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TAXATION (MARKS 100)
Module C (3 hours)
Q.1 Sohail, Khaled and Qazi are members of an association of persons (AOP) and share profit and loss in the ratio of 2:2:1. The principal activity of the AOP is trading of rice and wheat. Following are the details of the annual income / (loss) of the AOP and its members:
(i) The AOP suffered loss before tax amounting to Rs. 1,500,000. The loss has been arrived at after adjusting rental income earned by the AOP, the details of which are as follows:
Rupees Rental income 2,000,
Related expenses: Property tax 40, Depreciation 457,500 497, Net rental income 1,502,
No tax was withheld on the rental income.
(ii) The expenses debited to profit and loss account include the following amounts paid to the members of the AOP:
Sohail Khaled Qazi Salary (Rs.) 900,000 600,000 - Interest on capital (Rs.) 300,000 300,000 500,
(iii) Sohail earned Rs. 800,000 from another business, of which he is the sole proprietor. (iv) Khaled received an amount of Rs. 255,000 as share of income after tax, from another AOP where he is entitled to 40% of the total profit. The tax on annual income of that AOP amounted to Rs. 112,500. He also earned income of Rs. 900,000 from a sole proprietorship concern owned by him. (v) Qazi works as a Freelance IT Consultant and provides consultancy services to corporate clients. He received Rs. 940,000 from his clients after deduction of tax amounting to Rs. 60,000. The total expenses incurred in providing the consultancy services amounted to Rs. 150,000.
Required: Assuming that the above data pertains to the tax year 2010, compute the taxable income and tax liability of the AOP and each of its members. (Tax rates are given at the last page)
Q.2 Mr. Qamar intends to donate an amount of Rs. 10 million to certain educational and welfare institutions. In your capacity as his tax consultant, explain the tax relief which may be available in respect of such donation and the conditions he must fulfill to avail such relief. (09)
Q.3 (a) Under the Income Tax Ordinance, 2001 a taxpayer can be represented by an Authorized Representative in a proceeding before the Income Tax Authority. You are required to list down the persons who:
(i) can act as an Authorized Representative. (ii) are not allowed to represent a taxpayer in any proceedings before the Income Tax Authority. (05)
(b) Mr. Sami has recently received a notice from the Commissioner of Income Tax to file return of income for the tax years 2003 and 2006 within 20 days of receiving the notice. In your capacity as a tax consultant, advise Mr. Sami on the following issues along with appropriate explanations.
(i) Is the Commissioner justified in issuing the above notice? (ii) If Mr. Sami is not in a position to meet the deadline for filing the returns, can he get an extension? (07)
Q.4 (a) What do you understand by the term “Taxpayer” as described in the Income Tax Ordinance, 2001? (03)
(b) Hanif Limited (HL) has commenced its commercial business operations with effect from January 1, 2010. Since no assessment of HL has yet been finalized, the management is of the view that HL is not required to pay any quarterly advance tax.
Required: (i) Discuss the management’s point of view under the Income Tax Ordinance, 2001. (ii) What are the consequences of non-payment of advance tax? (05)
(c) On February 15, 2010 Income Tax Department initiated proceedings against Zaman Enterprises (Private) Limited (ZEL) for monitoring of withholding taxes. After examining the statements filed up to January 2010 and the information submitted by ZEL, the Commissioner has issued a show cause notice in respect of the following:
(i) No tax was deducted on payments of Rs. 5.5 million made to Shahid & Co. who is one of the main suppliers of packing materials to ZEL. Shahid & Co. imports and sells the imported products in local market in the same condition in which they are imported. (ii) ZEL deducted withholding tax from the payments made to Mansoor Sons against supplies of various accessories. However, withholding tax was deducted on amount excluding sales tax of Rs. 192,000. (iii) Rs. 50,000 was paid to Mujahid Engineering as advance against services but no tax was deducted at the time of payment. (iv) ZEL deducted tax at the rate of 10% from payment of commission to its sales staff.
Required: With respect to each of the above transactions, comment on ZEL’s position including consequences (if any) in the light of Income Tax Ordinance, 2001. (10)
Q.5 (a) State the provisions of the Income Tax Ordinance, 2001 regarding the residential status of companies and association of persons. (^) (05)
(b) Tax imposed at the rate of 15% on every non-resident person who receives Pakistan source royalty or fee for technical services is considered to be a final tax on the amount in respect of which the tax is imposed.
Required: Identify the exceptions to the above rule, as referred to in the Income Tax Ordinance,
- (04)
THE FIRST SCHEDULE
PART 1
RATES OF TAX
Division I Rates of Tax for Individuals and Association of Persons
S. No. Taxable income Rate of Tax (1) (2) (3)
- Where the taxable income does not exceed Rs. 100,000 0%
- Where the taxable income exceeds Rs. 100,000 but does not exceed Rs. 110,000 0.50%
- Where the taxable income exceeds Rs. 110,000 but does not exceed Rs. 125,000 1.00%
- Where the taxable income exceeds Rs. 125,000 but does not exceed Rs. 150,000 2.00%
- Where the taxable income exceeds Rs. 150,000 but does not exceed Rs. 175,000 3.00%
- Where the taxable income exceeds Rs. 175,000 but does not exceed Rs. 200,000 4.00%
- Where the taxable income exceeds Rs. 200,000 but does not exceed Rs. 300,000 5.00%
- Where the taxable income exceeds Rs. 300,000 but does not exceed Rs. 400,000 7.50%
- Where the taxable income exceeds Rs. 400,000 but does not exceed Rs. 500,000 10.00%
- Where the taxable income exceeds Rs. 500,000 but does not exceed Rs. 600,000 12.50%
- Where the taxable income exceeds Rs. 600,000 but does not exceed Rs. 800,000 15.00%
- Where the taxable income exceeds Rs. 800,000 but does not exceed Rs. 1,000,000 17.50%
- Where the taxable income exceeds Rs. 1,000,000 but does not exceed Rs. 1,300,000 21.00%
- Where the taxable income exceeds Rs. 1,300,000 25.00%
Division VI Income from Property Rate of tax for Individual and Association of Person
S. No. Gross amount of rent Rate of tax
- Where the gross amount of rent does not exceed Rs. 150,000.
NIL
- Where the gross amount of rent exceeds Rs. 150, but does not exceed Rs. 400,000.
5 percent of the gross amount exceeding Rs. 150,000.
- Where the gross amount of rent exceeds Rs. 400, but does not exceed Rs. 1,000,000.
Rs. 12,500 plus 7.5 percent of the gross amount exceeding Rs. 400,000.
- Where the gross amount of rent exceeds Rs. 1,000,000. Rs. 57,500 plus 10 percent of the gross amount exceeding Rs. 1,000,000.
