BUSINESS TAXATION [G5]

GRADUATION LEVEL
< Session/ Exam Term >
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Extra Reading Time: 15 Minutes

Maximum Marks: 100 Roll No.:
Writing Time: 03 Hours
(i) Attempt all questions.
(ii) Write your Roll No. in the space provided above.
(iii) Answers must be neat, relevant and brief. It is not necessary to maintain the sequence.
(iv) Use of non-programmable scientific calculator of any model is allowed.
(v) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(vi) In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
(vii) DO NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script.
(viii) Question No. 1 – “Multiple Choice Questions” printed separately, is an integral part of this question paper.
(ix) Question Paper must be returned to invigilator before leaving the examination hall.
DURING EXTRA READING TIME, WRITING IS STRICTLY PROHIBITED IN THE ANSWER SCRIPT
EXAMINEES ARE ADVISED TO MANAGE SOLUTIONS/ ANSWERS WITHIN PROPOSED TIME
Question No. 1 Time Allowed: Min. 10  Total Marks : 10
Multiple Choice Questions [MCQs]

Question No. 2 Proposed Time: Min. 45  Total Marks : 24

(a) Define the term ‘public company’ as per the Income Tax Ordinance, 2001.

(b) Mr. Wajahat was working as Assistant Manager Marketing in Carlton Private Limited for three years.
During the tax year 2017, he left the company and has got another very good opportunity in Hexa
Pharma as a Marketing Manager. Since he has to file income tax return for tax year 2017, he is
confused about calculation of his taxable income and tax liability because he has got various perks and
benefits from previous employer as well as current employer during the year.
Mr. Wajahat has provided you following information for calculation of his taxable income and tax liability
for the tax year 2017:

Rupees
Perks and benefit received from Carlton Private Limited
Basic salary 40,000 per month
Utility allowance 2,000 per month
Conveyance allowance 3,000 per month
Contribution toward recognized provident fund
(including equal contribution by the employer) 5,000 per month
Half yearly bonus received in December, 2016 equal to 50%
of one month basic salary 20,000
Final settlement on leaving of Carlton Private Limited:
Receipt from recognized provident fund 300, 000
Gratuity received (the gratuity fund was not approved by the
Commissioner Inland Revenue.) 130,000

Perks and benefits received from Hexa Pharma:

Basic salary 50,000 per month
House rent allowance 20,000 per month
Entertainment allowance 1,500 per month
Yearly re-imbursement of medical expenses allowable upto Rs. 40,000 out of which
Rs. 10,000 (vouchers verified) have been claimed by Mr. Wajahat during the year.
The company has provided a wholly maintained 1000 cc car to Mr. Wajahat for his personal
and official use. The cost of the car is Rs. 800,000.

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 Other information :
 Mr. Wajahat left Carlton Private Limited on March 31, 2017 and joined Hexa Pharma on
May 1, 2017.
 Apart from his employment, he has also been working as a visiting faculty in a professional institute.
He has also received honorarium of Rs. 58,500 (net of 10% tax withheld) from such institute during
the year.
 Mr. Wajahat had acquired 1000 shares from Alpha Private Limited 15 months ago. He received
capital gain of Rs. 30,000 on sale of such shares.
 Bank deducted tax at source Rs. 900 on cash withdrawals.
 Tax at source Rs. 4,000 has been deducted by Carlton Private Limited while no tax has been
deducted by Hexa Pharma from Mr. Wajahat's salary.

Required:
Compute Mr. Wajahat's taxable income and his total tax payable/ refundable for the tax year 2017
along with appropriate notes.

Question No. 3 Proposed Time: Min. 40  Total Marks : 20

(a) Section 119 of the Income Tax Ordinance, 2001 deals with the extension of time for furnishing returns
and other documents. Specify the grounds in respect of which extension can be requested.

(b) Enumerate the entitlement of a resident person to claim tax credit on investment in shares and
insurance and how this tax credit is computed under Section 62 of the Income Tax Ordinance, 2001.

(c) In the light of section 104 of the Income Tax Ordinance, 2001, discuss the following:
(i) Can a resident person set off his foreign losses? If yes, then under which head of income?
(ii) What would be the treatment of unadjusted foreign losses under the aforesaid provision of law?
(iii) Where a resident person has a foreign loss carried forward for the last three years, which year’s
loss will be set off first?

Question No. 4 Proposed Time: Min. 45  Total Marks : 24

(a) Mr. Shah Nawaz has been residing in Karachi for many years. He is a Finance Officer in an educational
institute. Mr. Shah receives salary income from his Institute as well as rent from his agricultural land
situated in Sawat which he has let out for farming purposes. The employer deducts his tax at prescribed
rates on his salary while he does not pay any tax in respect of rent received from agricultural land.
However, Mr. Shah is of the opinion that his rental income should be treated as agricultural income while
his friend advised him to pay tax on rent under the head of ‘income from property’ to avoid any litigation
matters.

Required:
Mr. Shah Nawaz is seeking your advice in respect of following matters:
(i) How the rental income received by Mr. Shah Nawaz from his land will be treated under the
Income Tax Ordinance, 2001? Also explain sources of agricultural income as per section 41 of
the Income Tax Ordnance, 2001.
(ii) During the discussion Mr. Shah further disclosed that he had also received dividend of Rs. 60,000
net of withholding tax from Milkshakes Agro Limited (MAL). He claimed dividend should not be
chargeable to tax because the entire income of MAL comes under the head of agricultural income
which are exempt from tax. Explain him about the tax treatment of dividend and limitation of
exemption in the light of the section 55 of the Income Tax Ordinance, 2001.

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(b) Noorani Corporation (NC) is an Association of Persons, running by three members Asad, Yousuf and
Zaheer Ltd. During the tax year 2017, gross revenue of NC is Rs 33,750,000 and its total expenses
allowed for tax purpose is Rs. 14,850,000.
Detail of each member of NC are as follows:
 Share of Zaheer Ltd. is 20% in NC while its taxable business income is Rs. 4,050,000 during the tax
year 2017 other than share from the Association of Persons.
 Asad has 40% share in NC however; he does not have any other source of income.
 Yousuf earned Rs. 5,400,000 during the tax year 2017 in his personal capacity as a non-salaried
person. His share in NC is 40%.

Required:
Calculate tax liability of each member of Noorani Corporation for the tax year 2017.

(c) Mini Bank Limited (MBL) has remitted Rs. 700,000 as a commission to Pakistan Branch of White Mark
Inc., a non-resident Singapore based company. Although in the agreement it is clearly mentioned that
the applicable income tax can be deducted from the payment, but MBL remitted full amount without
any deduction of tax under Section 152(2) of the Income Tax Ordinance, 2001.

Required:
Elaborate the provisions contained in section 152 (3) of the Income Tax Ordinance, 2001 which may
allow the payment made by MBL without any deduction of tax.

(d) Under which conditions the salary income of an employee of foreign government is exempt from tax as
per section 43 of the Income Tax Ordinance, 2001.

Question No. 5 Proposed Time: Min. 20  Total Marks : 12

(a) Define the following terms in the light of Sales Tax Act, 1990.
(i) Output Tax
(ii) Time of Supply

(b) Apparently an exempt supply and a zero-rated supply look alike. Under both the cases person is not
required to pay tax under the Sales Tax Act, 1990. However, these two types of supplies differ with
each other on many points. Differentiate exempt supply and zero-rated supply with reference to the
following in the light of Sales Tax Act, 1990:
 Taxability
 Registration
 Credit of input
 Maintenance of records
 Filing of tax return

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Question No. 6 Proposed Time: Min. 20  Total Marks : 10
Mehmood Associates is manufacturing and supplying Product ‘A’ and Product ‘B’. Mehmood Associates is
registered under the Sales Tax Act, 1990. Following information has been extracted from its records for the
month of January 2017:

Rs. in million
Purchase of raw material from registered person
To manufacture Product A 900
To manufacture Product B 300
Purchase of raw material from unregistered person
To manufacture Product A 150
To manufacture Product B 200
Import of raw material to manufacture Product A and B 450
Sale of Product A
To registered person 800
To unregistered person 250
Sales of Product B
To registered person 500
To unregistered person 150
Sales return during the month
Product A 50
Product B 30
Sales tax paid on electricity bill 15

Further information:
 Product B is exempt from the sales tax.
 Sales tax credit brought forward from previous month amounted to Rs. 25 million.
 An import bill dated July 10, 2016 amounting to Rs. 25 million had not been claimed inadvertently. This
oversight was detected during the month.
 All the above amounts are exclusive of sales tax.

Required:
In the light of Sales Tax Act, 1990 and rules made there under, calculate the following for the month of
January 2017:
(a) Sales tax payable / refundable.

(b) Input tax to be carried forward, if any.

THE END

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