Tabani S School of Accountancy

TABANI’S SCHOOL OF ACCOUNTANCY Send-up Examination Module - C Taxation August’ 2011 Time Allowed: 03 Hours Maximum Marks: 100

Q. No. Mar ks 1. Section 4 of the Income Tax Ordinance, 2001 lays down the manner in which various tax credits are allowed 03 to be reduced from the gross tax on taxable income of a taxpayer. Discuss these provisions.

2. Section 11 of the Income Tax Ordinance, 2001 discusses the scope of geographical income of a person with 03 reference to residential status. Explain. 3. Section 68 of the Income Tax Ordinance, 2001 deals with the concept of fair market value. Explains this 03 concept and illustrate its applicability on salary, rent, perquisite, service as well as on consideration received.

4. Define ‘non-profit organization’ as mentioned in clause (36) of section 2 of the Income Tax Ordinance, 2001. 03

5. What do you understand by ‘small company”? What are the benefit(s) available to such a company. 03

6. a) Define ‘employee share scheme’. 05 b) Discuss the taxability under the employee share scheme for the following:  Grant of option  Exercise of option without restriction on transfer  Exercise of option with restriction on transfer  Disposal of option c) What is the cost of shares once an amount has been taken to income under an employee share scheme

7. Define ‘intangibles’ and explain the allowability of amortization deduction for such intangibles. Also explain 03 provisions relating to disposal of an intangible. 8. Section 29 of the Income Tax Ordinance, 2001 contains provisions relating to allowability of bad debts. 03 Briefly discuss these conditions. Further, what is the treatment in case of bad debts subsequently recovered?

9. Default in complying with the withholding tax provisions makes the payment an inadmissible deduction. In 03 this background, state what payments are not allowed as deductions.

10 Explain the provisions of section 147 of the Income Tax Ordinance, 2001 relating to quarterly payment of 05 . advance tax. Illustrate your answer with a suitable example covering all aspects of the aforesaid section.

11 Explain the withholding tax provisions in respect of: 06 .  Payments to non-residents  Payments for good, services and contracts  Payment of rent etc.

12 Explain the principles of ‘taxation of association of persons’, ‘individual as member of association’ and 05 . ‘company as member of association’ as contained in sections 92, 88 and 88A respectively of the Income Tax Ordinance, 2001.

13 What do you understand by ‘income splitting’? What are the provisions relating to ‘transfer of assets’ and 03 . ‘income of a minor child’?

14 Briefly explain how income of a ‘deceased individual’ is dealt with under the Income Tax Ordinance, 2001. 03 .

15 Mr. AS has been successfully carrying out his professional consultancy business for last many years and has 08 . been making substantial profits during these years. However, he has no knowledge whatsoever of tax laws in Pakistan and therefore has never filed any return of income for any of the tax years. From the desk of Azeem Siddiqi/Tariq Tunio/Moeed Bhatti 1 a. Being his tax consultant, advise him, by way of a letter, about the provisions of the Income Tax Ordinance, 2001 highlighting:  Filing of return under section 114; and  Filing of wealth statement under section 116. TAXATION SEND-UP EXAM b. Receiving your reply as well as a notice for filing from Mr. TH, the Deputy Commissioner Inland Revenue, Mr. AS decided not to file his return as well as wealth statement. However, Mr. AS had fear in mind that Mr. TH may take action against him by making ‘best judgment assessment’ or ‘provisional assessment’. In a separate letter, advise Mr. AS about the provisions of income tax Ordinance, 2001 relating to these two types of assessments and differentiate them as well. 16 The Sales Tax Act, 1990 has laid down the procedure for determination of sales tax due and in the process 07 . has provided for adjustment of input tax from output tax. In this background, Advise Mr. AS about this mechanism. Your letter to Mr. AS must cover the following aspects.  Allowability of input tax  Restrictions and limits on adjustments of input tax  Apportionment of input tax  Certain inadmissible transactions 17 Explain the rules for issue of debit and credit notes. 03 .

18 Write down the provisions relating to destruction of goods. 03 .

19 Mr. AS is a registered person and has made the following supplies during the month of June, 2011 12 .  Taxable supplies to local registered persons – Rs. 1,000,000  Taxable Supplies to local un-registered persons – 1,500,000  Exports – Rs. 1,500,000  Export to a restricted country – Rs. 100,000  Exempt supply to local registered persons – Rs. 500,000 Following further data is available for the month.  Purchases from registered persons (Total) – Rs. 3,100,000  Purchases from registered persons used exclusively for taxable supplies – Rs. 1,500,000  Purchases from registered persons used exclusively for exempt supplies – Rs. 800,000  Purchases from registered persons used for both taxable as well as exempt supplies – Rs. 800,000  Sales tax paid on purchase of plant and machinery 180,000  Sales tax paid on official annual dinner bill – Rs. 17,000  It was noted that a purchase of Rs. 100,000 made from a registered person on 20 February, 2011 was still payable on 30 June, 2011. On the basis of above, compute sales tax payable by Mr. AS for the tax period June, 2011. 20 Mr. KY is employed at TSA (Private) Limited as its Finance Manager in the time scale of Rs. 60,000-10,000-! 16 . 00,000. His relevant data for the year ended 30 June, 2011 is as follows:  Basic salary Rs. 90,000 per month  Free furnished accommodation at value of Rs. 25,000 per month  Medical reimbursement on actual basis is allowed whereas medial allowance at Rs. 3,000 per month is also paid to him. During the year he was reimbursed Rs. 54,000 on receipt of medical bills.  Arrears of salary pertaining to tax year 2010 received during tax year 2011 amounted to Rs. 200,000. His taxable income for tax year 2010 was earlier reported Rs. 800,000.  Income from renting of a building amounted to Rs. 20,000 per month A brand new machinery was installed at the building during tax year 2009 at a cost of Rs.200,000. A separate rent of Rs. 10,000 per month on account of rent of machinery was also received by Mr. KY during tax year 2011. An unadjustable advance of Rs. 135-000 was received on account of this building during tax year 2011.  Securities purchased on 31.08.2009 at Rs. 100,000 were disposed of on 30.09.2010 at Rs. 125,000. Securities purchased on 30.09.2010 at Rs. 60,000 were sold on 20.02.2011 at Rs. 75,000. Securities purchased on 04 October 2010 at Rs. 50,000 were sold on 22 April, 2011 at Rs. 65,000. Shares of private companies purchased at Rs. 131,000 two years ago were sold at Rs. 159,000. Loss on sales of an sculpture amounted to Rs. 10,000.

From the desk of Azeem Siddiqi/Tariq Tunio/Moeed Bhatti 1  He made donations to a non-profit organization amounting to Rs. 30,000 as well as to one of his poor relatives amounting to Rs. 21,350.  He won Rs. 280,000 in a quiz show on Zoooooooooooooom TV on which withholding tax deducted at Rs. 50,000. He also received foreign source lottery winnings amounting to Rs. 50,000 on which Rs. 2,500 foreign tax was paid.  Tax deducted by TSA (Private) Limited out of Mr. KY’s salary amounted to Rs. 48,000. On the basis of above data compute Mr. KY’s taxable income as well as total tax payable to the income tax department whether for tax year 2011 or for tax year 2010 and whether on taxable income or under final tax regime.

From the desk of Azeem Siddiqi/Tariq Tunio/Moeed Bhatti 1