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Intermediate Examination 10 March 2012 Spring 2012 100 marks - 3 hours Module C Additional reading time - 15 minutes
Q.1 Dr. Sona is a leading Eye Specialist and is listed on the panels of two hospitals. He also manages a private clinic. A summary of his receipts and payments for the latest tax year is as follows:
Receipts Note Rupees Payments Note Rupees Consultation fees Rent of clinic 30 0,
- Hospitals (i) 1,880,000 Household expenses 1,9 60 ,
- Clinic 2,400,000 Purchase of motor car 640, Income from surgery Surgical equipment 500,
- Hospitals (i) 1,504,000 Salary to assistant 180 ,
- Clinic 2, 35 0,000 Clinic running expenses 240, Property income (ii) 1,0 12 ,000 Car expenses (iv) 200, Other income (iii) 75,000 Donation (v) 300,
Notes to the receipts and payments are presented below:
(i) The amount received from hospitals is net of withholding tax. (ii) Dr. Sona owns a commercial building which he has rented out. Details of net receipts is as follows:
Rupees Rent for the year 870, Non-adjustable security deposit:
- received from a new tenant 700,
- paid to old tenant (received three years ago) (500,000) Tax withheld ( 50 ,000) Property tax on building (8,000) Net receipts 1,0 12 ,
(iii) The amount was received for writing an article in an international magazine on World Health Day. (iv) 60% of the motor car expenses were incurred in connection with his personal use. (v) Donation was given to a Government medical college for upgrading its library. (vi) Depreciation on motor car and surgical equipment, under the 3rd^ Schedule of the Income Tax Ordinance, 2001 is Rs. 96,000 and Rs. 75,000 respectively.
Required: Compute the taxable income, tax liability and tax payable by Dr. Sona for the latest tax year. Provide appropriate comments on the items which are not relevant for your computations. (Tax rates are given on the last page) (20 marks)
Q.2 (a) Briefly discuss the concepts of ‘Public Company’ and ‘Small Company’ as explained in the Income Tax Ordinance, 2001. (07 marks)
(b) Identify the due dates for filing of income tax return in each of the following cases:
(i) A company whose income year ended on 30 September 2011. (ii) A company whose income year ended on 3 1 December 2011. (iii) A company whose income year would end on 31 March 2012. (iv) A member of an association of persons (AOP) if the income year of the AOP would end on 30 June 2012. (03 marks)
Q.3 (a) On 1 January 2012, Peetal Limited (PL) signed an annual contract with Mr. Heera for the maintenance of IT equipment for Rs. 20,000, payable on the 7th day of each month. The payments for January and February were made as per the agreement.
On 1 March 2012, PL received a notice from the Commissioner of Inland Revenue to pay income tax of Rs. 300,000 which is due from Mr. Heera.
Required: Discuss PL’s position in respect of the notice issued by the Commissioner. (0 4 marks)
(b) A company formed for establishing and operating a new industrial undertaking for manufacturing in Pakistan is allowed a tax credit equal to 100% of the tax payable on the taxable income arising from such industrial undertaking for a period of five years.
Required: Narrate the conditions which must be satisfied for availing the above tax credit. (05 marks)
Q. 4 (a) Under the Income Tax Ordinance, 2001 every prescribed person is liable to deduct tax while making payments on account of sale of goods, rendering of services and execution of contracts.
Required: State six exceptions to the above rule. (06 marks)
(b) Yaqoot and Loha are joint owners of a bungalow which has been rented out for Rs. 70,000 per month.
Required: Discuss the taxability of Yaqoot and Loha in respect of above income, in the light of Income Tax Ordinance, 2001. (03 marks)
Q.5 (a) Tamba Pakistan (Pvt.) Limited is engaged in the manufacture of pharmaceutical products. Its board of directors has approved a 3-year loan to one of its major shareholders.
Required: Explain the tax implications of the above transaction on the company as well as the shareholder. (04 marks)
(b) In a proceeding before the Income Tax Authority, a taxpayer can be represented by an Authorized Representative.
Required: In the light of Income Tax Ordinance, 20 0 1 list down the persons who:
(i) can act as an Authorised Representative. (ii) are not allowed to represent a tax payer in any proceedings before the Income Tax Authority. (05 marks)
Q. 8 Ms. Zamarrud is engaged in the manufacture and sale of taxable as well as zero-rated products.
Required: As a tax consultant, advise Ms. Zamarrud on the following matters:
(a) The conditions that need to be satisfied for the adjustment of input tax against the output tax liability. (05 marks) (b) Any seven situations in which input tax is not allowed to be adjusted against the output tax liability. (07 marks) (c) The remedy available to her if she fails to adjust input tax in the period in which it is paid. (02 marks)
(THE END)
Extracts from the First Schedule of the Income Tax Ordinance, 2001 Part I - Rates of Tax Chapter-II - Division I Rates of Tax for Individuals Table
S. No. Taxable income Rate oftax (1) (2) (3)
- Where the taxable income does not exceed Rs. 350,000 0%
- Where the taxable income exceeds Rs. 350,000 but does not exceed Rs. 500,000 7.50%
- Where the taxable income exceeds Rs. 500,000 but does not exceed Rs. 750,000 10.00%
- Where the taxable income exceeds Rs. 750,000 but does not exceed Rs. 1,000,000 15.00%
- Where the taxable income exceeds Rs. 1,000,000 but does not exceed Rs. 1,500,000 20.00%
- Where the taxable income exceeds Rs. 1,500,000. 25.00%
Chapter-II - Division VI Income from Property
The rate of tax to be paid under section 15, in the case of individual and association of persons, shall be –
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,
- 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.
Part III Deduction of Tax at Source Division III Payments of Goods or Services
- The rate of tax to be deducted from a payment referred to in clause (b) of sub-section (1) of section 153 shall be - (i) in the case of transport services, two percent of the gross amount payable; or (ii) in any other case, six percent of the gross amount payable.
