitting the return is genuine sickness or
absence from country.
Exception: - In some exceptional cases it can be extended for a longer period.
How Return Should Be Submitted:-
A tax payer can submit the return in the following way.
(i). It may be sent by registered post to the concerned officer.
(ii). It may be delivered by hand.
Issuance of Notice:-
The commissioner income tax can issue the notice for the submission of return to any person with in a
specified period. Some time the commissioner finds that such person income was chargeable to tax but
he has not submitted the return. So this action is taken by him. The notice can issued only in respect of
last five tax years.
Change in Return:-
In the following case return can be revised.
(i). The return of total it can be revised by the taxpayer before the submission.
(ii). After filling the return a taxpayer discovers any mistake or wrong statement it can be revised.

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Q.13 Write a note on the following 1.Return of income in assessment
2.Ammendment in assessment 3.Provisional assessment 4.Assessment if
return is not finished 5.Assessment of disputed property
1. RETURN OF INCOME AS ASSESSMENT :-

If the return of income presented by the tax payer is accepted without any question, it will be treated as
assessment. The total income shown on exemptions claimed by the tax payer will be accepted. The proof
regarding the income provided by the taxpayer will be considered sufficient, so assessment and
assessment orders both have been completed by the commissioner.
2. ASSESSMENT WITHOUT RETURN :-
Some times as a person was bound to submit the return but he could not do so within due date, in this
case commissioner has the power to make an assessment on the basis of available information’s about
the person.
If other party is absent then keeping in view the rules of justice commissioner should make a fair
judgment. He should act honestly and should be guided by the rules of justices. The assessment should
be very reasonable. He should also keep in mind that assessment is being made against the person who
has not provided the information in spite a notice issued.
1. A person fails to file return
2. A person fails to provide evidence in support of his return.
3. If a person fails to provide accounts.
4. Business discontinued but return was not filed.
5. When he is about to leave country without filling the return.
3. AMENDMENT IN ASSESSMENT :-
Any assessment made before can be amended by the commissioner only.
He can change: If he feels that income exemption or relief or tax is calculated wrong in
the original assessment order. Such amendment can be passed by the commissioner with in 5 years of
the original orders.
Procedure:
1. Revise return itself is treated as amendment orders.
2. At any time with in a period of 5 years assessment can be amended.
3. Amended assessment of a commissioner can be amended by him again.
4. PROVISIONAL ASSESSMENT :-
It is a temporary assessment. If the Taxpayer has not filed the return of any income, the income tax
officer, the provisional assessment orders shall be treated as final assessment orders.
If any person does not show his income and any agency or govt. informs the tax department that such
person has concealed the income. In this case commissioner can issue the provisional assessment or
amendment orders for the last completed tax year. In this regard the value of the asset is considered as
income of the taxpayer.
5. ASSESSMENT OF DISPUTED PROPERTY :-
Commissioner can postpone the assessment of such property whose case is pending in the court. But
with in one year after the decision of the court assessment orders should be possessed.
6. ASSESSMENT AFTER DECISION OF AN APPEAL:-
When an assessment order of the Commissioner is set aside by the Appellate Tribunal, High Court or
Supreme Court and the Commissioner is asked to make a new assessment, such assessment orders
should be passed within One Year.

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Q.14. How the income tax is recovered from the defaulters and refunded
Sometimes any person fails to pay the tax then it is recovered in the following manners:
1. RECOVERY THROUGH ARREST :-
The commissioner can serve notice to the defaulter and will ask to pay the amount due. The last date of
payment will be also specified.
If the amount is not paid during that time then he can recover the amount in the following manner.
a). The commissioner has power to arrest the taxpayer and can detain him in prison for the period of six
month.
b). He can order to sale the property of the tax payer.
c). He can appoint the receiver to manage the property of the taxpayer.
2. RECOVERY OF TAX BY THE DISTRICT OFFICER (REVENUE) :-
The commissioner can also issue the certificate to the concerned District officer (Revenue) where income
tax defaulter’s property or business or he himself resides. All the details will be mentioned in the
certificate. The district officer will recover the amount of tax as an arrears of land revenue.
3. RECOVERY BY HOLDING THE MONEY ON BEHALF OF TAXPAYER :-
The income tax commissioner may issue a notice to a person from whom the tax payer has to receive the
money. Sometimes taxpayer authorizes some person that he can collect the money on his behalf. So this
notice is issued such person that whenever an opportunity arises the amount should be paid to the
commissioner instead of paying to the taxpayer. On the receipt of such notice the above mentioned
persons are required to obey the orders.
4. RECOVERY FROM PERSON LIABLE TO MAKE A SERIES OF PAYMENT TO A TAXPAYER :-
Sometimes one person makes a series of payment. Such as salary to taxpayer. If taxpayer is a defaulter
then commissioner may issue the notice to that person that he should pay the specific amount out of
each payment made to the defaulter taxpayer until the tax amount due is paid.
5. RECOVERY FROM PERSON LEAVING COUNTRY PERMANENTLY :-
Sometimes if commissioner feels that a person who is defaulter will leave the country permanently
without paying the tax. He may issue the orders to the immigration officer that such person may not be
allowed to leave the country until he pays the tax or makes such arrangement to satisfy the
commissioner. Before leaving the country he will show the certificate issued by the commissioner then he
will be allowed to leave the country.
6. RECOVERY FROM LIQUIDATION :-
As the liquidator takes the per session of the office, he issues notice of this fact to the commissioner. The
commissioner will inform about tax condition to the liquidator with in 3 months. The liquidator will pay the
amount on the receipt of such notice.
7. RECOVERY FROM NON-RESIDENT MEMBER OF AN ASSOCIATION OF PERSONS :-
If the above persons have to pay tax in respect of the member’s share of the profit of the association it
can be recovered out of assets of the association or from resident members of association.
COLLECTION OF TAX IN CASE OF PRIVATE COMPANIES AND ASSOCIATION OF PERSONS :-
If any private company fails to pay the tax of any tax year it can be recovered by the commissioner from
the following ways:
1. Tax can be recovered from the director of the company other than an employed director.
2. A tax payable by a member is recovered from the association.
3. Any shareholder who owns more than 10% of the paid up capital of the company. A shareholder who pays
tax in this way can recover the share of tax paid from the company or from another director or any other shareholder.
Refund of Tax:-
Some times a taxpayer has paid more than the proper chargeable amount. Taxpayer will apply to the
commissioner that amount is paid in excess, it may be refunded. The commissioner will decide the refund
application with in 45 days.
Conditions:-
i). The application is not be made on prescribed form,
ii). Application is made with in two years of the date of tax paid or assessment order issued.
iii). The commissioner must be satisfied that tax has been over paid.
Methods Of Refund:-
i). This amount of refund may be adjusted any other amount of income tax payable.
ii). The refund should be applied against any other outstanding tax.
iii). The extra amount paid should be to the applicant.

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Q.15. Define Set Off and Carry Forward of Losses and how these can be Set
Off and Carry Forward?
Set of Losses
Set of losses with in some head.

Following losses are adjusted in the same source of income.
1. Speculation business loss can be set off against the profit of speculation business.
If any person sustains loss from any of the following head then he can set off the loss from any other
head of income.
i). Income from non-speculation business.
ii). Income from house property.
iii). Income from other sources.
1. Set off of Capital Loss:-
If an Taxpayer sustains a capital loss, it can be only set off against the capital gains received by the
Taxpayer in the same year. Such loss can be set off against income under any other head.
2. Set off losses of certain companies :-
If any company sustains a loss and it is merged with another company, in this situation, the loss of the
company being merged can be set off from the profits of amalgamated company.
3. Set of speculation loss :-
The loss sustained by the assessee from speculation business can not be adjusted against any other
head. Such loss he can set off speculation business carried on by him in any income year.
4. Loss sustained by an association of person :-

The above loss can be set off against any other income of association.
It still some loss is remaining then it shall be apportioned among the members of associations according
to their share. While computing taxable income each member is allowed to set off his share of loss.
5. Loss on Sale of Securities:-
Where a person sustains a loss on disposal of securities in a tax year, the loss shall be set off only
against the gain of the person from any other securities chargeable to tax as profit on sale of securities.
6. Set Off of Losses of Companies Operating Hotels:-
If a company is registered in Pakistan or Azad Jammu and Kashmir (AJ&K), and it is operating hotels at
both the places, and it sustains a loss from business at one place, the loss can be adjusted against
company’s income at the other place. This new section has been added through Finance Act, 2007, so
that the companies operating hotels in Pakistan are encouraged to open and operate their business in
Azad Jammu and Kashmir also.
Carry Forward of Losses:-
If the assess sustains a loss under the heads:
i). Income from house property.
ii). Income from other sources
And such loss can not be set off against any other head in the same year due to absence or inadequacy
or other income on that year. Such losses can not be carried forward to the subsequent years under any
circumstances. It becomes a dead loss.
1. Carry Forward Of Loss From Business or Profession :-
If the business loss can not be fully set off within the same year, it can be carried forward to the next year.
But it can be only adjusted against the same business or profession next year in which the loss was
sustained. It cannot be adjusted against any other head or any other business.
2. Carry Forward Of Loss Of Certain Companies :-
If the loss sustained by the subsidiary company it can be set off after assessment and carried forward by
the company itself. There is also option for the subsidiary company that it can suspend the loss for 3
years in favor of its holding company for being set off against the profit of the holding company.
i). Holding company should be a public company.
ii). It should be listed on stock exchange.
iii). The holding company should hold 75% share capital of subsidiary company.
iv). The subsidiary company owns and manages the industrial undertaking.
3. Carry Forward Of Loss Speculation Business :-
The loss from a speculation business can be adjusted against the speculation gains in the same year. If it
is not possible due to any reason then it can be carry forward to the next assessment year and so on. But
it can be carried forward after six years because after that it becomes a dead loss.
4. Carry Forward Of Capital Loss :-
If an assessee sustains a capital loss and it can not be adjusted against the capital gains of the same year
then it shall be carried forward to the following year and so on subject the few conditions mentioned.
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5. Carry Forward of Losses Of Certain Companies :-
If merging and amalgamated company can not adjust this loss in a tax year in which this event took place.
This loss can be carry forward to be adjusted against the next tax year. The permission to carry forward
such loss is up to the six tax years.
6. Carry Forward Of Losses Of Association Of Persons :-
The association of persons itself can not carry forward the loss. Each member adjusts the loss in the
same tax year in which loss was sustained then this loss can be forward by the member for 6 years.
7. Carry Forward of Loss on Sale of Securities:-
Where a loss on sale of securities cannot be adjusted in the same year, no carry forward of such losses is
allowed.
Q.16. Discuss the powers and functions of Deputy Commissioner Inland
Revenue or Assistant Commissioner Inland Revenue
Deputy Commissioner Inland Revenue:-

In the income tax department, deputy commissioner income tax is very important person. He makes
various decisions regarding the assessment and tax collection. He has a direct link with the Taxpayer. He
is also responsible for the administration of income tax machinery in his circle. He has been the powers
executive and judicial.
APPOINTMENT:-
The Federal Board of revenue appoints the deputy commissioner Inland Revenue. However, his powers
and functions may be revised by the commissioner income tax with the approval of Federal Boards of
Revenue.
POWERS AND FUNCTIONS:-
Following are the important functions and powers of deputy commissioner:
1. Issues Notices :-
For the collection of tax from assesses deputy commissioner income tax issues the notices. He also
issues the notices regarding filling of various returns.
2. Profit Computing Power :-
The Deputy Commissioner Inland Revenue may compute the profits of the Taxpayer according to his own
method, if he is not satisfied with the computing method of the Taxpayer. In some particular cases he is
also empowered to make an additional assessment.
3. Case Of Self Assessment Scheme :-
Under the self assessment scheme if any assessee has filed the return of income. It can be adjusted by
the deputy Commissioner Inland Revenue to frame the assessment.
4. Power Of Penalty :-
Deputy Commissioner Inland Revenue has the power to impose penalty with the prior approval of
inspecting assistant commissioner in the following cases.
i. If any taxpayer fails to obey the notice issued by him.
ii. If any taxpayer is obstructing the income tax authorities.

25
5. Cancellation Power :-
If the necessary requirements are not filled by the registered firm then its registration can be cancelled by
the Deputy Commissioner Inland Revenue. He may allow or refuses the registration of the firm.
6. Rectify Mistakes :-
Deputy Commissioner Inland Revenue has the power to remove the mistake of assessment order passed
by his predecessor or by him.
7. Provisional Assessment Power :-
If taxpayer fails to file the income then Deputy Commissioner Inland Revenue is empowered to make a
provisional assessment in this case.
8. Tax Refund Claims :-
The Deputy Commissioner Inland Revenue receives the application claiming the refund of tax and also
makes decisions about them.
9. Data Extension Power :-
In genuine cases deputy Commissioner Inland Revenue has the power to extend the date for filling the
return of income. He can also admit the applications for refund of tax after the expiry of the due date.
10. Powers Of A Judge :-
The Deputy Commissioner Inland Revenue may enforce the attendance of any person to produce the
documents about the accounts. He also exercises the powers of a judge and accepts the evidence on
affidavit.
11. Finding Out The Real Market Value :-
The Deputy Commissioner Inland Revenue has the power to find the real market value of the assets which
are sold by the assessee. If he feels that market value is higher then sale price he can find out the real
market value.
12. Controller Of Staff :-

The deputy Commissioner Inland Revenue controls his subordinate staff and provides them instructions.
13. Checking Of Business :-
The deputy Commissioner Inland Revenue has the power to enter in to any business enterprise to check
the business and books of accounts.
14. Discretionary Powers :-
Various discretionary powers are given to the Deputy Commissioner Inland Revenue almost in all the
matters relating to Taxpayer.
15. Penalty For Not Filling Return :-
If any person fails to provide the return with in the prescribed time with out a genuine reason, the Deputy
Commissioner is empowered to impose penalty on him with the prior approval.
16. Power Of Holding Refund :-
The Deputy Commissioner Inland Revenue can with hold a refund resulting from an appeal able order
where such order is under further appeal, with the approval of the Deputy Commissioner Inland Revenue.
17. Penalty For Concealing Income :-
If any person conceals or provides wrong particulars of income, the Deputy Commissioner Inland
Revenue may impose penalty on him.
18. Wealth Statement :-
Deputy Commissioner Inland Revenue may ask the Taxpayer to submit the details of his wealth.
19. Retain Documents :-
Deputy Commissioner Inland Revenue can retain the documents of the Taxpayer for the purpose of
prosecution.
20. Penalty For Non Maintenance of Books :-
If Taxpayer fails to maintain all the necessary books of accounts then Deputy Commissioner Inland
Revenue is empowered to impose penalty on him.
Q. 17. Discuss the jurisdiction, powers and function of Commissioner Inland
Revenue.
Commissioner Inland Revenue:-

He is an important income tax authority which has executive and judicial powers. The Federal Board of
Revenue is the appointing authority for commissioner of Inland Revenue. Normally commissioner is

26
appointed as an in charge of a zone. He is responsible for the administration of the area assigned to him.
He is subordinate Chief Commissioner Inland Revenue.
JURISDICTION:-
1. In a specific area which is assigned to him, he performs both the function judicial and executive. 2.
If specific area is not assigned then he performs his duties according the directions of Federal Board of
Revenue.
FUNCTION AND POWERS OF COMMISSIONER OF INCOME TAX:-
The commissioner exercises the power to control the staff of income tax department working in his
jurisdiction. He is also responsible for the efficiency of work in all respect in his zone.
Following are the important functions and powers of Commissioner Inland Revenue.
1. Determine The Jurisdiction :-

He has the power to determine the jurisdiction and assign the work to subordinate inspecting Additional
Commissioner’s Inland Revenue and Deputy Commissioners.
2. Final Authority To Decide The Dispute :-
Commissioner Inland Revendue is the final authority to decide the disputes if two subordinate income tax
authorities are not in agreement regarding their areas of jurisdiction or the assessment of a person.
3. Transfer Of Jurisdiction :-
He is empowered to transfer the jurisdiction from one income tax authority to another.
4. Revision Of Orders :-
He may revise any order passed by his subordinates however; these orders should not be prejudicial to
the Taxpayer.
5. Power To With Held The Refund :-
The Commissioner Inland Revenue is empowered to order that the refund must be with held if the
department wants to appeal against the refund.
6. Refer The Case To High Court :-
If he is not satisfied with the decision of Appalled Tribunal, he can request the Tribunal to refer the case to
High Court provided that the decision involves the point of law.
7. Power To Compound Offence :-
He may either before or after the institution of proceedings compound such offence where a person has
committed any offence under the Income Tax Law.
8. Order To Person For Payment :-
He may order a person who has committed an offence to pay the amount for which the offence may not
compound.
9. Power To Disqualify The Practitioners :-
If he finds any practitioners qualify of misconduct, he may disqualify an income tax practitioner to appear
before any income tax authority.
10. Power To Amend His Orders :-
To rectify any mistake from the record the Commissioner Inland Revenue may amend his orders passed
by him.
11. Power To Receive Evidence :-
The commissioner has the power to receive the evidence on affidavit. For the examination of witness he
can issue the orders to commissioners.
12. Power To Demand Documents :-
He can compel any person to produce his books of accounts or any other documents for investigation.
He can also enforce any person to attend his office and he can examine him.
13. Power To Extend The Petition Period :-
He can extend the normal period for filling a revision petition, if he is satisfied about the cause of delay.
14. Power To Decide The Revision Petitions :-
Against the decision of his subordinates he entertains, hears and decides the revision petitions of
aggrieved Taxpayer.
15. May Direct For Appeal :-
The Commissioner Inland Revenue (Head quarter) may direct the Deputy Commissioner to appeal to
Appellate Tribunal against the decision made by the commissioner income tax (appeal).
16. Penalty :-
If the notice has been issued to any taxpayer but he has failed to obey the notice. In this case
Commissioner Inland Revenue may impose penalty on that person.
17. Best Judgment Assessment :-
If any person fails to file the return of income tax with in due date then the commissioner can make the
best judgment of assessment.
18. Power Of Recovery Of Tax :-
The Commissioner Inland Revenue can take various steps to recover the amount if any person fails to
pay the due tax.
19. Inventory Of Articles :-
If any article is not entered and it is found in the premises the commissioner can make inventory of that
article.
20. Provisional Assessment :-
The Commissioner Inland Revenue has the power to make the provisional assessment if any person fails
to file the return.
21. Notice For Tax :-
The Commissioner Inland Revenue can issue the notice to any person for filling the return or for the
collection of tax from the tax payer.
22. Retain The Documents :-

27
The Commissioner Inland Revenue is empowered to retain the important documents of the taxpayers for
the purpose of prosecutions.
23. Change The Method Of Accounting :-
If any person wants to change his method of accounting, the Commissioner Inland Revenue may allow
him to change.
Q. 18. Discuss the Power and Functions of Chief Commissioner Inland
Revenue.
CHIEF COMMISSIONER INLAND REVENUE:-

The Chief Commissioner Inland Revenue is appointed by the FBR. He also performs his function
according the direction of the FBR. The Specific area given in his jurisdiction is known as Region.
FUNCTIONS AND POWERS OF CHIEF COMMISSIONER INLAND REVENUE
1. Regulates The Inspection Work :-
The Chief Commissioner Inland Revenue plays an important role in the income tax department. He
regulates the inspection work of the additional commissioner.
2. Administrative Remedies For the Tax Payers :-
Now he has enabled the taxpayers to obtain administrative remedies locally for which they had to
approach to Federal Board of Revenue in the past.
3. Power Of Revision :-
The Chief Commissioner Inland Revenue is empowered to revise the orders of income tax commissioner
(Appeals).
4. Power To Determine The Jurisdiction :-
He has also power to make the final decision about the jurisdiction of two commissioners of income tax
of the same region. In consultation with the FBR he also determines the jurisdiction of the appellate
additional commissioners of his region.
5. Power To Write Off :-
He is also empowered to write of irrecoverable demands with the instructions issued by the FBR.
6. Posting Orders :-
Posting orders for the DR’S and issued by him to the income tax tribunal. He also makes all other
necessary arrangements in this regard.
7. Over All Supervision :-
He is responsible for all over supervision of the technical worked performed in his region. He also
examines the periodical returns and statements.
8. Collection Of Arrears :-
The Chief Commissioner Inland Revenue keeps close watch on the arrears of assessments and collection
of income tax.
9. Action Against Tax Evasion :-
The Chief Commissioner Inland Revenue takes action against the complaints of tax evasion.
10. Power Of Internal Audit :-
The Chief Commissioner Inland Revenue conducts the internal audit of the income tax department and
makes necessary arrangements in this regard.
11. Inspection Power :-
He can inspect the subordinate offices at any time. He also regulates the inspection work of the
inspecting additional commissioners.
12. Examines The Inspection Notes :-
He examines the inspection notes from the Commissioner Inland Revenue and inspecting additional
commissioners and takes necessary actions keeping in view the notes.
13. Executive’s Judicial Power :-
He has judicial as well as executive powers. He may perform any other function which is assigned by the
FBR.
14. Other Functions :-

28
Any other function assigned by the Federal Board of Revenue will be performed by the Chief
Commissioner Inland Revenue.
Q.19. Discuss the Powers and Functions of Federal Board of Revenue.
Power and functions of the central board of revenue (CBR)
Federal Board of Revenue (FBR):-

It is the highest executive authority of income tax law for the purpose of tax collection this statutory body
is appointed by the Federal Govt. This board is also responsible for the collection of sales tax and wealth
tax. The board of revenue consists of the four members. There is also full time chairman who is also
appointed by the federal government.
The board issues instructions orders and rules for the income tax department. But board cannot interfere
the affairs of the income tax appellate tribunals.
Powers and Functions of the Federal Board of Revenue (FBR):-
For the proper administration of income tax law following powers is given by the finance ministry to the
Federal Board of Revenue.
1. Appointing Authority :-
Federal Board of Revenue has the authority to appoint income tax officers at various levels from Chief
Commissioners to income tax officers. The Federal Board of Revenue can also appoint the number of
qualified persons as values and fixes their salaries.
2. Controlling Power :-
The Federal Board of Revenue controls the working of this entire income tax department. It tries to
maximize the revenue of the income tax department. It also makes efforts to minimize the difficulties of
the tax payers.
3. Formulation Of Rules :-
The Federal Board of Revenue is authorities to formulate the rules and instruct the income tax officers in
respect of income tax collection.
4. Distribution Of Work :-
The Federal Board of Revenue assigns the work to commissioners, directors of survey and other senior
officers.
The Federal Board of Revenue controls the working of the entire income tax department. It tries to
maximize the revenue of the income tax department. It also makes efforts minimize the difficulties of the
tax payers.
5. Transfer Of Appeal Power :-
The Federal Board of Revenue can transfer an appeal from the appellate assistant commissioner to the
Commissioner Inland Revenue to determine the jurisdiction of appellate assistant commissioner it can
delegate its power to the commissioners.
6. Power In Respect Of Tax Credit :-
For the purpose of tax credit the Federal Board of Revenue can approve any undertaking to be treated as
industrial under taking on the recommendation of the Federal Govt.
7. Registration Of Income Tax Practitioners :-
Federal Board of Revenue registers qualified persons as income tax practitioners. It also makes rules for
the practitioner’s code of conduct.
8. Powers Regarding Welfare Funds :-
The central board of revenue can exercise powers in respect of approved gratuity funds and provident
funds.
9. Powers In Respect Of Foreign Association :-
The Federal Board of Revenue has the power to treat the foreign association as a company for the
purpose of income tax. This can be done by the Federal Board of Revenue or general orders for any
assessment year.
10. License Cancellation Power :-
Federal Board of Revenue has the power to cancel the license of any practitioner who is not working
according the rules.
11. Transfer Of Power :-
The Federal Board of Revenue can transfer the power of income tax officer to a senior officer like
inspection assistant commissioner.
12. Power About Income Year :-
The Federal Board of Revenue is empowered to consider any period as an income in case of any person
or class of persons.
13. Power About Disputed Jurisdiction :-
The Federal Board of Revenue has also power to determine the disputed jurisdiction. For instance if two
Chief Commissioner Inland Revenue are not in agreement regarding the jurisdiction of Deputy
Commissioner Inland Revenue to assess any person in that situation Federal Board of Revenue has
power to determine the jurisdiction.

29
14. Direction Of Power :-
In respect of any case or any area the board can direct those powers conferred upon the Deputy
Commissioner and Additional Commissioner Inland Revenue which will be exercised by additional
commissioner and commissioner respectively.
15. Authorize For Assistance :-
The Federal Board of Revenue can authorize any person to guide instruct or assist the deputy
Commissioner Inland Revenue in case of any proceeding.
16. Allocation Of Duties :-
If the same function in respect of the same person or area has been assigned to two or more than two
officers, it can allocate the function and distribute the work among them.
17. Power Regarding Funds :-
The Federal Board of Revenue can also exercise powers regarding approved gratuity funds
superannuation fund and provident funds.
18. Admit Practitioners Appeal :-
If the registration of income tax practitioner is cancelled he can submit appeal to Federal Board of
Revenue with in 30 days. Central board of revenue can also admit the appeal even after 30 days if the
delay was genuine.
19. Regulates The Procedure :-
The Federal Board of Revenue can make the rules regarding the procedure of granting approval for tax
credit for the modernization of plant, for the investment in share or debentures of “Equity participation
fund.”
20. Appointment Of Auditor :-
To conduct the audit of any person FBR can appoint any chartered accountant firm as an auditor.
21. Approval Of Charitable Institutions :-
For the purpose of tax relief the FBR can approve the charitable institutions.
22. Appointment Of Surveys :-
Some times surveys are conducted about various classes to know the capacity to pay the taxes. For such
purpose FBR may appoint any agency or company to conduct such survey.
Appellate Tribunal
Q.20. Write a note on income tax
Appellate Tribunal Inland Revenue:-

This tribunal is appointed by the Federal Govt. If taxpayer or commissioner is not satisfied with decision
of the commissioner appeals then they can appeal to the above Tribunal.
The details are given in income tax ordinance.
1. Judicial Members :-
Judicial member is appointed by the federal govt. Who fulfills the following conditions?
i). He has already worked as district judge and his qualified to be a judge of High Court.
ii). He is or has been an advocate of high court and is qualified to be a judge of High Court.
2. Accountant Members :-
These are also appointed by the Federal Govt. They should possess the following qualification.
i). He may be the income tax officer equal to the rank of Chief Commissioner Inland Revenue.
ii). He may be income tax commissioner who has at least two years experience of appellate work.
iii). A person who has practiced as a Charted Accountant at least 10 years or above.
3. Chairman :-
Federal Govt. generally appoints the judicial member as a chairman but accountant member is also
eligible.
4. Registrar :-
Registrar looks after the working of the offices of the Tribunal. He works under the chairman. He receives
the appeals and fixes the dates.
FUNCTIONS OF THE TRIBUNAL:-

To perform the functions the chairman may divides the tribunal in to bunch. A bunch normally consists of
two members, one from each side. The Federal Government may allow any one member to hear and
decide any case.

30
Majority decisions are accepted in case of any difference on any point. In the disputed cases chairman
appoints one or more members of the tribunal to hear the case.
FINAL DECISION:-
On the point of facts the decision of tribunal is considered final. On the other hand if the decision of the
Tribunal involves a point of law the case can be referred to the High Court.
PROCEDURE OF APPEAL TO THE APPELLATE TRIBUNAL SEC, 131 AND 132
If a person is not satisfied with the decision of Commissioner Inland Revenue (Appeals), he can make a
second appeal to the Appellate Tribunal. The CIR also, if not satisfied with the decision of CIR (Appeals),
can appeal to the Appellate Tribunal.
The following are the main features of appeal to the Appellate Tribunal:
1. The appeal by the person or the department should be filed within 60 days from the date of passing the
order. The Appellate Tribunal has power to extend the period.
2. The appeal should be filed on the prescribed form and attached documents.
3. If the Taxpayer is filing the appeal, it should accompany a fee of Rs.2000. This fee is not payable, if the
appeal is being made by the CIR.
4. The Appellate Tribunal gives both parties an opportunity of being heard, either in person or
representative.
5. If no party appears before the Tribunal, the Appellate Tribunal may proceed ex parte to decide the
appeal on the basis of available record.
6. It is necessary that decision of all appeals filed on or after July 1, 2005, should be disposed of within 6
months.
7. The Appellate Tribunal in disposing of an appeal may:
a. Reduce or annul the Assessment. b. Increase the Assessment.
c. Reject the Appeal. d. Cancel or change the order & issue directions.
e. Increase or Reduce the Penalty. f. Return the case to CIR or CIR(Appeals) to make enquiry.
REFERENCE TO HIGH COURT

If the Taxpayer or CIR is not satisfied with the decision of the Appellate Tribunal, the case may
referred to High Court on the Point of Law.
APPEAL TO THE SUPREME COURT
If the Taxpayer or the Department is not satisfied the decision of the High Court on a Point of
Law, the case may be referred to Supreme Court. This right was subject to the certification by
High Court that the case is fit for the Supreme Court.
APPEAL FLOW CHART
Appeal against the Order of: Authority to Whom Appeal can be Submitted
1. CIR or any other Officer. CIR (Appeals)
2. CIR (Appeals) Appellate Tribunal
3. Appellate Tribunal Refer to High Court on point of law.
4. High Court Supreme Court as per Constitution of Pakistan.

31
Q.21. Discuss the legal provisions regarding the filling of appeal to
Appellate Commissioner o r how he disposes of the appeal
Appeals to Commissioner Inland Revenue:-

If Taxpayer is not satisfied, he may submit an appeal against the commissioner Inland Revenue to the
Commission of Inland Revenue (appeals). On the other hand if income tax department is not satisfied with
the orders or the income tax officer then appeal can not be made. Following are the important features of
such appeal.
1. Right Of Taxpayer :-
Right of appeals is given only to the taxpayer and not to the tax department against the order of the
commissioner.
2. Use Of Prescribed Form :-
Appeal is filed on a prescribed form which is properly verified. In this appeal taxpayer explains the
grounds on which appeal is made.
3. Payment Of Tax :-
Before filling the appeal a taxpayer is required to pay the full amount due tax on the other hand if tax is
disputed then its 15% will be paid before filling the appeal.
4. Period :-
Within thirty days of the receipt of appeal able orders appeal may be filed. However the date may be
extended by the Commissioner Inland Revenue (appeal).
5. Fixation Of Date :-
Date for hearing the appeal will be fixed by the Commissioner of Inland Revenue (appeal).
He will also inform the income tax commissioner and appellant.
6. Demand Any Particulars :-
The Commissioner Inland Revenue (appeal) may demand the particulars; he may also ask the income tax
penal to make further inquiry.
7. Disposal Of Assessment Orders :-
In case of assessment order the Commissioner Inland Revenue (appeal) may dispose of the appeal in the
following way:
i). He may cancel the assessment and may ask the income tax officer for the fresh assessment.
ii). He may increase the assessment.
iii). He may declare the assessment correct.
iv). He may reduce or annual the assessment.
8. Case Of Penalty Orders :-
The Commissioner Inland Revenue (appeal) may confirm, cancel, increase or reduce the penalty orders.
9. According To His Own Wish :-
The Commissioner Inland Revenue (appeal) may pass such orders as he thinks fit in any other case.
10. Decision Period :-
The decision of the appeal should be made within 3 months of the presentation of the appeal.
11. Communication Of Orders :-
The Commissioner Inland Revenue (appeal) should communication the order passed by him to the
appellant, I.T.O. and the Commissioner Inland Revenue (Head Quarters) on the decision of appeal.
12. Hearing Opportunity :-
The Commissioner Inland Revenue (appeals) give the chances of hearing to both the parties. Both can
explain their views. It is very useful for making the correct decision.
13. Decision Of Appeal :-
The decision of the appeal will be given by the commissioner Inland Revenue (Appeal).
He may
i) Reject the appeal.
ii) Increase the assessment.
iii) Decrease assessment.
iv) Decrease penalty.
v) Increase the penalty.

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INCOME TAX FOR THE YEAR 2013-2014

Name of Tax Payer
Tax Year: Tax Year Ended:
30-06-
Residential Status: Resident
Computation of Tax Payable
INCOME FROM SALARY (Section 12)
Basic Salary Totally Taxable
Commission Totally Taxable
Bonus Totally Taxable
Dearness Allowance Totally Taxable
Overseas Allowance Totally Taxable
Cost of Living Allowance Totally Taxable
TOTAL SALARY
Overtime Payment Totally Taxable
Special R. Allowance/Special Pay Totally Taxable
Special Additional Allowance Totally Taxable
Gas and Electricity/Utility Allow. Totally Taxable
Computer /Orderly/Ph. D Allow. Totally Taxable
Senior Post Allowance/Project Allowance Totally Taxable
Qualification Pay/Incentive/Performance Award Totally Taxable
Efficiency Honorarium Totally Taxable
Reward on passing departmental examination Totally Taxable
Tax paid by the employer Totally Taxable
Lahore Gymkhana Membership paid by Employer Totally Taxable
Free Lahore USA return Ticket Totally Taxable
(Exemption available only for transport business)
Golden hand shake if period is less than 3 years Totally Taxable
Children Education fee paid by employer Totally Taxable
Adhoc Relief Totally Taxable
Leave Encashment Totally Taxable
Annual Leave Fare Assistance Totally Taxable
Fees fro Refresher Course paid by Employer Totally Exempt
Salary of Mali and Chokidar Totally Taxable
Life Insurance paid by employer Totally Taxable
Gratuity Exempt up-to 200000
Telephone bills re-imbursement Totally Taxable
Internet Usage Bill officially Totally Exempt
Pick and drop facility by employer Totally Exempt
Hotel bill by employer official duties/pleasure trip Totally Exempt/Tax
Children Education facility employers institution Totally Exempt
Perquisites, Allowances and Benefits:

Accommodation Allowance in Cash Totally Taxable
Accommodation Facility
a Entitled Amount if given
b 45% of MTS or Basic Salary
Whichever is Higher Taxable
If entitled amount is not given then
45% of MTS or Basic Salary Taxable

33
Conveyance
Conveyance Allowance in Cash Totally Taxable
Conveyance for personal Use only
10% of Cost of Vehicle Taxable
Conveyance for Personal and Official Use
5% of Cost of Vehicle Taxable
Conveyance acquired on Lease and Use for Personal
10% of Fair Market Value Taxable
Conveyance acquired on Lease and Use for Both
5% of Fair Market Value Taxable
Medical, Hospital Charges and Medical Allowance
Medical Allowance in Cash Exempt 10% of B .Salary
Medical Facility or Re-imbursement Totally Exempt
Personal Medical expenditure re-imbursement Totally Exempt
Entertainment
Entertainment Allowance in Cash Totally Taxable
Entertainment Re-imbursement, Tea, Coff for Official Totally Exempt
Subsidies lunch facility Totally Exempt
Loan to Employee upto Rs.500000 no Tax
More than 500000 benchmark rate is 10% Taxable
Special Allowance for Official Duties Totally Exempt
Provident Fund
Employee’s Contribution (Already included in Taxable
Income)
Employer’s contribution (Not included lesser of 10%
Of B. Salary or Rs.100000 Excess included)
Interest Credited (Not included if interest rate 16%
And less than 1/3 of salary the excess included)
Receipt of Accumulated Balance (Not Included)
INCOME FROM PROPERTY Section 15)

Gifted Property Income (Separate Block) 5%
Rent Received
Forfeited Amount
Unadjustable Advance 1/10th
INCOME FROM BUSINESS Section 18)

Income from Royalties on Professional Books Totally Taxable
Income from Fish Catching Business Totally Taxable
Income from Poultry Form Totally Taxable
Income from business U.K. Totally Taxable
Income from Fruit Processing Business Totally Taxable
INCOME FROM CAPITAL GAIN Section 37
Profit on sale of inherited jewelry less than 12 months Totally Taxable
(More than 12 months exempt 25%)
Loss on Sale of Antique Totally Exempt
Profit on sale of Modaraba Certificate Totally Exempt
(Separate Block)
Gain on sales of Securities more than 12 months Totally Exempt
Gain on sales of Shares of Private Co. After 12 months
(Exempt up to 25%)
Gain on sale of public co. shares more than 12 months Totally Exempt
Gain on sale of immovable property more than 2 years Totally Exempt
INCOME FROM OTHER SOURCES Section 39
34
Agricultural Income Totally Exempt
Bonus Shares from Public Co. Totally Exempt
Sale of personal car at profit Totally Exempt
Gift from Mother Totally Exempt
Insurance money received on maturity Totally Exempt
Income received from abroad Totally Exempt
Cash award granted by President of Pakistan Totally Exempt
Income from hire of furniture Totally Taxable

Income from sublease of property Totally Taxable
Remuneration for examiner (gross) Totally Taxable
Income from Talk delivered on TV (gross) Totally Taxable
Income of non-professional writer Totally Taxable
Remuneration for Literary Work Totally Taxable
Rent of furniture and fittings Totally Taxable
TOTAL INCOME FROM ALL SOURCES
DEDUCTION FROM TOTAL INCOME

Zakat Paid
Worker Welfare Fund
Donation to Pakistan Red Crescent Society
(Restricted up to 30% of Total Income)
ACTUAL TAXABLE INCOME
Add: Share from AOP for rate purpose
TAXABLE INCOME FOR RATE PURPOSE

COMPUTATION OF TAX PAYABLE ON TAXABLE INCOME
FOR RATE PURPOSE
Income Tax on
Income Tax on balance
COMPUTATION OF TAX PAYABLE ON ACTUAL TAXABLE INCOME
Tax on Taxable Income

For rate purpose x Actual Taxable Income
Taxable Income for
Rate Purpose
Amount Allowed for Rebate
Donation to Universities/Boards
amount given or 30% of taxable income
whichever is lower
Life Insurance Premium paid by Employer

Amount given or 20% of Taxable Income or
Rs.1000000 whichever is lower
Profit on debt (mark up on housing finance)

Amount give or 50% of Taxable Income or
Share of Listed Co. or Privatization Commission

Amount given or 20% of Taxable Income or
Less: Average Relief
35
Gross Tax on Taxable
Income for rate purpose x Amount Admissible
Taxable Income for
Rate Purpose
LESS: DEDUCTION OF TAX

Tax paid by Employer
Tax paid with Telephone Bill
Tax paid on Cash Withdrawal from bank @0.3%
6% tax remuneration for examination
6% tax on talk delivered on TV
Tax paid with Motor Vehicle
TAX PAYABLE WITH RETURN
FINAL TAX REGIME (FTR)

Profit on debts @10% FTR
Profit on securities issued by banking co. @10%
Cross Word Puzzle @ 10%
Prize on Prize Bonds @10%
Dividend from Public Co. @10%
Profit on special deposit certificate @10%
Winning from Raffle Lottery @20%
Purchase of Domestic Air Tickets No Treatment

Zakat personally paid to poor relatives No Treatment
Books purchased No Treatment
Personal Legal Expenditure No Treatment
Encashment of Defence Saving Certificate No Treatment
Loan Installment No Treatment
Donation to Bait-ul-Mal No Treatment
DEFINITIONS
1. ACCUMULATED PROFITS (Sec.2 (1)

3. APPROVED GRATUITY FUND (Sec.2 (3)
4. APPROVED EMPLOYMENT PENSION OR ANNUITY SCHEME (Sec.2 (3D)
5. APPROVED SUPERANNUATION FUND (Sec 2 (4)
6. ASSESSMENT (Sec.2 (5)
7. ASSESSMENT YEAR (Sec.2 (5A)
8. ASSOCIATION OF PERSONS (Sec.2 (6)
9. AGRICULTURAL INCOME (Sec. 41)
10. BUSINESS (Sec.2 (10)
11. CAPITAL ASSET (Sec. 2(11) and 37(5)
12. COMPANY (Sec. 2 (12) and (80)
13. DEPRECIABLE ASSET (Sec. 2 (17)
36
14. DIVIDEND (Sec. 2 (19)
15. FOREIGN SOURCE INCOME (Sec. 2 (27)
16. INCOME (Sec.2 (29)
17. INDUSTRIAL UNDERTAKING (Sec. 2 (29C)
18. KIBOR (Sec.2 (30AA)
19. NON-PROFIT ORGANIZATION (Sec. 2 (36)
20. OFFICER OF IONLAND REVENUE (Sec. 2 (38A)
21. PAKISTAN SOURCE INCOME (Sec. 2 (40)
22. PERSON (Sec. 2 (42) and (80)
23. PRINCIPAL OFFICER (Sec. 2 (44A)
24. PROFIT ON DEBT (Sec. 2 (46)
25. PUBLIC COMPANY (Sec. 2 (47)
26. ROYALTIES (Sec.2 (54)
27. TAX (Sec.2 (63)
28. TAXABLE INCOME (Sec. 2 (64)
29. TAXPAYER (Sec. 2 (66)
30. TAX YEAR (Sec. 2 (68)
31. TOTAL INCOME (Sec. 2 (69)
32. TURNOVER (Sec. 2 (70A)
DEFINITIONS
The accumulated profits mean:
1. Any reserves maintained by a business out of its profits;
2. All profits of the company up to the date these are distributed;
3. These profits kept in whatever shape, whether capitalized or not, will be treated as
accumulated profits up till their distribution to shareholders.
Explanation:
The portion of the earned profits is set aside for future use, it may be used for a specific purpose or
may ultimately be distributed amongst the owners is called accumulated profits.
This is the highest Judicial Authority in the matter of tax. It consists of Judicial as well as
Accountant Members. The members are appointed by the Federal Government. In case of any
dispute arises between Taxpayers and Tax Department an appeal can be made to the Appellate
Tribunal. The decision of the Tribunal is final on a point of facts. However, in case of point of law
the matter may be referred to High Court. Appellate Tribunal means the Appellate Tribunal
Inland Revenue.
3. APPROVED GRATUITY FUND (Sec.2 (3)
The Government and Private Organizations maintain Gratuity Funds for the benefit of their
employees. The amounts in these funds continue to accumulate from year to year and normally
are paid to employees at the time of retirement. In case of death of an employee during service, the
amount is paid to his family.
If the Gratuity Fund is approved by the Income Tax Authorities then Employer gets a lot of
benefits. The approval can be granted by the Commissioner of Income Tax.
4. APPROVED EMPLOYMENT PENSION OR ANNUITY SCHEME (Sec.2 (3D)
It is an Employment related Retirement Scheme which makes Pension or Annuity periodical
payments to its beneficiaries. It is approved under the Income Tax Ordinance 2001,
Examples of such schemes include an Approved Superannuation Fund, a public sector Pension
Scheme, Employees Old Age Benefit Scheme etc.

37
5. APPROVED SUPERANNUATION FUND (Sec 2 (4)
This fund is maintained by the organizations to provide benefit to their employees after
retirement. The amount in this fund is continuously contributed by the Employer. The amounts
are paid to the employees as Annuities or Pensions after their retirement or become invalid before
retirement. In case of death paid to his family. The present Government has adopted a reasonable
and liberal policy for the pension of Widows and Orphans of the deceased Employees. This
amount is also paid out of the Superannuation Funds.
The Commissioner of Income Tax approves such funds an the amount contributed by the
Employer is treated his Business Expenditure, which decrease the tax liability.
6. ASSESSMENT (Sec.2 (5)

Assessment includes Provisional Assessment, Re-assessment and Amended Assessment and the
cognate expressions shall be construed accordingly.
Explanation:
Assessment is a process whereby the data of a person e.g. Income, Expenses, Tax Payments etc.
which help in calculating his final tax liability is checked either by the Person Himself or by the
Tax Department.
7. ASSESSMENT YEAR (Sec.2 (5A)

Assessment Year means the period of 12 months beginning on the first day of July next following
the Income Year and includes any such period that is deemed under the provision of this
Ordinance, to be the Assessment Year in respect of Tax Year.
8. ASSOCIATION OF PERSONS (Sec.2 (6)

Association of Persons includes a Firm, a Hindu Undivided Family, any Artificial Judicial Person
and any body of person formed under a Foreign Law. However, it does not include a Company.
9. AGRICULTURAL INCOME (Sec. 41)

Agricultural Income means income:
10. BUSINESS (Sec.2 (10)

Business includes any Trade, Commerce, Manufacture, Profession, Vocation or Adventure or
Concern in the nature of Trade, Commerce, Manufacture, Profession or Vocation, but does not
include Employment.
Explanation:
The definition of Business includes the following terms:
a. Trade. Any dealing between two or more parties for the purchase and sale of commodities
to earn profit.
b. Commerce. It includes not only trade but also all the activities to facilitate the exchange of
goods between producers and consumers such as transportation, insurance, warehousing,
marketing, banking, etc.
c. Manufacture. It means converting of Raw Material into Finished Goods.
d. Profession or Vocation. It is the Occupation that requires some specialized education and
training. The income is generated by Intellectual or Manual Skills. Examples are Doctors,
Lawyer, and Teacher etc.
11. CAPITAL ASSET (Sec. 2(11) and 37(5)

Capital Asset means property of any kind held by a person. It is immaterial whether the property
is connected with his business or not. However, the following are excluded from the Definition:
a. Any stock in trade, consumable stores or raw material held for the purpose of business.
38
b. Any property with respect to which the person is entitled to a depreciation deduction or
amortization deduction.
c. Any movable property (including wearing apparel, jewelery, or furniture’s) held for
personal use by the person himself or any member of his family dependent upon him.
12. COMPANY (Sec. 2 (12) and (80)

According to the Income Tax Ordinance 2001 company means:
i. A company as defined in the companies Ordinance, 1984.
ii. A body corporate formed by or under any law in force in Pakistan.
iii. A Modaraba.
iv. A body incorporated by or under the law of a country outside Pakistan relating to
incorporation of companies.
v. A Cooperative Society, a Finance Society or any other Society.
vi. A non-profit organization.
vii. A trust, an entity or a body of persons established or constituted by any other law.
viii. A Foreign Association whether incorporated or not, which the Board has declared to be
a company.
ix. A Provincial Government.
x. A Local Authority in Pakistan.
xi. A Small Company.
13. DEPRECIABLE ASSET (Sec. 2 (17)

Depreciable Asset means a depreciable asset as defined in section 22 of Income Tax Ordinance,
2001.
In this section depreciable asset implies any tangible moveable property, immoveable property
(other than unimproved land), or structural improvement to immoveable property, owned by a
person that:
a. Has a normal useful life exceeding one year.
b. Is likely to lose value as a result of normal wear and tear, or obsolescence and
c. Is used wholly or partly by the person in deriving income from business chargeable to tax.
14. DIVIDEND (Sec. 2 (19)

Dividend includes:
a. Any distribution by a company of accumulated profits to its shareholders, whether
capitalized or not.
b. Any distribution by a company, to its shareholders of debentures, debenture stock or
deposit certificate in any form whether with or without profit, to the extent to which the
company possesses accumulated profits whether capitalized or not.
c. Any distribution made to the shareholders of a company on its liquidation out of
accumulated profits of the company immediately before its liquidation, whether capitalized
or not.
d. Any distribution by a company to its shareholders on the reduction of its capital to the
extent to which the company possesses accumulated profit whether capitalized or no.
e. Any payment by a private company or trust of any sum by way of advance or loan to a
shareholder or any payment by any such company or trust on behalf, or for the individual
benefit, of any such shareholder to the extent to which the company or trust, in either case,
possesses accumulated profits.
f. Remittance of after tax profit of a branch of foreign company operating in Pakistan.
But does not include:
i. A distribution made in respect of any share for full cash consideration or redemption of
debentures or debenture stock, where the holder of the share or debenture is not
entitled in the extent of liquidation to participate in the surplus assets.

39
ii. Any advance or loan made to a shareholder by a company in the ordinary course of its
business, where the lending of money is a substantial part of the business of the
company.
iii. Any dividend paid by a company which is set off by the company against the whole o
any part of any sum previously paid by it and treated as a divided.
iv. Remittance of after tax profit by a branch of petroleum exploration and production
foreign company operating in Pakistan.
15. FOREIGN SOURCE INCOME (Sec. 2 (27)

This is a new concept which has been introduced through the Income Tax Ordinance, 2001.
According to the Ordinance, an amount shall be foreign source income to the extent to which it is
not a Pakistan Source Income.
16. INCOME (Sec.2 (29)

Income includes;
a. Any amount chargeable to tax under the Income Tax Ordinance, 2001.
b. Any amount subject to collection or deduction of tax at the time of import of goods.
c. Any payment received by a resident from a prescribed person for supply of goods and
services.
d. Any amount received as export proceeds.
e. Amounts received on prizes and winnings.
f. Any amount collected from a person being the owner of goods transport vehicle by the
Excise Department.
g. Any other amount deducted or collected by any person at source is included in the
definition of income.
h. Any loss of income.
17. INDUSTRIAL UNDERTAKING (Sec. 2 (29C)
This definition has been added through Finance Act, 2004. an organization fulfilling the following
conditions will be known as industrial undertaking.
1. Organization is set up in Pakistan.
2. It uses electrical energy or any other form of mechanical energy and employs ten or
more persons or.
It does not use electrical or any other form of energy but:
a. Employs twenty or more persons.
b. Is engaged in a manufacturing process.
c. Engaged in ship building.
d. Engaged in generation, conversion, transmission or distribution of electrical energy, or the
supply of hydraulic power.
e. Engaged in the working of any mine, oil well or any other source of mineral deposits.
Moreover, the Federal Board of Revenue can declare any other organization which does not fall in
the orbit of above two types as Industrial Undertaking.
18. KIBOR (Sec.2 (30AA)
KIBOR means Karachi Inter Bank Offered Rate applicable on the first day of each quarter of the
financial year.
This definition has been introduced in the law through Finance Act, 2009. It was necessitated
because now the compensation on delayed refunds will be payable on KIBOR rate. Moreover, for
the purpose of addition tax the rate will be used. The rate of KIBOR on 3 rd July 2012 was
11.95%.
19. NON-PROFIT ORGANIZATION (Sec. 2 (36)
Non-profit organization means any person other than an individual which is:
a. Established for religious, educational, charitable, welfare or development purposes or for
the promotion of an amateur sport.

40
b. It should be registered under any law as a non-profit organization and the Commissioner of
Income Tax has certified it to be a non-profit organization for a specified period, under the
Income Tax Ordinance.
c. Any asset of the organization should not be used for the private benefit of any other person.
20. OFFICER OF IONLAND REVENUE (Sec. 2 (38A)
The following officers are included in the definition of Officer of Inland Revenue.
a. Additional Commissioner Inland Revenue.
b. Deputy Commissioner Inland Revenue.
c. Assistant Commissioner Inland Revenue.
d. Inland Revenue Audit Officer.
e. Any other officer designated as such by the Federal Board of Revenue.
21. PAKISTAN SOURCE INCOME (Sec. 2 (40)
Income Tax Ordinance 2001, has given consideration to the geographical source of income while
taxing any income. In this context the Pakistan-source income includes the income which a person
earns in Pakistan, irrespective of the fact that where it is actually received.
22. PERSON (Sec. 2 (42) and (80)
Under the Income Tax Ordinance, 2001, a person includes the following:
a. An individual.
b. A company.
c. An Association of Persons incorporated, formed, organized or established in Pakistan or
elsewhere.
d. The Federal Government, a foreign government, a political sub-division of a foreign
government, or public international organization.
23. PRINCIPAL OFFICER (Sec. 2 (44A)
Principal Officer used with reference to a company or association of persons includes:
a. A director, a manager, secretary, agent, accountant or any similar officer.
b. Any person connected with the management or administration of the company or
association of persons upon whom the Commissioner has served a notice of treating him as
the principal officer thereof.
24. PROFIT ON DEBT (Sec. 2 (46)
Profit on a debt means:
a. Any profit, yield, interest, discount, premium or other amount payable on a debt. However,
it does not include the return of capital.
b. Any service fee or other charge in respect of a debt. Any fee or charge incorporated in
respect of credit facility will also be treated as profit on debt even if it has not been utilized.
25. PUBLIC COMPANY (Sec. 2 (47)
Under the Income Tax Law a public company means:
a. A company in which at least Fifty Percent of the share are held by the Federal Government
or Provincial Government.
b. A company in which at least Fifty Percent of the shares are held by a Foreign Government.
c. A Foreign Company owned by a Foreign Government.
d. A company whose shares were traded on a registered stock exchange in Pakistan at any
time in the tax year and which remained listed on that exchange, at the end of that year; or
e. A unit trust whose units are widely available to the public and any other public trust.
26. ROYALTIES (Sec.2 (54)
Royalties mean any amount paid or payable as consideration for:
a. The use of any patent, invention, design or model, secret formula or process, trademark or
any other property or right of this type.
b. The use of or right to use any copyrights of a literary, artistic or scientific work including
films or videotapes for use in connection with television or tapes in connection with radio
broadcasting. However, consideration for the sale of cinema autograph films will not be
treated as royalty.
c. The receipt of, or right to receive, any visual images or sounds or both transmitted by
satellite cable, optic fiber or similar technology in connection with television, radio or
internet broadcasting.
d. The supply of any technical, industrial, commercial or scientific knowledge, experience or
skill.
e. The use of or right to use any industrial, commercial or scientific equipment.
f. The supply of any assistance that is subsidiary to any property or right mentioned above.
g. The disposal of any property or right referred above.
41
27. TAX (Sec.2 (63)
Tax means any tax imposed under the income tax law. It also includes any penalty, investment tax,
fee or other charge or any sum or amount leviable r payable under the Income Tax Ordinance,
2001.
28. TAXABLE INCOME (Sec. 2 (64)
The taxable income of a person for a tax year shall be the total income of the person for the year
as reduced by any deductible allowances. However, the taxable income should not be below zero.
29. TAXPAYER (Sec. 2 (66)
Taxpayer means:
a. A person who derives an amount chargeable to tax.
b. Representative of such person.
c. A persona responsible to deduct or collect tax and deposit it with the government under the
provisions of the income tax law.
d. Any person required to furnish a return or pay tax under Income lTax Ordinance, 2001.
30. TAX YEAR (Sec. 2 (68)

The concept of tax year has been introduced in our income tax law through Income Tax
Ordinance, 2001. Tax Year is a period of time for which tax is to be calculated regarding a person.
The Tax Year may be of Three type:
1. Normal Tax Year
It is a period of 12 months ending on 30th June and is known by the Calendar Year in
which the ending date falls. Such a tax year is known as Normal Tax Year.
For example, period starting 01-07-2012 and ending on 30-06-2013 is a normal tax year
and will be known as tax year 2013.
2. Special Tax Year
In case of any person or class of persons or any source of income the Board may specify
a period of 12 months as their tax year.
For example, commence on 1st October and will end on 30th September following. This
period of 12 months is tax year for all companies engaged in cotton textiles
manufacturing.
3. Transitional Tax Year
When tax year of any class of persons or a single person is changed as a result of an
order by the Board or Commissioner of Income Tax, it results in the emergence of a
changing period which is known as Transitional Tax Year and is treated to be a separate
tax year. It consists of the period between the end of last year before, change and the
start of the changed tax year.
31. TOTAL INCOME (Sec. 2 (69)
The total income of a person for a tax year shall be the sum of the person’s income under each of
the heads of income for the year. Following are the heads specified in the law for this purpose:
a. Salary
b. Income from Property
c. Income from Business
d. Capital Gains
e. Income from Other Source.
32. TURNOVER (Sec. 2 (70A)
Turnover means:
a. The gross receipts, exclusive of Sales Tax and Federal Excise Duty or any trade discounts
shown on invoices, or bills, derived from the sale of goods, and also excluding any amount
taken as deemed income and is assessed as final discharge of the tax liability for which tax
is already paid or payable.
b. The gross fees for the rendering of services for giving benefits including commissions;
except covered by final discharge of tax liability for which tax is separately paid or
payable;
c. The gross receipts from the execution of contracts; except covered by final discharge of tax
liability for which tax is separately paid or payable; and
d. The company’s share of the amounts stated above of any association of persons of which
the company is a member.

42
INCOME EXEMPT FROM TAX
1. Agricultural Income means income:

2. PENSIONS
3. PENSION OF A FORMER PRESIDENT
4. ENCASHMENT OF LEAVE PREPARATORY TO RETIREMENT
5. AMOUNT OF GRATUITY OR COMMUTATION OF PENSION
6. SPECIAL ALLOWANCES
7. INCOME OF EDUCATINAL INSTITUTIONS
8. Medical Allowance in Cash
9. PROFIT ON DEBT
10. INCOME OF NATIONAL INVESTMENT TRUST
11. INCOME FROM MICRO FINANCE BANKS
12. INCOME FROM FRUIT PROCESSING UNIT
13. INCOME OF RELIGIOUS OR CHARITABLE INSTITUTIONS
14. INCOME OF MODARBA
15. INCOME OF CERTAIN INSTITUTIONS
INCOME EXEMPT FROM TAX
1. Agricultural Income means income:

43
2. PENSIONS
Position regarding pension is summarized below:
a. Pension received by a former employee of Pakistan Armed Forces, Federal Government or
Provincial Government is Exempt from Tax.
b. The Pension received from the United Nations or its specialized agencies by a citizen of
Pakistan is Exempt provided that salary of such person was also not taxable under
Pakistani Income Tax Law.
c. The Pension received by any citizen of Pakistan from his former employer is Exempt.
However, this exemption will not be available if a retired person works for the same
employer or associate of this employer in any capacity for any remuneration.
d. Any Pension granted under the rules to the families and dependents of Shaheeds belonging
to Pakistan Armed Forces, is completely exempt.
e. In case a person receives more than one Pension, only the amount of higher pension will be
exempt.
3. PENSION OF A FORMER PRESIDENT
A new clause has been added through Finance Act, 2008, by virtue of which the Pension received
by a former President of Pakistan and his Widow will be Exempt.
4. ENCASHMENT OF LEAVE PREPARATORY TO RETIREMENT

Any sum representing encashment of Leave Preparatory to Retirement received by an Employee
of Armed Forces of Pakistan, Federal Government or Provincial Government is Exempt.
5. AMOUNT OF GRATUITY OR COMMUTATION OF PENSION

If an amount is received as Gratuity or Commutation of Pension by an Employee on his
Retirement or by his heirs on the death of Employee, the exemption is provided according to the
following rules:
a. If the amount is received from Government, Local Authority, a Statutory Body or a
Corporation, whole amount is Exempt from Tax.
b. If the amount is received from a Gratuity Fund approved by the Commissioner of Income
Tax, again, the whole amount is Exempt.
c. If the amount is received from an Organization which gives the facility of Gratuity to all of
its Employees, an amount up to Rs.200000 is Exempt.
d. In case the amount is being received from an organization where (a), (b), (c) above do not
apply, 50% of the amount received or Rs.75000 whichever is less will be Exempt.
e. In the following cases, the amount will be fully Taxable.
1. Amount received Outside Pakistan.
2. Amount received by a director from his company, if the director is not a regular employee
of the company.
3. Amount received by an employee who is not a resident of Pakistan.
4. Amount of Gratuity received by an employee who has already received Gratuity from the
same or any other employer.
6. SPECIAL ALLOWANCES

44
If an Employee receives a Special Allowance (provided that it is not Conveyance or Entertainment
Allowance) granted to meet expenses which are incurred in the performance of official duties,
such allowance will be Exempt from Tax. Even if the expenses actually incurred are less than the
allowance, the excess amount is not liable to tax. Examples of such allowances are Traveling
Allowance, Daily Allowance, and Uniform Allowance etc.
Note: Non-Practicing Allowance granted to Doctors will not be treated as special allowance in the
above meanings because it is not given to meet any specific expenditure.
7. INCOME OF EDUCATINAL INSTITUTIONS
Income received by a University or any other Educational Institution being run by a non-profit
organization which is existing only for educational purposes and not for the purposes of profit is
Exempt from Tax.
Only those institutions will be Exempt under this clause where no profit or dividend is paid to the
investor or sponsors. The fact is that an educational institution is established not for the purpose
of profit will be examined every year. Where the sole object of an institution is educational, and
the surplus is used for educational purposes only, no profit motive comes in by the mere presence
of surplus.
8. Medical Allowance in Cash
Any Medical Allowance given by the Employer to his Employee in terms of Cash without
providing any Medical Facility will be exempt up to 10% of the Basic Salary of Employee; above
will be included in Taxable Income.
Medical Treatment or Hospitalization Facility

If Employee receives Free Medical Treatment or Hospitalization or both by the Employer or
receives Re-imbursement of the Medical Expenses under the term of employment whole such
benefit will be Exempt from Tax.
-It is necessary that NTN of Hospital or Clinic is provided and Employer also certifies and attests
the Medical Hospital Bill.
9. PROFIT ON DEBT
The following incomes are Exempt from Tax subject to the limits (if any) mentioned:
a. Profit on debt received by a non-resident for a loan given to be utilized on a
project in Pakistan approved by the government.
b. Profit on debt payable to a non-resident person on a loan in foreign exchange
against export letter of credit which is used exclusively for export of goods
manufactured in Pakistan.
c. Profit on debt derived by Hub Power Company Limited after 1st July 1991 on
its bank deposits or accounts with financial institutions.
d. Profit on debt paid to an agency of a foreign government, a foreign national
or any other non-resident person approved by the government under a loan
agreement or in respect of foreign country instrument. This exemption will
not be available on debt received after 30-06-2008
e. Any profit on debt derived from foreign currency account held with
authorized bank in Pakistan.
f. Profit on debt derived from a rupee account held with a scheduled bank by a
citizen of Pakistan residing abroad where the deposits are made through
foreign exchange remittance.
10. INCOME OF NATIONAL INVESTMENT TRUST
Income derived by National Investment (Unit) Trust of Pakistan established by National
Investment Trust Limited from voluntary contributions, house property and investment in
securities of Federal Government will be Exempt from Tax, provided that:
a. Not less than 90% of its units are held by the public at the end of the year; and
b. At least 90% of its income of that year is distributed among the unit holders.
c.
11. INCOME FROM MICRO FINANCE BANKS
By virtue of Finance Act 2007, the income of Micro Finance Banks has been exempted as under:
a. The exemption will start from 01-07-2007;
b. The exemption will be available for a period of 5 years;
c. The bank shall not issue any dividend to their share holders; and
d. Any profit or gain will be utilized for Micro Finance Operations only.
45
12. INCOME FROM FRUIT PROCESSING UNIT

Profit received by a taxpayer from a Fruit Processing or preservation unit set up in Balochistan
Province, Malakand Division, Gilgit-Baltistan and FATA will be Exempt as follows:
a. The unit must be set up between 01-07-2014 and 30-06-2017.
b. It must be engaged in processing of locally grown fruits.
c. The Exemption will be for a period of 5 years beginning from the month in which the
industrial undertaking is set up or commercial production is commenced whichever is later.
d.
13. INCOME OF RELIGIOUS OR CHARITABLE INSTITUTIONS
Any institution which has been established for religious or charitable purposes is entitled for
exemption of income derived from voluntary contributions. However, it is necessary that private
religious trusts should ensure that such income is spent for benefit of general public.
14. INCOME OF MODARBA

Income of a modarba registered under the Modarba Companies and Modarba (Floatation and
Control) Ordinance 1980, is not Taxable subject to the following conditions:
a. Income should not be from trading activity.
b. At least 90% of profits of the year (as reduced by the amount transferred to a
mandatory reserve required under the law) should be distributed among the
certificate holders.
c. Bonus certificates or bonus shares distributed to the certificate holders will not be
taken into account for the purpose of determining the distribution of 90% profits.
d.
15. INCOME OF CERTAIN INSTITUTIONS
Income derived by the following institutions is not Taxable:
1. Income of private sector power projects.
2. Chambers of Commerce (other than income from business or house property)
3. Sports Boards (income of Pakistan Cricket Board, however, will be taxable with effect from
30-06-2008.
4. Income of WAPDA
5. Income of Hamdard Laboratories (Waqf) Pakistan.
6. State Bank of Pakistan and State Bank of Pakistan Banking Services Corporation.
7. Gawadar Free Zone Company Limited (for 20 years)
8. Islamic Chamber of Commerce and Industry. (Taxable w.e.f. tax year 2015)
9. Greenstar Social Marketing Pakistan (Guarantee) Limited.

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1

INCOME TAX LAW

Agricultural Income means income:

Examples of Non-Agricultural Income

Examples of partly Agricultural and Partly Non-Agricultural Income

Prof. M. Hafeez Ch. (M.Com. DCMA. ITP,CA)

Reasons for Distinguishing Resident and Non-Resident Person

Non-Resident Tax Payers

Prof. M. Hafeez Ch. (M.Com. DCMA. ITP,CA)

Types of Provident Funds

A Provident Fund maintained by a Government or Semi Government Organization is known

2. Recognized Provident Fund

3. Unrecognized Provident Fund

Prof. M. Hafeez Ch. (M.Com. DCMA. ITP,CA)

Working of Provident Fund

Items Govt. P. Fund R.P.Fund Un-R.P.Fund

Employers Not Included in Not included if Not Included in

Interest Not Included not included if not included

Receipt of Not Included Not Included Included employers

Prof. M. Hafeez Ch. (M.Com. DCMA. ITP,CA)

Valuation of Perquisites, Allowance and Benefits

(a) Conveyance Allowance

(b) Conveyance Provided by Employer for Personal Use of Employee

Prof. M. Hafeez Ch. (M.Com. DCMA. ITP,CA)

Medical Allowance in Cash

Prof. M. Hafeez Ch. (M.Com. DCMA. ITP,CA)

Types of Provident Funds:

Treatment of Provident Fund

Items Govt. P. Fund R.P.Fund Un-R.P.Fund

Employers Not Included in Not included if Not Included in

Interest Not Included not included if not included

Receipt of Not Included Not Included Included employees

Prof. M. Hafeez Ch. (M.Com. DCMA. ITP,CA)

Rent Chargeable to Tax

Procedure for Computing the Amount of Rent

Unadjusted Advance Received by the Owner

Liability in case of Co-owner

Income from Property not Taxable under section 15

Income from Property Exempt from Tax

Taxation of Income from Property

Prof. M. Hafeez Ch. (M.Com. DCMA. ITP,CA)

S.No. Gross Amount of Rent Rate of Advance Tax

Foreign Tax Credit

DEDUCTIONS ALLOWED UNDER THE HEAD INCOME FROM PROPERTY

Prof. M. Hafeez Ch. (M.Com. DCMA. ITP,CA)

Prof. M. Hafeez Ch. (M.Com. DCMA. ITP,CA)

2. AMOUNT RECEIVED ON ACCOUNT OF A RIGHT

Prof. M. Hafeez Ch. (M.Com. DCMA. ITP,CA)

Prof. M. Hafeez Ch. (M.Com. DCMA. ITP,CA)

DEDUCTIONS NOT ALLOWED

11. PAYMENT EXCEEDING 50000 TO BE MADE BY CROSSED CHEQUES

Prof. M. Hafeez Ch. (M.Com. DCMA. ITP,CA)

VARIOUS TYPES OF DEPRECIATION ALLOWANCE

Initial allowances for depreciation:-

Prof. M. Hafeez Ch. (M.Com. DCMA. ITP,CA)

Class Of Assets Description Rate Of The Written Down

2 Furniture or Fitting, Motor 15%

3 Personal Computer & Allied items 30%

4 Mineral Oil, Below Ground Installation 100%

Income from Other Sources:-

Prof. M. Hafeez Ch. (M.Com. DCMA. ITP,CA)

Prof. M. Hafeez Ch. (M.Com. DCMA. ITP,CA)

1. RETURN OF INCOME AS ASSESSMENT :-

Prof. M. Hafeez Ch. (M.Com. DCMA. ITP,CA)