TPP PP 2024

2024
TAX PLANNING AND PRACTICES

ICAP ATTEMPTWISE PAST PAPERS
(Updated with Winter-2023 QP)
By the Grace of Almighty Allah, I am pleased to present the attemptwise past
papers of Tax Planning and Practices for CFAP-5.
T P This volume contains;

 ICAP papers of last 46 attempts.
P
P
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ICAP
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN
PROFESSIONAL EXAMINATIONS SUMMER 2001
June 09, 2001
ADVANCED TAXATION (M ARKS 100)

PE-2 (PAPER-3) (3 HOURS)
Instructions: use separate answer sheets for section I and section II
SECTION I
(INCOME TAX ORDINANCE, 1979)
Q.1 Discuss the salient features of advance payment of tax under section 53 of the
Income Tax Ordinance, 1979 as are applicable to companies and registered firms.
Do you consider the above provisions rational? (06)
Q.2 XYZ Limited has announced “Golden Hand Shake Scheme” which proposes lump
sum payments to the employees opting for the Scheme. Discuss the chargeability
and admissibility of such lumpsum amount in the hands of the employees as well as
the employers respectively. (06)
Q.3 With respect to various provisions of the Income Tax Ordinance, 1979 including
deeming provisions, state taxability of the followings:
• salary income;
• any income of a non-resident from business in Pakistan;
• interest payable by a resident, on debts used for business abroad;
• expenditure actually incurred by an assessee, for which no explanation exist of its
sources; and
• assets purchased by an assessee from the company at lower than the fair
market value. (10)
Q.4(a) Mr Y of Mac Ltd has asked you for providing him a brief outline of the appellate
process for adjudicating tax litigations under the Income Tax Ordinance, 1979.
You are requested to draft a suitable reply. (08)
(b) Please discuss in brief the significant issues governing taxation of income from
exploration and production of petroleum in Pakistan as provided for under
the Fifth Schedule to the Income Tax Ordinance, 1979. (10)
Q.5 The Finance Manager of XYZ Limited a public quoted company, engaged in the
business of leasing has sent you information stated below which he considers
relevant to his case together with a copy of the financial statements of the company
as at June 30, 2000 for preparing the computation of income and tax thereon for the
assessment year 2000-2001
(2)
Rs. (000)
Revenues
• Finance lease 8,000
• Operating lease 400
• Other income 800
9,200
Less expenses
Finance and bank charges 5,000
Selling, general and administration expenses 1,400
Direct cost of lease:
• Finance lease 400
• Operating lease 300
Allowance for potential lease losses 200
7,300
Profit before taxation 1,900
The company follows the “financing method” in accounting for

recognition of leases.
In addition to the above the following additional information is available:
i) rent received and receivable, 12,800

The above includes receipt of security deposits against leases 800
ii) Accounting depreciation:

-on operating assets 1,600
-on owned assets 300
iii) excess perquisites as per working. In computing the excess perquisites

no affect has been taken for interest free loan to executives
aggregating Rs.400 thousand. The average finance cost to the
company is 12 percent and daily product basis interest works out
to Rs.48 thousand, 500
iv) donation to approved institution, 100
v) return and exchange gain on foreign currency deposits accounts

included in other income, 200
The foreign currency deposits were created in 1998 as a hedge against
exchange risk associated with foreign exchange borrowings of the
company,
vi) tax depreciation as per schedule:

-on operating assets 400
-on leased assets 2,000
vii) provisions for gratuity Rs. 190 thousand and net of payments 170
The company operates an unfunded gratuity scheme covering
all its permanent employees.
viii) other income includes dividend from an associated company, 150

(3)
ix) finance charges includes Rs.1000 thousand which represents exchange

loss on foreign currency loans. Rs.200 thousand of such loss is
translation loss of year-end loan balance;
x) taxes paid are as under:
Rs.(000)
• under section 53 2,078
• under section 50 60
Required: Compute the total income and tax thereon of the company
for the assessment year 2000-2001. (18)
SECTION II
(SALES TAX & WEALTH TAX & CAPITAL VALUE TAX)
Q. 6 Discuss under the provisions of the Sales Tax Act 1990:
a) when further tax of 1.5% is not required to be charged; (03)
b) “enlistment tax” (03)
Q.7 a) How is the tax liability determined under the Sales Tax Act 1990? (03)
b) Please explain whether sales tax can be claimed in respect of the following:
i) sales tax paid on electricity bills which are not in the name of the
company being a tenant; and (03)
ii) sales tax paid under the Sales Tax Ordinance, 2000 on services
provided by courier and clearing agents. (03)
Q.8 a) What is understood by the term “manufacturer” under the Sales Tax Act 1990? (03)
b) XYZ Limited purchase yarn and provides the same to weavers for converting
it into fabric on behalf of the company. The fabric thereafter is exported by
the company. Please establish the status of XYZ Limited under the Sales Tax
Act 1990. (03)
Q.9 What is meant by the following terms under the Central Excise act 1944?
i) Club (02)
ii) Excisable goods (02)
iii) Wholesale dealer (02)
Q.10 Mr. Saeed’s assets and liabilities on 30th June 2000 are as under. Compute his net wealth under
the Wealth Tax Act 1963 and calculate his net wealth chargeable to tax.
1. Bungalow under self-occupation Rs. 863,000

(250Sq.yds.located within the
limits of Municipal Corporation)
2. Advance against agreement for purchase of a plot generated

from remittance received from abroad 250,000
(4)
3. Shop having cost of let out on monthly rent of Rs. 10,000

(annual value Rs. 60,000) 550,000
4. Car for personal use(acquired in May 1999) 350,000
5. House furniture and electrical appliances 80,000
6. His saving account shows a balance on which

Zakat has been deducted 15,000
7. Advance from House Building Finance Corporation for self

occupied house 100,000
8. Encashment of private foreign currency account 100,000
(10)
Q.11 List down the items and the basis of their valuation, on which capital value tax is
applicable? (05)
(THE END)
PROFESSIONAL EXAMINATIONS WINTER 2001
December 05, 2001
ADVANCED TAXATION (M ARKS 100)

PE-2 (PAPER-3) (3 HOURS)
SECTION 1
Q.1(a) What do you understand by the concept of “territorial jurisdiction” for taxation of
“business income” in Pakistan. (05)
(b) In the context of “cross border transactions”, how would you determine the territorial
nexus for the purpose of taxation of “business income” in Pakistan. (05)
Q.2 Does corporate merger of two or more companies, under the Companies Ordinance, 1984,
in Pakistan gives rise to any tax implications. Please elaborate your response in the light
of the provisions of the Income Tax Ordinance, 1979. (08)
Q.3 Can assessment once finalized be re-opened or modified? Discuss. (12)
Q.4 Mr A established a manufacturing concern in 1995. He commenced commercial operation in

the income year ended on 30 June 1996. He suffered huge losses and consequently
discontinued his business in the income year ended 30 June 1998. He sold the following assets
during the income year ended 30 June 2000.
Cost Tax written down value Sales proceed
Rupees Rupees Rupees
Land 500,000 500,000 1,000,000

Building 500,000 350,000 1,000,000
Plant and machinery 500,000 300,000 1,000,000
Required: (a) Please compute gain on sale of the above assets to be included in the total
income for the assessment year 2000-2001. (04)
(b) Please state under what head of income such gains, if any, would be subjected
to tax. (02)
Q.5(a) Explain the provisions contained in the Income Tax Ordinance, 1979 relating to allowability
of ‘bad debts’ as an expense. (02)
(b) B Company Limited has claimed bad debts written off of Rs.4,000,000. Please discuss the
conditions need to be satisfied to successfully contest the claim of “bad debts” as an expense. (06)
Q.6 First ABC Modaraba, a client of your office, is a perpetual, multipurpose and
multidimensional modaraba engaged in providing finance on morabaha and musharika
arrangements, leasing, commodity trading and dealing in listed and non-interest bearing
securities. Following is an extract from the profit and loss account of the modaraba for the
year ended 30 June 2000:
Revenue From Rupees
Leasing operation 21,844,000
Mushrika 700,000
Investments 7,000,000
Other sources 656,000
30,200,000
(2)
Expenditure
Administrative expenses 1,500,000
Amortization on leased assets 14,000,000
Financial charges 8,000,000
23,500,000
6,700,000
Provision for
Diminution in the value of investments 1,550,000
Doubtful debts 200,000
1,750,000
Profit from operations 4,950,000
In addition the following additional information is available:
i. This is the fourth year of operation of the modaraba.

ii. No provision for tax has been made in the accounts.
iii. The modaraba is required to transfer appropria te amount to statutory reserve as required
under the Modaraba Companies and Modaraba (Flotation and Control) Ordinance, 1980
and the Rules framed thereunder which has to be worked out.
iv. Modaraba Company’s management fee at 10 percent has not been incorporated in the
accounts.
v. Lease rental are recorded under “Operating Lease Method”.
vi. Following are the break up of leasing operations, investments income and income from
other sources:
Leasing Operations Rupees

Lease rental 21,200,000
Front-end fee 544,000
Gain on disposal of leased assets 100,000
21,844,000
Investment Income
Dividend income 3,000,000
Bank profit 4,000,000
7,000,000
Other Sources
Documentation charges 250,000
Gain on disposal of fixed assets-owned assets 200,000
Misc. income 206,000
656,000
vii. Administrative expenses include the following:
Accounting depreciation – owned assets 150,000
Provision for gratuity 30,000
viii. Tax depreciation on

Owned assets 65,000
Leased assets 10,000,000
ix. Tax loss on disposal of

Owned assets 25,000
Leased assets 1,700,000
x. Unabsorbed depreciation from leasing operation

brought forward. 13,000,000
(3)
Required:
a) Compute the amount of modaraba company’s management fee. (02)
b) Compute the amount of statutory reserve and the minimum distributable

amount of 90 percent. (02)
c) Calculate the total income of the modaraba and income tax thereon assuming that:
i. Modaraba has not distributed 90% of its profits to its certificate holders.
ii. Modaraba has duly distributed 90% of its profit to its certificate holders. (16)
SECTION 1I
(SALES TAX ACT 1990 AND CENTRAL EXCISE ACT, 1944)
Q.7(a) Discuss the concept of chargeability of sales tax under the Sales Tax Act, 1990. (03)
(b) One of the clients of your office, a bank, intends to dispose of certain old and used motor
vehicles through tender.
Required: Prepare a write up detailing whether the client is required to charge sales tax
on such disposal. (05)
Q.8(a) Define the term “time of supply” under The Sales Tax Act, 1990. (02)
(b) Please discuss whether Sales Tax is required to be charged on “advances” received against
future supply of taxable goods? Can there be any exception to the general rule? (05)
Q.9(a) Explain what is understood by the term “value of supply” under the Sales Tax Act, 1990. (02)
(b) Discuss whether Sales Tax is chargeable on the freight/delivery charges recovered at
different rates from the customers who are located at different parts of Pakistan. (04)
(c) Please explain whether Sales Tax is payable on discounted price or on gross sale price of
taxable goods. (04)
Q.10 Please discuss whether further Sales Tax under Section 3 (1A) of the Sales Tax Act, 1990
would be chargeable by a manufacturer on supply made to unregistered customers who are
the ultimate consumers of taxable goods. (07)
Q.11 Define the term “defaulter” and “non-tariff area” under the Central Excise and Salt Act, 1944. (04)
(THE END)
Professional Examinations Summer 2002
June 05, 2002
ADVANCED TAXATION (MARKS 100)

PE-2 (PAPER-3) (3 hours)
SECTION I
Q.1 a) What is the procedure for a non-resident company to opt for presumptive
tax regime? When does it have to initiate action, and is the option valid for
only one year? (04)
b) Where a person exports goods from Pakistan, how is his income taxed?
Give brief details of the provisions. (03)
Q.2 a) At what stage do tax losses crystallise and allowed against taxable income
in the case of oil exploration and production companies. (07)
b) In the case of a General Insurance Company, does the assessing officer have
powers to make disallowances out of expenditure and adjustments to the revenue?
If so, please give the adjustments which the tax authorities can make, in arriving
at the income? (07)
Q.3 Under the following circumstances, what sales proceeds would be considered by the
assessing officer under the Third Schedule?
i) On sale of plant and machinery
ii) When the said asset is discarded / demolished / destroyed / lost?
iii) Where an asset ceases be used for the purposes of a business or profession? (05)
Q.4 Please discuss provisions of law relating to taxability of reserves, as contained in the
section 12(9A) of the Income Tax Ordinance, 1979 and exemptions available under
the Second Schedule to the Income Tax Ordinance, 1979. (06)
Q.5 When is a company and an individual treated as “resident”? (04)
Q.6 What are excess cost of perquisites? Please explain in brief, stating how they are
to be computed. (05)
Q.7 ABC Ltd. – a Private Limited Company in the manufacturing sector, was in the process
of preparing a tax computation as of December 31, 2000. The profit before tax for the
year was Rs 50,000,000. The following items already included in the Profit and Loss
Account need your consideration. Please prepare a computation of total income.
Rupees
- Contribution to approved Superannuation Fund pursuant
to the Income Tax Rules, 1982 2,500,000
- Provision for Superannuation Fund 50,000
- Lease rental on an operating lease paid to an approved

leasing company. 500,000
(2)
- Lease rental on Financial lease for equipment 1,000,000
- Finance charges on lease 400,000
- Loan for working capital requirement received from a

third party non-resident lender, now waived 900,000
- Provision for Contingencies 2,000,000
- Accrued bills of suppliers for goods received 4,000,000
- Invoice received for Repairs and Maintenance services

commencing April 2001 500,000
- Provision for Workers’ Welfare Fund 1,000,000
- Recoveries against Bad debts written off but disallowed

in earlier years 500,000
- Liabilities for purchase of goods remaining unpaid since

March 31, 1997 1,500,000
- Liability for Loan from parent company remaining

unpaid since March 31, 1997 5,000,000
- Penalty for concealment of income 500,000
- Sales Tax demand paid 900,000
- Reversal of various provisions made and disallowed in

earlier years 1,500,000
- Goodwill written off 1,000,000
(12)
Q.8 Who can claim and what are Head Office expenditure? To what extent can
these may be claimed? (05)
(SECTION II)
(SALES TAX ACT, 1990 / CENTRAL EXCISES ACT, 1944)
Q.9 On what services is Sales Tax chargeable?. Also name the statutes under
which it is chargeable? (06)
Q.10 When would a person voluntarily register himself? (03)
Q.11 Are supplies against “International Tender” chargeable to tax? What does
this term mean? (02)
Q.12 a) What can be deducted from the value of supply on the face of a Sales
Tax invoice, to avail reduction in Sales Tax chargeable? (03)
b) What Sales Tax is payable on goods exported out of Pakistan? (02)

(3)
Q.13 a) Under what circumstances can input tax not be allowed to a registered
person? (05)
b) Can an unregistered person making supply of taxable goods, claim

input tax? (02)
Q.14 When and with which authority, can an appeal be filed against the decision
or order passed by a Collector of Sales Tax? (03)
Q.15 Compute the Sales Tax to be charged and deposited into the treasury by a manufacturer
and his distributor in the following case, where -
- List price is Rs 100

- Freight charged in invoice to distributor is Rs 5
- Selling price of Distributor to trade is Rs 115
- Input tax paid by manufacturer was Rs 5
- The standard rate of Sales Tax applicable is 10% (08)
Q.16 a) Is the Central Excise Duty generally based on wholesale price,

retail price or ad valorem? (05)
b) In the First Schedule to the Central Excises Act, 1944 besides

description of goods and rate of duty, a “Heading” is listed
there against. What does this term signify and for what purpose? (03)
(THE END)
Professional/Final Examinations Winter 2002
December 13, 2002

[PE-2 Paper 3] & [Module “F” Paper F-20] (3 hours)
Q.1 You are a director in Elastin (Private) Limited, a company incorporated under the
Companies Ordinance 1984 where the liability of the members is limited by shares. You
hold 5% shares in the paid up capital of the company. You are served with a demand
notice from the DCIT holding jurisdiction on assessment of Elastin (Private) Limited for
payment of tax demand outstanding against the company.
You feel that the demand notice issued by the DCIT is abinitio void however your tax
advisor feels that the notice is valid.
Please explain why the tax advisor feels otherwise. Incase the notice is also served on
your brother who holds 8% shares in the company but is not a director in the company
what would be your tax advisor’s opinion.
Your reply should be in the form of a letter from the legal advisor. (06)
Q.2 (a) How does an individual person is said to have met the residency test. (02)
(b) Mr William De Niro signed a contract with Pakistan Television Corporation to
assist PTV in making a film on the wild life sanctuaries in Pakistan. Under the
terms of the contract Mr Niro was to stay in Pakistan for a period of 1 year 3
months and 21 days. He landed in Pakistan on 29 August 2001. According to the
terms of employment Mr Niro was to be paid following emoluments:
♦ Basic Salary of Rs.150,000 per month

♦ Furnished accommodation on a piece of land measuring 1000 sq. yards.
♦ Chauffeur driven car having engine capacity of 2000 cc
♦ PTV spends Rs.15,000 per month for providing security to Mr. Niro
♦ Mr. Niro was entitled for utility allowance of Rs.40,000 p.m.
♦ Besides above PTV also pays US $ 2500 p.m. in his home country for family
subsistence. Mr. Niro is US national
Mr Niro was also responsible as part of his deal to provide training to PTV staff
abroad and was responsible to finalize training course in Italy & France. Boarding
and lodging, finalization of travelling schedule is also his responsibility.
The PTV crew left for offshore training on 15 December 2001 and the training
started from 20 December 2001. Mr Niro returned to Pakistan with his crew on 14
April 2002.
(2)
Mr Niro also has other income in his home country.
• Rent from apartment in New York amounting to US $ 15,000 per annum out of which he
received US$ 3,000 in Pakistan during the income year ending on 30 June 2002. The
balance amount was retained in his bank account abroad.
• Mr Niro has a partnership in a production house with his wife in New Jersey. During the
year he earned a profit of US $ 50,000 which remained in US in his bank account.
During the offshore training, Mr Ashfaq an engineer specializing in visual effect entered into a
contract for providing technical services to Xter, a production house based in France, and earned
US $ 3000. This amount was remitted by Mr Ashfaq to Pakistan through normal banking
channel.
Mr Ashfaq is a regular employee of PTV and his monthly salary and other benefits comprised
the following:
Basic Salary 40,000
House Rent 16,000
Utility 4,000 60,000
Besides above Mr Ashfaq Ahmed is also entitled to following:

• A 1000 cc company maintained car for private & official use
• Petrol allowance of Rs.2500 per month
• Medical allowance Rs.1500 per month
Please assume an exchange rate of Rs.60 = US $ 1 for the purpose of above calculation.
You are also provided with following

(i) Value of unfurnished accommodation is Rs.336,000
(ii) Value to be adopted for vehicle provided by the employer
used solely for business purposes if the engine capacity of
vehicle is
1000 CC Rs. 80,000
2000 CC Rs. 200,000
For the purpose of calculating the tax liability you may ignore the provision of clause 1B of Part
III of the Second Schedule to the Income Tax Ordinance 1979, relating to reduction in tax in
case of salaried tax payer.
Following tax rates are applicable.

Where the income exceeds Rs.400,000 but does not Rs.45,500 plus 15%
exceed Rs.700,000 of the amount
exceeding Rs.400,000.
Where the income exceeds Rs.700,000 Rs.120,500 plus 25%

of the amount
exceeding Rs.700,000
Required:
(i) On the basis of above information calculate the tax payable by Mr Niro and Mr Ashfaq for
assessment year 2002-2003. (14)
(3)
(ii) Briefly explain provisions of law on the basis of which exemptions have been
claimed or an amount is included for computing the taxable income of Mr Niro and
Mr Ashfaq as the case may be.
(03)
Q.3 You have received a notice from the Deputy Commissioner of Income Tax on 17 June 2002
who intend to reopen your assessment for year ended on 30 June 1996 the assessment in respect
of which was finalized on 18 June 1997.
You feel that the issues raised by the Deputy Commissioner of Income Tax can at best be the
subject of rectification but for the period of limitation no rectification could be made. You
however feel that Deputy Commissioner of Income Tax has no authority to reopen the
assessment.
You have consulted your tax advisor who feel that Deputy Commissioner of Income Tax does
have power to reopen the assessment, by way of additional assessment, on certain issues
however in respect of most of the issues the Deputy Commissioner of Income Tax does not have
a valid case. Following issues are interalia raised by Deputy Commissioner of Income Tax on
the basis of which he intends to make additional assessment:
(i) Depreciation on freehold land is wrongly allowed @ 10% of land cost.

(ii) Sale amounting to Rs.100,000 were inadvertently not recorded in the disclosed sales.
The Deputy Commissioner of Income Tax came to know about this sale from
verification of withholding tax statement of Mr B to whom this sale was made.
Please note that all legal formalities were duly completed by tax authorities before issuance of
notice.
You have requested your tax advisor to apprise you about legal position where an assessment
could be rectified or an additional assessment could be made by Deputy Commissioner of
Income Tax. Please reproduce the letter from your tax advisor as an answer to this question.
(12)
Q.4 (a) List the Income Tax authorities in order of hierarchy. Please exclude Director General for
various services from this list. List them separately.
(b) You have just been served with a show cause notice on non compliance with certain
instructions issued as clarification by CBR on a contentions issue. You feel that you have
valid reason for not complying with such instructions.
Please draft your reply to show cause notice after taking into account the legal position
considering that you were:
(i) an assessing officer (ii) a Commissioner of Income Tax (appeals) (12)
Q.5 Explorators Limited signed a concession agreement with Pakistan for oil exploration in District
Dadu.
You are provided with the following data and are requested to compute tax.
(i) Explorators Ltd incurred expenditure Rs.200,000 on oil exploration however no

commercial production commenced during year 1. Further no exploration was either
abandoned or the area was surrendered by explorator during the first year.
(4)
(ii) During year 2 expenditure on exploration were incurred to the tune of Rs.400,000. The
commercial production this year again could not commenced but the company decided to
abandoned one of the dry holes. The expenditure attributable to dry hole was Rs.200,000.
(iii) The company commenced commercial production during year 3. The expenditure upto
commencement of commercial production amounted to Rs.1,000,000. This includes
expenditure of Rs.600,000 incurred upto year 2 and also includes Rs.200,000 represented
by physical asset ‘in use’ at the time of commencement of commercial production.
You are provided with following further information

(i) Expenditure amounting to Rs.400,000 incurred after the commercial production also
includes Rs.100,000 which represent physical assets in use.
(ii) The gross revenue from sale of crude oil was Rs.1,200,000
(iii) Royalty @ 12.5% was payable.
Required:
On the basis of foregoing information please compute
(i) Taxable income (ii) Tax payable
(iii) Royalty refundable or capable of being carried forward. (16)
Q.6 Bashir Corporation (Pvt) Limited is engaged in commercial as well as manufacturing

activities. Primarily related to lubricating oil and grease, it is registered under single
registration with sales tax department as manufacturer, importer, exporter and distributor.
The grease manufactured by the company is subject to Sale Tax as well as Central
Excise Duty (CED) is applicable @ Rs.7.35 per litre. Company also makes supply of
specialized lubricants to cargo ships proceeding for a voyage to Dubai.
You are provided with following data to enable you to compute sales tax liability on the
supplies made for the tax period ended on 31 May 2002. All data given below relates to
same tax period:
(i) Imported finished lubricating oil and grease amounting to Rs.1,000,000 and
manufactured 1000 litre of grease at a cost of Rs.100,000. The company makes
profit of 25% of cost on both these products.
(ii) The company sold lubricating oil amounting to Rs. 900,000 and grease worth
Rs.90,000 during the tax period.
(iii) The buyers returned lubricating oil worth Rs.10,000 which was found to be
contaminated with certain chemical which render the oil unfit for its intended
use.
(iv) The quality assurance department of Bashir Corporation after chemical
examination agreed with buyers and recommended that the goods be destroyed.
The management decided to destroy the goods.
(v) Out of the total supply lubricating oil amounting to Rs.50,000 was supplied to
cargo ships.
(vi) Lubricating oil, worth Rs.50,000 was supplied to units located in special industrial
zone which was provided complete immunity from custom duty, sales tax and
excise duty. The company however do not expect to make any further supply to
units located in this zone.
Required:
On the basis of foregoing please compute sales tax liability, sales tax refund or amount
carried forward for the tax period on supply of
(a) lubricating oil (b) grease
Please also explain the procedure to be adopted by Bashir Corporation for destroying the
goods. (22)
(5)
Q.7 Your client, a private limited company, is engaged in the business of running and
managing a restaurant in Karachi. It has purchased/imported electronic cash registers,
cooking equipments and other storage equipments which are used in the preparation and
production of taxable supplies in which it is engaged in and has paid sales tax on such
purchases/imports.
You are required to write a note discussing the principles underlying adjustment of input
tax with output tax with particular reference to restaurant business. (06)
Q.8 Your client, a company whose country of origin is UAE, is a TV channel owner of
International standing and repute. Your client is contemplating advertising sales in
Pakistan whereby the invoices will be raised abroad but the consideration will be
received by an agent in Pakistan for deposit in an escrow account pending its remittance
abroad.
You are required to advise the client whether the contemplated arrangement has any sales
tax implications in Pakistan. (07)
(THE END)
Final/Professional Examination Summer 2003
June 04, 2003

[Module ‘F’ Paper F-20] & [PE-2 Paper 3] (3 hours)
Q.1 Briefly explain the significant changes in the procedure of determination of

taxable income brought about by the Income Tax Ordinance, 2001. Review the
same with reference to Section 122 of the Income Tax Ordinance, 2001. (10)
Q.2 You are Finance Manager of an unlisted public limited company engaged in
textiles manufacturing. The company does not have a provident fund scheme and
instead maintains an unfunded unapproved gratuity scheme whereby one salary is
contributed annually by the company as provision for staff gratuity for each year
of completed service of an employee. The balance sheet of the company shows
the provision for staff gratuity at Rs. 25 million. Since past few years you have
been pursuing the management to have gratuity fund approved by the
Commissioner of Income Tax in accordance with the rules made under Part III of
the Sixth Schedule to the Income Tax Ordinance, 2001. Your contention is that
both the employees and the company are at a disadvantage by not having the
gratuity fund approved as aforesaid. The Chief Executive of the company has
asked you to prepare a paper which should explain separately and precisely the
tax benefits that will accrue to the employees and the company if the desired fund
is established. The paper is to be presented in the forthcoming meeting of the
Board of Directors.
Required:
Please prepare the position paper for presentation to the Board of Directors. (08)
Q.3 A private limited company, engaged in manufacturing activities, has been

assessed to income tax as under:
Sales Income declared Income assessed
(R u p e e s i n m i l l i o n)
June 30, 2000 250 8 10
June 30, 2001 230 9 11
June 30, 2002 240 10 12.5
Sales have been projected at Rs. 250 million and Rs. 260 million for the years
ending on June 30, 2003 and 2004 respectively. Due to decrease in the prices of
the imported raw materials since December 2002, the profitability of the
company has increased. The gross profit has increased from 15% in 2002 to 27%
currently and the company is expected to make taxable income of about Rs. 30
million during the year ending on June 30, 2003. While considering the quarterly
accounts in April 2003, the Board of Directors (BOD) of the company considered
a proposal to avail the presumptive tax regime for the current year. The tax to be
withheld on the projected sales will be Rs. 8.75 million while the tax @ 43% on
the returned income under the normal law works out to be Rs. 12.9 million.
The BOD has also been informed that the reduction in prices of the raw materials
in the international market is temporary and that the old prices will prevail from
July 2003. The BOD has requested the chief executive to seek advice from the
company’s tax advisors.
(2)
Required:
Please write to the Chief Executive, as tax advisors, a letter about the validity or
otherwise of the company’s proposal to avail the presumptive tax regime for the
tax year 2003 in the light of the provisions of the Income Tax Ordinance, 2001. (08)
Q.4 The Income Tax Ordinance, 2001 has an “overriding effect over the other laws”.
Sections 3 and 54 of the said Ordinance specify such provisions. Discuss the effect
of these provisions of law with practical examples. (08)
Q.5 The following data is available in respect of a Foreign-Controlled Resident

Company engaged in manufacturing activities:
(Rupees in million)
Issued, subscribed & paid up capital:
Held by the foreign controller 400
Held by the local shareholders 200
600
Accumulated profits – at the beginning of the year 100

Share premium - do - 100
Assets revaluation reserve - do - 100
300
Debt owed to foreign controller 2,400
Interest paid on above debt @ 10% included in P & L account 240

Required:
Work out disallowance, if any, under ‘Thin Capitalization’ provisions contained in (09)
section 106 of the Income Tax Ordinance, 2001.
Q.6 Standard Carpet Industries Limited is a company engaged in the manufacture and
sale of carpets. Its Profit and Loss Account for the tax year 2003 is as under:
Rupees
Sales – Local 92,400,000

- Exports 15,000,000
107,400,000
Less: Sales Tax 12,400,000
95,000,000
Cost of Goods Sold 57,000,000
38,000,000
Selling & Administration expenses 20,000,000
Operating Income 18,000,000
Other Income 2,000,000
20,000,000
Financial Charges 12,000,000
Profit before taxation 8,000,000
(3)
Extracts from his balance sheet are as follows

Current Year Last Year
Trade debts – considered good 7,000,000 6,000,000
Trade debts – considered doubtful 1,200,000 1,000,000
8,200,000 7,000,000
Provision for doubtful debts 1,200,000 1,000,000
7,000,000 6,000,000
Provision for Gratuity 0 3,000,000
The following further information is available:

(a) Sales tax payments include Rs.300,000 in respect of prior years plus
additional tax of Rs.100,000 thereon. The amount was determined at the
time of sales tax audit carried during the year.
(b) Salaries and allowances include the following:
- Bonus paid to the Managing Director Rs.500,000.
- Payment of Rs.3,500,000 to the gratuity fund formed and approved by the
Commissioner during the current year. The payment was made to cover the
company’s liability towards the fund based on an actuarial valuation
carried out during the year.
- Provident fund payment of Rs. 0.6 million @ 12% of basic salary.
(c) Advertisement and publicity expenses include Rs.300,000 spent on the
company’s participation in a trade fair held in a foreign country where the
company wishes to promote its export. Presently no export is made to that
country.
(d) An amount of Rs.25,000 has been written off as the debtor has gone out of
business. No legal claim has been filed against him as it is estimated that the
expenses incurred on legal proceedings will far exceed the amount due, and
specially in view of the fact that chances of any recovery are very slim.
(e) Other income include Rs.650,000 remitted by a branch in a foreign country.
The gross income of the branch was equivalent to Rs. 1.0 million. After
making provision for income tax of Rs.350,000, balance amount was
remitted. However an amount equivalent to Rs.300,000 has only been paid
upto the end of the year whereas amount equivalent to Rs.50,000 is the
subject of an appeal for which the branch has only 10% chances of success.
The appeal is normally decided in one year. There is no agreement for the
Avoidance of Double Taxation with the foreign country where the branch is
located.
(f) Other income also includes Rs.450,000 earned on the sale on one of its
office premises. The income has been calculated as under
Sales Proceeds 1,000,000
Less: WDV
Cost 800,000
Depreciation 250,000 550,000
450,000
Tax depreciation on the premises charged todate amount to Rs.300,000.
(g) Financial charges includes exchange loss of Rs.600,000 relating to a foreign

currency loan obtained in the year 2000, for the purchase of plant and
machinery.
(4)
(h) Additions to fixed assets include:

- Car purchased for an executive director of the company costing Rs.1.2
million. The car was purchased nine months prior to the close of the tax
year. Depreciation rate is 20% on straight line basis.
- Plant & machinery costing Rs.5.0 million plus intallation costs of
Rs.800,000 and costs incurred on a test run of Rs.200,000 which produced
goods valuing Rs.120,000. According to available records the machine
worked double shift on 30 days and triple shift on 20 days. The machine
started commercial production exactly in the middle of the year.
Depreciation rate is 10% on straight line basis.
The company has a policy of charging full years depreciation in the year of
purchase.
(i) Due to oversight the payment of third installment of Advance Tax
amounting to Rs.300,000 was delayed.
To compensate the same, the fourth installment was paid 30 days earlier
than required and the amount of Rs.300,000 was paid at the same time.
(j) Assume that entire export proceeds were received during the year.
Required:
(a) Compute the taxable income. (17)

(b) Compute the tax payable considering the tax to be at 43% (03)
Q.7 A manufacturer of goods (not otherwise required to be registered compulsorily)

opts for voluntary registration under the Sales Tax Act, 1990 and accordingly so
applies on December 31, 2002. On that date he held verifiable unsold stocks
costing Rs. 800,000 as under:
Rupees
Stocks purchased from unregistered persons 110,000
Stocks purchased from registered persons at normal sales tax

rate by fulfilling requirements of section 23
On 25.11.2002 230,000
On 15.12.2002 345,000
Goods imported – Bill of Entry dated 2.8.2002 showing

sales tax paid on import is available 115,000
800,000
There is no unpaid liability in respect of above stocks and registered persons have
been paid through crossed cheques.
Required:
Work out the input tax which can be available to him in respect of the above
mentioned stocks, in the first sales tax return to be submitted after grant of (07)
registration.
Q.8 (a) Explain the procedure for the admissibility of the input tax which is not
claimed by omission in the relevant tax period. (05)
(5)
(b) Describe the procedure laid down in the Sales Tax Act 1990 with regard to
the documentation of input and output tax under Section 73 of the Sales Tax
Act 1990. (10)
(c) Distinguish the concept of Zero Rating with exemption from tax as laid
down in the Sales Tax Act 1990. (05)
Q.9 A liability to pay sales tax falls on the person who makes a supply. This is the
general rule under the Sales Tax Act, 1990. Please illustrate exceptions to this
general rule. (06)
Q.10 The law of Central Excise levies the duty on excisable goods on the manufacture.
What is the instant of time of payment of the CED? Is it possible to store such
goods at a place other than the one declared to and approved by the Collector
without payment of duty? If yes, how? (04)
(THE END)
Final and Professional Examinations Winter 2003
December 03, 2003

Module F and PE-2 (3 hours)
Q.1 (a) Explain the concept of “Permanent Establishment” (PE) as laid down in
Section 2 of the Income Tax Ordinance, 2001. (04)
(b) Explain the principles determining “geographical source of income” under
Section 101 of the Income Tax Ordinance, 2001. (06)
(c) Determine the circumstances and manner in which “Business Income” of a PE
of a non-resident may be equated with a resident in Pakistan for tax purposes
under the provisions of Section 101 of the Income Tax Ordinance, 2001. (06)
Q.2 The charge to tax is based on substance of a transaction rather than its form. Explain
with reference to Section 109 of the Income Tax Ordinance 2001 the provisions under
which an income or deduction could be “recharacterized” by the tax authority for the
purposes of taxation. (12)
Q.3 Explain the common principles for acquisition and disposal of asset including
depreciable assets under the Income Tax Ordinance 2001. Is there any concept of
recoupment of tax depreciation on disposal/transfer of asset. (12)
Q.4 ABC Limited is engaged in manufacturing activities. Accounting profit after charging
WPPF and WWF for the year ended June 2003 was Rs. 6,000,000. The following are
some additional information which requires consideration:
(i) Two new machines valuing Rs. 6 million were added on August 31, 2002. One
machine valuing Rs. 3 million was returned to the supplier after failure during
the trial runs. The same was replaced after incurring freight charges Rs. 100,000
and was put to production from April 1, 2003. Both the machines worked
double shift during the last month. The accounting depreciation on these
machines is Rs. 600,000.
(ii) Trial run expenses referred to in paragraph (i) above amounting to Rs.200,000
as reduced by the sale of the trial production Rs. 50,000 have been included in
the trading account. These expenses need to be included under proper head of
account keeping in view the provisions of Income Tax Ordinance, 2001.
(iii) Cost of the new factory land purchased during the year include land
development charges Rs. 250,000. These represent cost of making a small road
for Rs. 200,000, landscaping along side the road Rs. 25,000 and a canal
waterway Rs. 25,000.
(iv) Legal and professional charges include cost of computer accounting software
purchased for Rs. 200,000 and installed on 15-08-2002.
(v) On March 25, 2003 the company received an assessment order u/s 62 of
Income Tax Ordinance, 1979 for the assessment year 2002-2003. A refund of
Rs. 125,000 was determined in this order after setting off company’s tax
liability of Rs. 1,575,000 Under Section 62 for the assessment year 2002-
2003.
(2)
(vi) Stocks have been valued at lower of cost and net realizable value. The net
realizable value of a particular segment of stocks in trade is Rs. 200,000 less
than its cost.
(vii) The company opened a branch from April 1, 2003. Rent of branch office is
Rs. 60,000 (Rs. 20,000 per month).
The following are the monthly salaries of the newly recruited staff for the
above branch from the date of its opening except for the Branch Manager who
was appointed at the head office from February 1, 2003. These salaries were
negotiated without any perquisites and allowances.
Branch Manager Rs. 20,000 per month

Admin. Assistant Rs. 6,000 -do-
Cashier Rs. 4,000 -do-
The above salaries were paid in cash except for Branch Manager whose salary
has been transferred to his bank account. Income tax has not been withheld
from the above salaries and the rent paid for branch office.
(viii) During financial year ended June 2003 the company had suffered tax
deductions amounting to Rs. 1,600,000 u/s 153 of Income Tax Ordinance,
2001. No tax was deducted after June 20, 2003 u/s 153.
(ix) On June 15, 2003 the company entered into a sale and lease back agreement
with XYZ leasing company for Rs. 2,800,000. regarding one of it’s machine
costing Rs. 2,500,000. Depreciation charged for the year Rs. 225,000 on this
machine. The book value amounting to Rs. 2,025,000 has been transferred
from operating fixed assets to assets subject to finance lease. The tax WDV of
the same at the beginning of the year was Rs. 2,250,000. The leasing company
has paid cheque of Rs. 2,425,900 after deduction of 10% as security and Rs.
94,100 for the first lease rental.
(x) One vehicle leased by the company for Rs. 600,000 has been sold at a gain of
Rs. 100,000 on maturity of the lease. The unamortised value of the vehicle in
the books stood at Rs. 400,000 on the date of disposal.
(xi) No accounting transaction has been recorded at the receipt of the following
bonus shares of :
15,000 ordinary shares of nominal value of Rs. 10 per share of a public
quoted company
(xii) The profit declared by the company include Rs. 350,000 as share of profit
from an AOP in which company is 50% partner both in capital and profits and
losses of AOP. AOP has paid income tax amounting to Rs. 119,000 equivalent
to its tax liability.
(xiii) The company paid its tax liability u/s 147 of Income Tax Ordinance, 2001 on
June 21, 2003 after adjustment of refund determined for assessment year
2002-2003 and tax deducted u/s 153.
Required:
You are required to calculate, after considering all the above, taxable income, income
tax liability and tax payable, if any, under Section 137 of Income Tax Ordinance, 2001
to enable the company to file it’s income tax return for tax year 2003.
(21)
(3)
Q.5 Beena Ltd. is registered under the Sales Tax Act 1990. They have provided you with
the following data for the month of November 2003.
Rupees
Import Purchases
- Value of documents retired during the period. 20,000
- Goods in bond increased during the period. 5,500
- Sales tax on clearing agent bill. 250
- Rate of Customs duty. 20%
Local Purchases
- Local purchases from registered suppliers 50,000
- Advance paid to suppliers during the period not yet
adjusted. 20,000
- Purchases prior to August 2003 still appearing in
creditors 15,000
During the period the Beena Ltd. imported certain furniture and furnishings for
the factory amounting to Rs. 50,000 and metering and testing apparatus
Rs. 100,000.
Sales tax paid on office electricity bill 525
Sales
- Sales to Registered persons. 70,000
- Sales to Unregistered persons. 10,000
- Sales under international tender. 15,000
- Sales to registered person for items covered
under sixth schedule. 5,000
- Advance received from customers during the period not
yet adjusted. 10,000
- Sales to employees. 5,000
- Sales to associated company located in KEPZ made
during the period at a special discount of 20 percent. 40,000
- Sales to enrolled persons. 5,000
Sales tax return for the month of October 2003 showed a refundable balance of
Rs. 4,250.
Required:
You are required to compute the sales tax liability of Beena LTD. for the month of
November 2003. (10)
Q.6 Explain the sales tax treatment of the following transactions:

(a) Toll Manufacturing.
(b) Fork lifting vehicle imported by a trading concern.
(c) Supply of CNG to customers by a CNG Station. (09)
Q.7 Ravi Ltd is engaged in the manufacture and sale of pharmaceutical products a well as
the sale of imported diagnostic equipments. It has recently set up a cogeneration plant
for the generation of electrical energy from oil and fuel to be used in the factory.
Further the Company has also purchased a boiler for use in the cogeneration plant.
You are the tax advisor of the Company.
Required:
Write a letter to the Finance Director explaining the sales tax implication of the above
transaction. (10)
(4)
Q.8 The Sales Tax Act, 1990 specifies the principle for determining the tax liability
whereby the eligible input tax is deducted from the output tax on taxable supplies of a
registered person. Does the law specify any departure from the said principle relating
to the levy of tax on taxable supplies? Please discuss by narrating the relevant
provisions of law. (06)
Q.9 Explain the requirements for charge of CED on retail price on goods chargeable to
such duty. (04)
(THE END)
Final Examinations Summer 2004
June 09, 2004

(3 hours)
Q.1 Explain the taxability of the following under the head “salary”:
(i) Loan given by an employer to an employee. (03)

(ii) Employee’s tax borne by the employer. (02)
(iii) Employee share schemes with reference to the following. (05)
(a) Grant of an option

(b) Grant of shares
(c) Exercise of an option granted in prior year
Q.2 (a) Explain the term Fee for Technical Services. (03)
(b) Briefly comment on the taxability of Fee for Technical Services in the hands
of a resident person, a non-resident person and a permanent establishment of a
non-resident person. (05)
(c) Explain the tax withholding obligation on Fee for Technical Services paid to a
non-resident person as well as a permanent establishment of a non-resident
person. (03)
Q.3 In respect of the following given situations, you are required to briefly discuss the
basis of chargeability of tax and also the applicable withholding tax provisions, if
any, under the Income Tax Ordinance, 2001.
(a) MT vessel carrying light crude oil was grounded in the channel leading to
Karachi Port. The ship owners and the cargo owners have engaged your
client, being a company wholly engaged in salvage operations, who are
resident of Netherlands to salvage the vessel. On successful completion of the
salvage operation your client was paid US$ 40 million. (06)
(b) Following International Accounting Standard 40, your client revalued

“investment property” in terms of “fair value model” and credited gain of
Rupees 5 million to profit and loss account. (04)
(c) Your client, a charitable institution, which has not been registered as a “non-
profit organization” under the Income Tax Ordinance, 2001 received a sum of
Rs. 40 million from a company as voluntary financial contribution for the
construction of a hospital. (04)
Q.4 Explain the concept of apportionment of common expenditure as envisaged under

section 67 of the Income Tax Ordinance, 2001. (05)
(2)
Q.5 Under section 108 of the Income Tax Ordinance, 2001, the Commissioner of
Income Tax in respect of any transaction with associates is authorized to distribute,
apportion or allocate income, deductions or tax credits etc. between the persons to
reflect the income that the persons would have realized in an arm’s length
transaction. In this context, briefly discuss:
(i) The arms length standard to be applied by the Commissioner; and
(ii) Methods to be applied for the purpose of determining the arm’s length result. (14)
Q.6 M/s Khan, Hussain & Simon were equal partners in a firm KHS Textiles, engaged in
the business of manufacturing and sale of garments. Their products were mainly
supplied to large retail stores in Pakistan and certain European Union countries.
They decided to convert their firm into a private limited company with effect from
October 1, 2002.
All assets and liabilities of KHS Textiles were taken over by the new company
named KHS & Co. (Pvt) Limited. Each partner received 400,000 shares of Rs. 10/=
each in the new company. The profit & loss account and balance sheets of the two
businesses are given below:
BALANCE SHEET
KHS Textiles KHS & Co. (Pvt)

Ltd.
as at Sep 30, as at Jun 30,
2002 2003
Rupees Rupees
ASSETS
NON CURRENT ASSET
Property, Plant & Equipment – Tangible 8,000,000 17,000,000
- Intangible 984,375 937,500
Investments 1,000,000 2,000,000
9,984,375 19,937,500
CURRENT ASSETS
Stocks 3,000,000 6,000,000
Trade Debts 2,500,000 4,200,000
Other Assets 500,000 2,600,000
Cash & Bank 215,625 362,500
6,215,625 13,162,500
Total Assets 16,200,000 33,100,000
EQUITY & LIABILITIES

Capital/Share Capital 10,700,000 12,000,000
Unappropriated Profit - 15,200,000
10,700,000 27,200,000
Long-term Loans 4,000,000 4,000,000
14,700,000 31,200,000
Current Liabilities 1,500,000 1,900,000
16,200,000 33,100,000
(3)
PROFIT & LOSS ACCOUNT

KHS & Co.
KHS Textiles (Pvt) Ltd.
Jul 02– Sep 02 Oct 02 – Jun 03
Rupees Rupees
Sales 10,000,000 45,000,000
Cost of Sales 5,500,000 23,000,000
Gross Profit 4,500,000 22,000,000
Selling & Administrative Expenses 1,500,000 6,000,000
Operating Profit 3,000,000 16,000,000
Other Income 500,000 1,200,000
3,500,000 17,200,000
Financial & Other Charges 500,000 2,000,000
Profit before tax 3,000,000 15,200,000
The following further information is available

1) At the time of transfer, Property Plant & Equipment consisted of the
following
OWNED LEASED
Plant & Machinery 1,000,000 4,000,000
Furniture & Equipment 1,000,000 0
Vehicles 2,000,000 0
Rupees 4,000,000 4,000,000
The accounting depreciation charged in the books during the three months
ended September 2002 was Rs. 256,545. Tax WDV of owned assets as on
June 30, 2002, was as under:
Plant & Machinery 500,000
Furniture & Equipment 1,000,000
Vehicles 2,000,000
Monthly rentals of the leased assets are Rs. 120,000 per month. The fair
market value of the owned assets on September 30, 2002 was Rs. 5,200,000
and the assets were recorded accordingly in the books of the new company.
No new assets were acquired during the year except for plant and machinery
which was imported in January, 2003 at a total cost of Rs. 8,500,000.
2) Intangibles were acquired in 1999 and had a further useful life of 16 years as
on 1.7.2002.
3) The cost of stock-in-trade valued in accordance with section 35 of the Income
Tax Ordinance 2001, as on September 30, 2002 was Rs. 3,200,000 whereas
net realizable value was Rs. 3,000,000. It was taken over in the books of the
new company at NRV.
4) Trade debts of Rs. 2,500,000 were net of provision for bad debts of
Rs. 200,000 provided in prior years. However, since bad debts were actually
estimated at Rs. 100,000, these were taken over by the new company at
Rs. 2,600,000. No further provisions were made.
5) Financial charges include those booked on finance leases amounting to
Rs. 100,000 in the books of KHS Textilities and Rs. 275,000 booked by KHS
& Co. (Pvt) Ltd.
6) 50% of the sale of both entities was export sales. All exports were made
against confirmed LC’s
(4)
Required:
After considering the information given above, work out taxable income and income
tax liability of the firm as well as the company for the tax year 2003. (18)
Q.7 M/S ABC Limited is contemplating ways to increase its sales. They have
approached you for advice on the sales tax implications of the various schemes as
under:
(i) For a certain range of products, it is being proposed to provide sample packs
‘Free of Cost’ to the customers. (02)
(ii) A mix of products X, Y & Z is proposed to be sold at a concessional rate as a
‘Package Deal’. (03)
(iii) Sales of a certain product is intended to be introduced under the hire
purchase / installment mode. An additional issue in this regard has been
raised in the context of a subsequent change in the rate of sales tax. (06)
Q.8 K Limited is a manufacturer of vehicles and has its production facility in Karachi. In
view of the warranty given on vehicles sold, K Limited is under obligation to
remove any defects/faults in the vehicle including replacement of parts free of cost
and without any consideration during the warranty period.
Discuss the sales tax implication on the replacement of parts during the warranty
period. (05)
Q.9 (a) Explain the terms and procedures laid down for registration and/or enrolment
of persons engaged in taxable activities. (04)
(b) Explain the procedure to be complied with in respect of “Deregistration” if a

person decides to discontinue the business. (06)
(c) Is there any possibility of having a multiple registration for a enterprise

having more than one branch or division? (02)
(THE END)
Final Examinations Winter 2004
December 09, 2004

(3 hours)
Q.1 XYZ Limited’s accounting year begins on July 1. Income tax return for tax year
2003 and the assessment order for the tax assessment year 2002-2003 received on
August 31, 2004 show the following:
Assessment Return for

order tax year
2002-2003 2003
R u p e e s
Tax liability in respect of business income 16,900,000 18,900,860
Final tax liability for income covered under the
Presumptive Tax/Final Tax Regime 1,800,000 2,650,000
Tax liability in respect of property income 120,000 130,000
Tax liability in respect of sale of shares of
unlisted companies 6,100,000 -
Turnover 375,556,000 480,000,000
Gross rental receipts 3,750,000 3,940,000
The company estimates that tax liability for the tax year 2005 will be approximately
Rs. 15,000,000 which includes Presumptive Taxation of Rs.1,900,000 and tax
liability in respect of property income of Rs. 125,000.
You are required to advise XYZ Limited about:

(a) The advance tax payable for tax year 2005 with the relevant dates.
(b) The additional tax payable if advance tax is not paid as provided in the
Ordinance.
(c) Any other relevant matter. (14)
Q.2 Please explain the special features of securitization of assets by special purpose
vehicle from tax point of view with respect to allowability of expense and tax
deductions from payments. (06)
Q.3 Conglomerate Group plc of United Kingdom had made a major investment (approx
95%) in shares of ABC Limited a Pakistani unquoted public company. The
investment was made in 1955 and the company invested UK Pound Sterling (£)
1,250,000. The Conglomerate Group was allotted 100000 shares of Rs.100 each.
The currency parity, prevalent at that time, was £ 1 = Pak Rs.8.00.
In July 2003, the Conglomerate Group decided to dispose the shares and started
negotiations with local and foreign investors and finally struck a deal with a
Pakistan based company. It was decided that Conglomerate Group would be entitled
to the interim dividend of Rs.50,000,000 for the year 2003-2004 of ABC Limited
out of its current and accumulated profits. The buyer will pay Rs. 475 per share
resulting in a receipt of £ 500,000 and a loss of £ 750,000 to the Conglomerate
Group based on current currency parity.
(2)
Required:
(a) Please compute the tax liability of Conglomerate Group under the Income
Tax Ordinance 2001. (04)
(b) Please quantify the effect on tax liability if the transaction is not acceptable to
the Commissioner, in terms of section 109. (04)
Q.4 Mr Awais is a resident individual who owns a private business. He has provided you
with the following data:
Rs. in 000
Sales
• Imported finished goods 20,000
• Manufactured goods
• supplies 150,000
• others 75,000
• exports 50,000
• Cost of sales 200,000
• Administration and selling expenses 35,000
• Other income 1,250
• WPPF 3,600
• WWF 1,250
• Provision for tax
Normal 5,000
Deferred 1,220
Net Profit 50,180
During the year, one of the export customers closed down his business and has defaulted
on payment of Rs. 1,000,000.
Cost of imported goods Rs. 15,000,000
Assume no opening and closing debtors.
Trading Liability outstanding for more than 3 years Rs. 100,000
Other Income includes:
• Dividend from a company enjoying tax holiday. 1,000
• Profit on sale of shares of listed company 250
Mr. Awais provided the following additional information:
(a) Special US$ bonds purchased during the year Rs.5,000,000 and profit earned
Rs. 500,000.
(b) FEBC encashed during the year Rs.2,000,000
(c) Purchased agricultural land Rs.10,000,000
(d) Drawings from business Rs.5,000,000
(e) Foreign remittance received (PRC available) Rs. 5,000,000
(f) Donations made during the year Rs.200,000
(g) Personal expenses Rs.7,590,000
(h) Business capital at the beginning of tax year Rs.24,425,000
(i) Cash in hand at the beginning of tax year Rs.120,500
(j) Tax paid with last year return Rs.2,000,000
Mr. Awais owns a house property which he has given on rent. On June 30, 2004 the
house property was transferred by him to his second wife for a consideration of
Rs. 400,000. She has received Rs.500,000 during the year as share of inheritance.
(3)
The following data has been provided regarding the house property
Rs.
Monthly rental 6,250

Expenditure on renovations and upkeep of house property. 56,000
Property Tax paid. 5,000
Unadjustable rent Rs. 150,000 received at the time the property was
let out two years ago. Mr Awais had at that time refunded Rs.50,000
to the previous tenant who had vacated the property after 5 years
and had paid initially Rs. 100,000 as unadjustable rent.
Mr Awais owns another house property valued at Rs. 0.5 million. During the year
he divorced his first wife Mrs Shehnaz and settled that house property in lieu of haq
mehr of Rs. 150,000.
Required:
Compute the taxable income and tax liability of Mr Awais and prepare his wealth
statement for the tax year 2004. (25)
Q.5 ABC Limited, a foreign controlled resident company, is a manufacturing concern

financed by its Group Company through its Associates. The details of debt owed to
its associated companies are as follows:
Debt as at Debt as at
July 1, Debt received Debt repaid June 30,
2003 2004
(Rs. in (Rs. in (Rs. in (Rs. in
million) Date million) Date million) million)
Debt from associated Jan 1, Apr 1,
company -A 50 2004 15 2004 20 45
Debt from associated Jan 1,
company - B 18 - - 2004 10 8
Debt from non- Feb 1, Jan 1,
associated company. 35 2004 10 2004 15 30
All the above debts carried simple interest rate of 10%. Non-associated company
owes the same amount of debt to another associated company which ABC Limited
owes to non-associated company. Profit on debt of associated company A and non-
associated company are taxable in Pakistan at lower rate as compared to corporate
rate of tax applicable in Pakistan because of Double Taxation Treaties.
Details of shareholders equity of ABC Limited is as follows:
As at July 1, As at June
2003 Increase 30, 2004
R u p e e s in m i l l i o n
Share capital 8 4 12
Accumulated profits 6 3 9
Please note that share capital was increased on January 1, 2004. Group company
through its associated companies owns 75% shareholding of ABC Limited. Another
associated company owed Rs. 5 million to ABC Limited as at July 1, 2003 which
was repaid during the year.
(4)
Required:
Compute interest payable and allowable for tax purposes for the tax year 2004 with
reference to the provisions of Income Tax Ordinance 2001, relating to Thin
Capitalization.
(13)
Q.6 Karakorum (Pvt) Limited has hired Standard Courier Services to deliver all its inter
branch and external mails as well as shipment and delivery of any goods/parcels.
The courier company in their invoice for the first month has charged sales tax
@ 15% on gross delivery service charges. The finance manager of Karakorum (Pvt)
Limited has disputed that since the courier company is not engaged in the supply of
any taxable goods therefore they cannot charge sales tax.
You are required to explain whether sales tax is applicable in the above scenario and
explain the relevant provisions of the Sales Tax Act 1990. (04)
Q.7 A registered person is entitled to deduct input tax paid or payable during the tax
period from the output tax subject to compliance of section 7 and 73 of the Sales
Tax Act. Section 8 of the Act however places certain restrictions on goods on which
input tax is not deductible.
You are required to specify those goods on which input tax is not allowable under
section 8. (08)
Q.8 State with reasons in brief, how the following matters can be analyzed under the
Sales Tax Act?
(a) Sale of goods under hire purchase agreement. (02)

(b) Sales tax collected on certain items on which exemption is allowed through a
notification that is enforced through a back date. (02)
(c) Sales tax rate on goods entered for home consumption and in case of import
where bill of entry is presented in advance. (02)
(d) ‘A’ being a contractor of a turnkey contract with ‘B’ has agreed that B can
make a direct import of machinery and equipments from A’s associated
company in Singapore. B has authority of such import and also has privilege
of exemption from tax. (02)
(e) Supplies of items falling under the Sixth Schedule by a person who resides in
tribal areas (i.e. FATA/PATA) and opts for voluntary registration. (02)
Q.9 Sales tax regime is based on the concept of self-assessment. The main recourse
available to retrieve loss of tax revenue is audit and then issuing show-cause notices.
In this context what is the time limit for initiating recovery of sales tax? (04)
Q.10 (a) List the persons required to take out a licence to conduct business under the
Central Excise Act 1944. (05)
(b) Briefly state the provisions regarding the applicability of excise duty on such
excisable goods as are used internally by the manufacturer. (03)
(THE END)
June 09, 2005

(3 hours)
Q.1 Briefly explain the allowability of the following against income chargeable to tax
under the Head ‘Income from Business’ under the provisions of the Income Tax
Ordinance, 2001:
(a) Purchase of computer software.
(b) Purchase of computer hardware including printer, monitor and allied items.
(c) Acquisition of plant and machinery previously used in Pakistan.
(d) Acquisition of building.
(e) Purchase of road transport vehicle plying for hire. (10)
Q.2 (a) Every return filed by an assessee must be subject to a process of assessment by
the tax department. Is it correct? If not, what are the relevant provisions of the
Income Tax Ordinance, 2001 under which a return of income could be subject
to scrutiny or audit? (06)
(b) For any scheme of tax audit to be effective, what in your view should be the
conceptual basis and salient features of such a scheme. (06)
Q.3 Mr. Syed is running a business under the name and style of Syed Muhammad & Co.
and he deals in imported fancy lights. He imported lights worth Rs.10 million during
the year and an amount of Rs.0.6 million was deducted under section 148.
Following information is extracted from the wealth statement filed by him in tax
year 2003.
(Rupees)
- Capital of Syed Muhammad & Co. 6,000,000
- Immoveable properties 10,000,000
- Moveable properties 2,000,000
- Personal Cash & Bank balance 1,000,000
During the year he received an amount of Rs.30,000 and there is no satisfactory
explanation for the above receipt.
He rented one of his immoveable properties to a company for an amount of
Rs.15,000 per month, however, the ALV of the property is Rs.156,000. He paid an
amount of Rs.60,000 for repair of the property. He also paid an amount of Rs.5,000
as ground rent for the said property.
He bought a flat at Tariq Road for his third wife who does not have any source of
income, for an amount of Rs.2,000,000.
He also purchased a Toyota Corolla for Rs.1,300,000.
(2)
He invested an amount of Rs.1,000,000 in his business.

Personal expenses during the period were Rs.800,000.
During the year he received a loan of Rs.6,000,000 from his friend who lives in
UAE and Mr. Syed holds proceeds realization certificate issued by the bank.
Required:
Prepare Wealth Statement of Mr. Syed for the tax year 2004. (10)
Q.4 Explain the provisions relating to the acquisition and disposal of depreciable assets. (06)
Q.5 A public company incorporated in Pakistan carried on business in Pakistan and also
abroad through a branch office in a foreign country. The expenditure incurred
relating to business activity outside Pakistan is identified. Some of the business
expenditure incurred in Pakistan relates to both activities and are in line with the
revenue earned from respective activities. Some other data in respect of the income
year ended June 30, 2004 is given below:
(Rupees)
Sales from business activity - inside Pakistan 105,000,000

- outside Pakistan 35,000,000
Business expenditure allowable for tax

purposes:
- incurred inside Pakistan - common 20,000,000
- incurred outside Pakistan 32,000,000
- incurred inside Pakistan - relating
to Pakistan based activity 78,000,000
Business loss brought forward from tax year

2003 (related to business activity abroad) 5,000,000
Foreign withholding tax 2,000,000
Business activity in Pakistan comprises of the following:
Toll manufacturing
The company imports certain raw materials and under a toll manufacturing
arrangement with another company, raw materials are processed into finished form.
The company pays toll manufacturing charges as a consideration for processing raw
materials. At import stage, tax is paid under section 148 at the rate of 6 per cent on
the import of raw materials. Once goods are manufactured through another
company, these are sold to persons who are authorized to deduct tax under section
153. Company has not filed any option for assessment under the Final Tax Regime.
The data relating to toll manufacturing activity is given below:
(3)
(Rupees)
Sales 50,000,000
Raw material imports * 20,000,000
Toll manufacturing charges * 5,000,000
Other expenses * 3,000,000
* included in Rs. 78,000,000
Trading business
The company imports certain goods and sells them in their original shape. The
company also purchases certain goods locally and sells them as a trader from which
tax at supply stage is deductible under section 153. The data relating to trading
business is given below:
(Rupees)
Sales out of imports 45,000,000
Tax paid under section 148 @ 6% 2,250,000
Sales out of local purchases:

- locally produced goods 5,000,000
- imported goods 5,000,000
Required:
Compute taxable income of the public company for the tax year 2004 and the tax
payable thereon. (18)
Q.6 Mr. Mahmood Murad is a leading industrialist and philanthropist of the country who
supports and makes donations in cash and kind to various non profit organizations.
He has recently donated some property and other goods to an NGO and wishes to
enquire the rules for the valuation of the same under the Income Tax Ordinance.
Please advise. (10)
Q.7 Anwar & Co., Chartered Accountants have been appointed by CBR to conduct a
special audit of the records of Gul Brothers for the financial year 2003. Gul Brothers
contest that the audit for the said year has already been conducted by an officer of
sales tax appointed under section 30 of the Act. Write a letter to the chief accountant
of Gul Brothers explaining the relevant provisions of the Act, the scope of the
special audit to be conducted by Anwar & Co. and powers in respect of access to
premises, records and accounts. (10)
Q.8 A manufacturing concern has filed sales tax returns upto February 2005 based on the
following data:
Input tax Output tax Net amount paid
(Rupees) (Rupees) (Rupees)
• November 2004 35,000,000 42,000,000 7,000,000
• December 2004 36,000,000 42,500,000 6,500,000
• January 2005 32,000,000 41,000,000 9,000,000
• February 2005 28,000,000 38,000,000 10,000,000
(4)
The Finance Manager of the concern realized on March 20, 2005 that input tax
relating to tax period December 2004 amounting to Rs.5,000,000 was inadvertently
not claimed in the sales tax return filed for that period. On April 10, 2005, he further
found that:
(i) input tax relating to the tax period February 2005 amounting to Rs. 2,500,000
was not claimed in the monthly return filed for that period.
(ii) input tax relating to the month of November 2004 amounting to
Rs. 1,700,000 was not claimed in the relevant return.
(iii) output tax of Rs. 41,000,000 shown in the monthly return for tax period
January 2005 was infact Rs. 41,500,000 i.e. short declared by Rs. 500,000.
(iv) input tax claim made in the month of December 2004 of
Rs. 1,000,000 infact related to the month of November 2004.
Required:
Briefly explain the remedy, if any, available under the Sales Tax Act, 1990 to
account for the above errors and the resultant effect on overall tax liability of the
manufacturing concern. (15)
Q.9 (a) Briefly explain the various types of excise duties under the Central Excise Act
1944. (04)
(b) Elucidate the provisions for input output adjustment as contained in proviso to
section 3(11) of the said Act. (05)
(THE END)
December 08, 2005

(3 hours)
Q.1 (a) Briefly discuss the concept of small company introduced by the Finance Act,
2005 and the concessions given to such small companies under Income Tax
Ordinance, 2001. (04)
(b) Define the term ‘consumer loan’ in terms of the provision of the Income Tax
Ordinance, 2001. Please also explain how the provision against consumer loan
is allowed as deduction to a banking company. (04)
Q.2 Prosperity Bank Limited having an extensive branch network and significant client
base in Pakistan has decided to acquire latest banking software from SES
Corporation of Malaysia. The arrangements under ‘Software End User License and
Technical Support Agreement’ entered into between Prosperity Bank and SES,
include:
• Granting a non-exclusive license for use of the software and program

documentation;
• Technical support for installation and use of software;
• Free of cost maintenance support up to June 2006. Such support will be
provided by the combination of visit of technical staff and online connection;
• Copy right, trademark and intellectual property rights in the software will
remain the property of SES;
In consideration, Prosperity Bank will pay the following:
(i) US$ 300,000, for delivery and implementation of software for the bank and
the related technical support and services fee for a period of ten years.
(ii) 5% of the aforesaid fee as annual maintenance fee after expiry of free
maintenance period.
(iii) US$ 50,000 for migration of existing data and for customization of reports.
Assume that Pakistan does not have an agreement for the avoidance of double
taxation with Malaysia and SES does not have any office or fixed place of business
in Pakistan.
Required:
(a) Explain how the payment for acquisition of software will be chargeable to tax
under the Income Tax Ordinance, 2001.
(b) Explain withholding tax applicability on various payments under the
arrangements.
(c) Discuss deductibility of cost to Prosperity Bank under the Income Tax
Ordinance 2001. (07)
(2)
Q.3 Mr Sheryar, Chief Financial Officer of a manufacturing company, is analyzing tax

implications of long term foreign currency loan for company’s modernization and
expansion of manufacturing facility. You have been informed that no coverage is
available to the company against foreign currency fluctuation. Write a letter to Mr
Sheryar advising him the tax implications associated with the exchange fluctuation
on foreign currency loan. (05)
Q.4 The CFO of a UK company has provided you the following information:
(i) The company is incorporated and established in UK.
(ii) The company has only one business unit, which is a branch operating in
Pakistan for the last ten years. There is no other business activity of the
company and its head office situated in UK is only a management place.
(iii) Pakistan branch has incurred business losses during last five years.
(iv) Sixty percent of the shares of the UK company are owned and held by a
resident of UK.
(v) The UK resident shareholder is now considering to sell these shares to a
resident of France.
You are required to explain:
(a) Pakistan tax implications on the capital gains, if any arising to the UK resident
on sale of shares.
(b) Provisions relating to carry forward of business losses of Pakistan branch after
change of ownership. (08)
Q.5 The Finance Act, 2005 has enlarged the scope of amalgamation of companies
provided in the Income Tax Ordinance, 2001.
You are required to briefly discuss the following:
(a) Concept of amalgamation.
(b) Special dispensation provided by the Ordinance in respect of amalgamation of
companies. (06)
Q.6 MM Securities Limited is a public limited company in Karachi incorporated under

Companies Ordinance 1984. It acquired corporate membership of Karachi Stock
Exchange in 2000 and got listed on Karachi, Lahore and Islamabad Stock Exchanges
in 2001. The company is engaged in the business of investment advisory, financial
consultancy, brokerage, underwriting, portfolio management and securities research.
In the year 2002, the company obtained membership of National Commodity
Exchange Limited.
The financial statements of the company have been prepared under the historical cost
convention except investment in marketable securities, which are stated at fair value.
During the year 2004-5, the company changed its accounting policy relating to
capitalization of assets whereby purchase of assets of value Rs.50,000 and below
were charged to P&L account.
The following information has been extracted from the audited financial statements
of the company for the year ended 30 June 2005:
(3)
Rupees
Operating Revenues:
Revenue from brokerage 220,000,000
Underwriting commission 3,000,000
Placement fee 2,000,000
Financial consultancy 7,000,000
Dividend Income 225,000,000
Return on Term Finance Certificate 1,500,000
458,500,000
Capital gain on investment – Net 1,500,000,000
Gain/(Loss) arises on re-measurement on investment

at fair value
• Gain 25,000,000
• Loss (30,000,000)
Operating expenses 145,000,000

Financial charges 35,000,000
Other charges 5,000,000
Other Income
• Profit on PLS account 1,100,000
• Mark-up on loan to associated undertaking 5,000,000
Other information:
i. During the year the company purchased 10 computers for Rs.49,500 each and
except for the above, there was no other addition in the fixed assets.
ii. An expense of Rs.4.5 million per month was incurred by department which is
responsible for making investments in securities.
iii. Salary and commission paid to dealers amounted to Rs.12 million.
iv. Excess of tax depreciation on assets appearing in audited accounts of the
company over accounting depreciation was Rs.2,000,000.
v. Company sold 1,000,000 shares of ABC private limited for Rs.25 each, the
cost price of each share was Rs.20 and the shares were acquired in January
2003.
vi. During the year the company purchased 500,000 shares of ADE Private
Limited for Rs.50. These shares were disposed of before the year end for
Rs.20 per share.
vii. Operating expenses include the following donations:
Rupees
• Donation to approved institutions 15,000,000
• Donation to un-approved institutions 2,000,000
viii. Tax deducted at source on dividend u/s 150 10,000,000
ix. Tax paid, deducted or collected as advance tax under:
• Section 147 18,000,000
• Section 151 140,000
• Section 153 10,000
• Section 233 5,000,000
• Section 234 5,000
• Section 236 50,000
(4)
x. Operating expenses include Rs.1,500,000 in respect of net loss on sale of fixed

assets. Book value of the above assets was higher by Rs.2,500,000 as compared
to the value determined under Third Schedule to the Income Tax Ordinance,
2001.
xi. The company has not incurred any expenditure on transactions involving the
shares of private limited companies and except for the items given in (5) and
(6) above, all capital gain relates to listed securities.
Required:
(a) Compute taxable income of the company for the tax year 2005.
(b) Determine the amount of tax liability payable along with the return of total
income assuming corporate tax rate of 35% for the year. (25)
Q.7 Explain the remedies available to a tax payer against additions to income made by
the Taxation Officer and confirmed by the CIT (Appeals).
Also explain the recourse available against recovery of tax demand confirmed by the
CIT (Appeals). (08)
Q.8 Please discuss allowability of input tax against output tax in the following situations:
(a) Input tax related to taxable goods supplied to unregistered person. (02)
(b) Input tax related to taxable goods supplied to registered person who makes
payment for supply of goods through:
• On line transfer from his business account

• Credit card (03)
Q.9 During the course of sales tax audit of MNC Corporation following observations
were made by the sales tax auditor:
(a) Sales tax was collected @17.5% instead of statutory rate of 15% during the
month of April 2004 from Ahmed Corporation. Ahmed Corporation never
claimed excess sales tax recovered and the difference of tax @2.5% was
retained by MNC Corporation.
(b) Sales tax was collected @17.5% from Bashir Corporation however, tax in
excess of statutory rate was paid to Bashir Corporation during the same tax
period.
(c) MNC Corporation carried out repairs on the PNSC ship which was proceeding
to a destination outside Pakistan, MNC Corporation also replaced certain
electrical equipments and applied zero tax rate on such supply.
(d) Terminated part of taxable activity and sold 3/4th of the stock to a registered
person and the balance to an unregistered person.
(5)
The sales tax auditor is of the view that MNC Corporation has violated certain
provisions of the Sales Tax Act, 1990 and therefore sales tax is recoverable from
them on account of alleged violations noted by the sales tax auditor.
Required:
You being their tax advisor are asked to apprise management whether MNC
Corporation has violated any provision of the Sales Tax Act, 1990. Please write a
letter to management explaining the legal provision. (09)
Q.10 A company registered under the Sales Tax Act, 1990 has following data for the year:
Commercial Local trading

Total
import business business
………………………Rupees……………………...
Sales 50,000,000 40,000,000 90,000,000
Opening stock 25,000,000 21,000,000 46,000,000
Imports 45,000,000 -- 45,000,000
Domestic taxable purchases -- 17,000,000 17,000,000
Domestic exempt purchases -- 14,000,000 14,000,000
Closing stock 26,000,000 14,600,000 40,600,000
Operating profit 6,000,000 2,600,000 8,600,000
Other expenses 2,000,000 1,500,000 3,500,000
Net profit 4,000,000 1,100,000 5,100,000
Ratio of taxable supplies to exempt supplies relating to local trading business is

60:40. All customers of the company are corporate entities and registered under the
Sales Tax Act, 1990. Commercial imports are subject to customs duty @ 10 percent.
The nature of local trading business requires receipt of advance from customers. All
advances are received against taxable supplies. Movement of advances during the
year is as follows:
Rupees
• Opening advance 5,000,000
• Sales during the year against opening advance 5,500,000
• Closing balance of advance 6,000,000
• Sales subsequent to year against closing balance of advance 5,800,000
You are required to compute net sales tax liability for the year. For the sake of
convenience net liability for sales tax has been required to be computed on yearly
basis. Appropriate explanation of the treatment with relevant assumptions, if any,
may be given. (10)
Q.11 (a) Please explain the valuation rules relating to levy of excise duty on the
excisable goods and services under the Federal Excise Act, 2005 (06)
(b) State who is required to be registered under the Federal Excise Act, 2005 (03)
(THE END)
June 08, 2006

(3 hours)
Q.1 (a) Tipu Sultan (Pvt.) Ltd., a fast growing IT solution provider, a wholly owned
subsidiary of a listed company, commenced its operations in 1999. The details
of tax losses incurred by the subsidiary company are as follows:
Losses as Assessed
Accounting Assessment /
per return losses
year tax year
Rupees Rupees
June 30, 2001 2001 - 02 5,750,000 4,500,000
June 30, 2002 2002 - 03 4,800,000 3,782,500
June 30, 2003 2003 4,200,000 3,500,100
June 30, 2004 2004 3,711,800 3,050,000
June 30, 2005 2005 2,750,800 2,200,000
One of the directors is of the view that the holding company can set off the
losses of its subsidiary.
As a Tax Consultant, you are required to advise on the following:
(i) What are the pre-requisites for claiming the losses of the subsidiary?
(ii) How much amount can the holding company claim against the
subsidiary’s losses? (10)
(b) Dividends are generally chargeable to tax under the head “income from other
sources”. Briefly explain the exception to this rule. (03)
Q.2 (a) Shah Jahan Ltd. has acquired plant and machinery which was partly financed
through a loan denominated in a foreign currency. The financial details along
with repayment schedule and exchange rates are given below:
Cost of plant and machinery acquired in January 2002 Rs.15,000,000
Grant paid by the Federal Government directly to the

supplier of plant and machinery Rs. 750,000
Foreign currency debt obtained to finance the purchase of

plant and machinery on January 1, 2002 USD 200,000
Repayment schedule:
− January 1, 2003 USD 60,000
− January 1, 2004 USD 60,000
− January 1, 2005 USD 80,000
(2)
Exchange rates of US$ to Rupee had been as follows:

Rupees
− January 1, 2002 Rs. 57.00
− June 30, 2002 Rs. 57.25
− January 1, 2003 Rs. 56.95
− June 30, 2003 Rs. 57.50
− January 1, 2004 Rs. 58.00
− June 30, 2004 Rs. 57.00
− January 1, 2005 Rs. 58.50
− June 30, 2005 Rs. 59.00
Required:
Compute the depreciation allowable for the tax years 2002, 2003, 2004 and
2005. (09)
Note : Rate of Depreciation for plant and machinery are as follows:

Initial = 50%
Normal = 10%
(b) Akbar Limited, a listed company, has offered buy back of shares to its
shareholders. The following information is available:
Paid up capital: 10,000,000 shares @ Rs. 10 each Rs. 100,000,000

Accumulated reserves Rs. 350,000,000
Market value at the time of offer for buy back Rs. 35
Offer price for buy back Rs. 40
The company intends to delist before the end of tax year.
Advise the company about its obligations under the Income Tax Ordinance,
2001 in respect of the above stated buy back transaction. (04)
Q.3 (a) Humayun Limited has entered into a contract for supply of goods to Lodhi
Limited on April 20, 2006. At the time of entering into contract, the goods
were exempt from tax. As per the contractual terms, supplier was required to
deliver the goods at buyer’s premises at an agreed price.
With effect from April 25, 2006 the Federal Government withdrew the
exemption of sales tax on such goods.
Advise the company on the chargeability of sales tax under the Sales Tax Act,
1990 in each of the following situations:
(i) 50 per cent payment was made on April 26, 2006 when goods were
delivered and remaining 50 per cent payment was made on
April 28, 2006
(ii) The company paid 100 per cent advance on April 23, 2006 and goods
were delivered on April 28, 2006
(iii) The company paid 50 per cent advance on April 23, 2006 and the
remaining payment was made when goods were delivered on April 28,
2006. (06)
(3)
(b) Mr. Babar, a registered person, purchased 1000 kgs of raw material for
production of taxable finished goods. During the month, he utilized 70% of
raw material for production whereas 20% raw material was still lying in the
inventory. The remaining raw material was destroyed in fire.
Explain with reasons, to what extent Mr. Babar is entitled to adjust input tax
against output tax liability for the month. (05)
Q.4 (a) Discuss allowability of the following against output duty payable on
manufactured goods under the Federal Excise Act, 2005:
(i) Duty paid on material used for plant expansion project.

(ii) Excise duty paid on import of raw material. (05)
(b) A person, who is registered under the Sales Tax Act, 1990, is engaged in the
supply of products which are also subject to excise duty.
Discuss briefly what additional steps, if any, the said person will take for the
purpose of registration under the Federal Excise Act, 2005 and for issuing
invoices under the said Act. (03)
(c) Under the Federal Excise Act 2005, what is the due date for payment of
Federal Excise Duty and filing of return, by a person who is engaged in
providing excisable services? (03)
Q.5 (a) Jahangir Bank (JB) seeks your legal advice regarding withholding tax
obligations in respect of the following issues:
(i) Remittance to non-resident for repairs of special purpose hardware,

carried out in U.S.A.
(ii) Payments of commission to non resident person having no permanent
establishment in Pakistan. (06)
(b) Explain whether losses incurred during the exemption period can be set off
against income of post exemption period. (03)
(c) Mr. Pasha is managing a fast growing chain of garment shops which sell
readymade ethnic and fashion garments. He has a turnover of Rs. 40 million
during the last year.
The Finance Act 2005 introduced a scheme for the retailers under which
retailers will be fully discharged from their income tax and sales tax
obligations on payment of fixed percentage of tax on supplies.
Prepare a memorandum explaining the conditions and requirements of the

scheme. (03)
Q.6 (a) Mr. Saleem is the Finance Manager of the subsidiary of a multinational
company registered in Pakistan. He has been granted share options of parent
company as follows:
(4)
− Option was granted at Rs. 20 per option, to acquire 5000 shares after 2
years, on payment of Rs. 30 per share.
− Fair market value of option at the time it was granted was Rs. 65 per
option.
Two year period was completed in the tax year 2005 and Mr. Saleem decided
to utilize the share options as follows:
− 2000 options were sold in international market at Rs. 110 per option.
− 3000 shares options were exercised by making additional payment of Rs.
30 per option. After two months, these shares were sold in international
market at Rs. 150 per share. At the time of exercise of option, market value
of share was Rs. 135.
Work out the tax liability of Mr. Saleem in respect of above transaction, in the
year in which the options were granted as well as in the year 2005. Also
specify the heads of income in which it shall be classified. (10)
(b) Aurangzeb Ltd. is engaged in the supply of canned fruit juices and is
considering to launch an incentive scheme for its customers. For this purpose it
has planned to offer an additional fruit juice can on the purchase of two.
Advise the management of Aurangzeb Ltd. on the sales tax implication in

respect of the above scheme. (04)
Q.7 Hania Industries Limited (HIL) is in the business of manufacturing and sale of
chocolates and sweets and is listed on Karachi Stock Exchange. It sells goods
through distributors appointed in each major city. During the last two years, it has
extended its business and have been involved in export and import also.
The exports are mostly made to SAFA countries. Imports are mostly made from
Europe. These consist of premier quality sweets and biscuits which are sold directly
to large super markets in Karachi, Lahore and Islamabad.
Extracts from the profit and loss account of the company for the tax year 2006 are as
under:
Rs. in ‘000’
Sales 196,500
Cost of sales (material & labour) 134,500
Gross profit 62,000
Administrative and selling expenses
Salaries 22,000
Depreciation 15,000
Others 20,000
57,000
Operating profit 5,000
Other income 1,000
Other charges (3,210)
Net profit before tax 2,790
(5)
Following information are also available:
a) Break-up of the sales for the year are as follows:
Rs. in ‘000’
Local sale of own manufactured goods 152,000
Local sale of imported goods 32,500
Exports 12,000
b) Imports worth Rs.2.0 million were re-exported to Sri Lanka at a C & F price of
$64,000. The sale proceeds thereof are included in the export of Rs. 12 million.
The bank deducted a tax of 0.5% from the sale proceeds.
c) Cost of imports were as follow:

Rs. in ‘000’
C & F (US$ 250,000 @ 60) 15,000
Custom duty 3,000
Sales tax 2,700
Income tax 1,242
Other direct expenses 1,058
23,000
d) Cost of raw material consumed as charged to cost of sales during the year was
Rs. 80 million. About 8% of the raw material is lost during production mainly
on account of evaporation and other unavoidable wastages. 60% of the raw
material is imported from countries with which we have treaties for avoidance
of double taxation. Remaining raw material is produced locally. The raw
material used for exports is normally the same except certain high quality
ingredients. The cost of such ingredients used during the current year were Rs.
0.5 million.
e) The rates of custom duty, sales tax and income tax and the ratio of other direct
expenses is the same for raw material as well as finished goods.
f) The company’s machinery has been acquired on lease. The rental paid for the
year amounted to Rs.1.5 million. The company has recorded it as a finance
lease. 60% of the amount paid was in repayment of principal. Accounting
depreciation charged on the same amounted to Rs.1.2 million. The rate of
accounting depreciation is 10%.
g) The delivery vans used for distribution were acquired two years ago at a price
of Rs. 5.0 million from the holding company which is listed on the Karachi
Stock Exchange. The fair value of these vans at the date of acquisition was Rs.
4.0 million. The rate of accounting depreciation is Rs. 25% on straight line
method.
h) The details of tax deducted / paid are as under:

Rs. in ‘000’
− Tax deducted by distributors of locally manufactured goods 1,000
− Tax deducted by super stores against imported goods 200
− Tax paid on import of raw materials 3,100
− Tax deducted on export proceeds 70
(6)
i) During the year the company has introduced a new product for which a trial run
was carried out. Expenses of Rs. 150,000 were incurred on the trial. Rs. 50,000
was recovered from the sale of trial production. The net amount was charged to
costs of sales.
j) The details of other charges are as under

Rs. in ‘000’
Financial charges 3,000
WPPF 150
WWF 60
3,210
k) Other income includes rental income of Rs. 300,000. The expenses related to
the property and included in the profit and loss account of the company are as
follows:
Rs. in ‘000’
− Property taxes 15
− Depreciation 90
− Other expenses on collection 25
l) Accounting depreciation, other than mentioned above, is approximate to tax

depreciation.
m) The rate of tax applicable to the company is 35%.
Compute the taxable income of the company and the tax payable thereon. (20)
Q.8 What are the sales tax implications, in case of:
(i) termination of taxable activity;

(ii) Sale or transfer of ownership of taxable activity to unregistered person.
(iii) Sale or transfer of ownership of taxable activity to another registered person as
an ongoing concern. (06)
(THE END)
December 7, 2006

Module F (3 hours)
Q.1 (a) GPM Textiles Limited and GAK Pakistan (Pvt) Limited are wholly owned
subsidiaries of GYK Pakistan Limited. As a part of Corporate restructuring, it is
being considered to transfer the plant and machinery from GPM to GAK at
accounting written down value.
In the Board meeting, it was pointed out by one of the directors that under the
provisions of the Income Tax Ordinance, 2001 the tax gain / loss will have to be
worked out by taking into account the fair market value of the assets being
transferred. The Director Finance has, however, contended that there is a provision in
the Ordinance whereby no gain or loss is recognised in case of disposal of assets
between subsidiary companies.
Required:
Explain to the management of the company about the conditions to be satisfied for
non-recognition of gain / loss on disposal of assets between subsidiary companies of
the same group. (05)
(b) GM Limited is considering an option to issue Term Finance Certificates (TFC)

outside Pakistan for the purpose of raising funds for use in its business activities in
Pakistan. To induce the investors for acquiring TFCs of the Company, it intends to
advertise that the income on the same will not be taxable in Pakistan.
Required:
List down the conditions to be fulfilled for claiming exemption on profit on debt
payable on TFCs being issued by the Company. (05)
Q.2 (a) Under the Income Tax Ordinance, 2001, entertainment expenditure shall be limited to
the expenses incurred by a person that satisfy certain conditions.
Required:
Specify the conditions as explained in the Income Tax Rules, 2002 for the
allowability of entertainment expenditure. (05)
(b) ZAB Manufacturing (Pvt.) Ltd., one of your clients, has been involved in the
manufacturing of leather products. With effect from January 1, 2006 they have also
started exporting approximately 30% of its manufactured goods. Consistent with their
past practice, they are deducting tax from the payments against purchase of goods.
One of their suppliers has raised an objection on their practice by contending that by
virtue of becoming manufacturer-cum-exporter, they are no more required to
withhold tax from payments against purchase of goods.
Required:
Advise your client whether it should withhold tax from payment for purchase of
goods. (04)
(2)
(c) An employer having established approved superannuation and approved gratuity fund
is required to contribute annually to the funds on a reasonable basis. There are,
however, limits set in the Income Tax Rules, 2002 on the initial and annual
contributions to the aforesaid funds.
Required:
Specify those limits and the procedure for payment of contribution beyond the
specified limits. (04)
Q.3 (a) As a tax consultant of Mirza Textile Mill Limited, you filed its return of income for
tax year 2007 on November 30, 2006. Subsequently, you were informed by the Chief
Financial Officer that he forgot to claim credit for certain taxes deducted and paid by
the company’s customers.
Required:
Explain the requirements for filing of revised return under the given circumstances.
What would be the impact of filing a revised return on the assessment treated to have
been made on filing the original return of income? (04)
(b) An appeal filed by FAL (Pvt) Limited against the order passed by the Commissioner
of Income Tax – Appeals is pending before the Income Tax Appellate Tribunal
(ITAT). Meanwhile, on the application filed by the Company, Central Board of
Revenue (CBR) has appointed a committee for the resolution of dispute. On the
recommendations of the Committee, the CBR has passed an order whereby the
Company’s tax liability has been reduced by 50%.
Required:
Explain to the management of the Company that in case they decide to make payment
of tax in accordance with the CBR’s order, what would be the affect on:
(i) existing orders, decisions, etc. and

(ii) appeal proceedings pending before the ITAT. (04)
(c) The Commissioner of Income Tax selected GZH Pakistan (Pvt.) Limited to verify its
compliance with withholding tax regime. For this purpose, the transactions
undertaken after July 1, 2006 were selected and on the basis of the audit, following
transactions were identified where no tax was withheld by the Company:
(i) As part of company’s scheme launched for promotion of sale, a car was given
as a prize to Mr. C.F. Elahi.
(ii) Rent includes payment on account of furniture and fixtures provided by the
landlord.
(iii) Purchase of goods from an importer.
(iv) Profit on debt paid to Pakistan branch of a non-resident bank under a loan
agreement.
Required:
Explain with reasons as to whether or not the Company was required to withhold tax
from payments mentioned in (i) to (iv) above. Also explain, what action can be taken
by the tax authorities if it is established that the Company has failed to deduct tax
from any of the above payments. (09)
Q.4 GIK Pakistan Limited is a Public limited company, whose shares are listed on all the stock
exchanges of Pakistan. GIK Inc. USA holds 55% of the shares of the company. The
Company is engaged in the trading of a wide range of electrical appliances, which
comprise of the following:
(3)
(i) Import in finished form.

(ii) Manufactured in Pakistan from components imported mainly from GIK Inc. USA.
With effect from July 1, 2006, the Company has also established a software house at
Lahore which is involved in export of computer software to GIK Inc., USA under a
separate agreement entered in this behalf.
Following information has been extracted from the profit and loss account of the company
for the year ended December 31, 2006:
Rs in ‘000’
Revenue 500,000
Direct costs 302,000
Administrative & marketing expenses 100,000
Other revenues 50,000
Notes to the accounts revealed the following additional information:
(i) The revenue consists of sale of locally manufactured goods amounting to Rs.
300,000 and sale of imported finished goods amounting to Rs. 200,000.
(ii) Break-up of direct costs is as under:
Rs in ‘000’
Raw materials consumed 50,000
Work in progress 25,000
Finished goods – Imported (note ii(a)) 106,000
Labour cost (note ii(b)) 80,000
Freight charges (note ii(c)) 20,000
Accounting depreciation 21,000
302,000
(a) This includes tax collected by the Customs Authorities on import of finished
goods amounting to Rs. 6,000,000.
(b) Labour is provided by Messrs. RT & Co. under a contract. All the payments
are made in cash and no tax is withheld therefrom as the management feels
that cash payments are outside the scope of withholding tax provisions.
(c) Payment for freight charges has been made in cash.
(iii) Administrative and marketing expenses include the following items:
Rs in ‘000’
Salaries (note iii(a)) 15,000
Advertising expenses 40,000
Trade mark fee (note iii(b)) 5,000
Donations (note iii(c)) 1,000
Rent, rate & taxes (note iii(d)) 4,000
Accounting amortisation (note iii(e)) 5,000
Miscellaneous expenses 10,000
100,000
(a) It includes contributions of Rs 1,000,000 to unrecognised provident fund.

However, effective arrangements are in place to ensure deduction of tax from
payments made by the fund to employees.
(4)
(b) Under an agreement with GIK Inc., USA, a quarterly fee is paid by the
company for use of trade marks and logos owned by GIK Inc. The company
has not deducted any tax from the payments on the understanding that such
fee is not taxable in Pakistan in the absence of GIK Inc.’s Permanent
Establishment in Pakistan. Assume that there is no double tax treaty between
Pakistan and USA.
(c) All donations were made to approved institutions mentioned in the Second
Schedule of the Income Tax Ordinance, 2001.
(d) This includes an amount of Rs 500,000 being the taxes withheld in USA on
payments received for export of computer software to GIK Inc., USA. The
company intends to claim foreign tax credit, against the tax payable in
Pakistan.
(e) On September 1, 2006, the company has acquired accounting software

costing Rs 15,000,000, which has a useful life of three years. It is the
company’s accounting policy to take full amount of amortisation in the first
year and no amortisation in the year of disposal.
(iv) Other revenues comprise the following:

Rs in ‘000’
Gross dividend received from listed companies 5,000
Accounting profit on disposal of building (note iv(a)) 17,000
Net income from export of computer software (note iv(b)) 20,000
Profit on bank deposits 8,000
50,000
(a) Calculation of accounting profit is based on the following information.
Sale considerations 57,000

Costs of building 50,000
Accounting profit on disposal of building 17,000
(b) This represents net income after taking into account all direct and indirect
expenses incurred by the Company in relation to export of computer software,
except the financial charges.
(v) Financial charges include profit on debt amounting to Rs 2,000,000 paid on a loan
exclusively utilised by the software house. Rest of the financial charges exclusively
relate to the loan obtained for trading business.
(vi) The details of taxes deducted and paid during the year are as under:
Rs in ‘000’
Advance tax paid under section 147 20,000
Tax paid on import of raw material 2,000
Tax deductions from dividends received 250
Tax deducted by customers on purchase of locally
manufactured goods 10,500
32,750
(vii) Accounting depreciation is the same as tax depreciation.
(viii) The normal rate of tax applicable on listed companies is 35%.
Required:
Compute the taxable income of the company and tax payable thereon for the Tax Year
2007. Give proper comments where any given information has not been utilised in the
computation. (25)
(5)
Q.5 (a) (i) Identify the types of registered tax payers who are required to file their sales
tax return electronically? (03)
(ii) Describe the manner of payment of sales tax in case of electronic filing of
sales tax returns? (03)
(b) Under the Sales Tax Act, 1990, adjustment for input tax on credit purchases is
allowable only if payment is made within 180 days of issuance of tax invoice.
However, the Central Board of Revenue has prescribed certain conditions for
condonation of delay in meeting the time frame of 180 days.
Required:
Describe the conditions under which the delay has been condoned. (06)
Q.6 (a) S. A. Enterprises, a registered person, failed to file a return with the Sales Tax
Department for last twelve months. They have now received an order from Assistant
Collector requiring them to pay the minimum tax liability determined by the Sales
Tax Department. The management of the company has never heard about this
minimum tax liability. They have approached you and raised the following
questions:
(i) How is this minimum tax liability determined?

(ii) What would be the company’s position if:
- they opt to pay the determined amount; or
- they do not pay the demand raised by the Sales Tax Department
Required:
Draft a memorandum, as a Sales Tax Consultant, explaining the question raised by
the management. (10)
(b) Explain the conditions under which sales tax is allowed to be refunded as draw back? (04)
Q.7 (a) The Finance Act, 2006 has brought certain financial services provided by banking
companies into the Federal Excise Regime.
Required:
Describe the following in respect of the above:
(i) Types of services on which excise duty has been levied;
(ii) Due date for payment of duties and filing of returns; and
(iii) Invoicing requirements. (07)
(b) One of the instruments which are now subject to Federal Excise Duty is the pay
order. You are required to explain the applicability of Federal Excise Duty if pay
order is issued by one branch of banking company in favour of another branch of the
same banking company. (02)
(THE END)
June 7, 2007

(3 hours)
Q.1 (a) Mr. Green held 25% shares of ABC (Private) Limited at the time of its winding
up on June 30, 2005. He has now received a notice from the Commissioner of
Income Tax requiring him to pay Rs 500,000 on account of tax payable by the
Company for the tax year 2005.
Discuss the legality of the notice issued to Mr. Green and the extent of his
liability, if any. (05)
(b) Discuss the rules relating to “own estimate” with reference to quarterly payment
of advance tax under the Income Tax Ordinance, 2001. (04)
Q.2 (a) Red, Blue & Co. has recently started business as Construction Contractors.
During the year ended December 31, 2006, they have undertaken the following
transactions:
(i) They entered into a contract for construction of a housing scheme with
Mr. Ghalib, a Pakistani citizen. The project is likely to take three years to
complete. Upto December 31, 2006 payments aggregating to Rs 10,000,000
were received from Mr. Ghalib. No tax has been deducted from these
payments.
(ii) The firm was also awarded a contract by XYZ (Private) Limited for
construction of residential quarters for its factory workers. The work shall
commence from January 15, 2007 and will be completed within six months.
However, a mobilization advance amounting to Rs 1,000,000 was paid by
XYZ (Private) Limited in December 2006, after deducting tax of Rs 60,000.
The firm’s partners are not very sure about the impact of the above transactions
on the firm’s taxation for tax year 2007. They are of the view that:
− Payments received from Mr. Ghalib should have been subjected to final tax.
However, as he has not deducted the tax, they want to discharge the tax
liability on their own.
− Work on contract with XYZ (Private) Limited has not commenced upto
December 31, 2006 and therefore, the advance received is not taxable. The
tax deducted should, therefore, be claimed as refundable.
Required:
Explain to the partners, the basis of taxation of the above payments received by
the firm. (06)
(b) Under the Income Tax Ordinance, 2001, every importer is required to pay tax on
the value of goods at the prescribed rates. State the conditions under which a
manufacturer can obtain exemption certificate from the Commissioner of Income
Tax, with regard to payment of tax at the import stage. (04)
(2)
Q.3 MNO Pakistan Limited is a public limited company whose shares are listed on all the
registered stock exchanges in Pakistan and remained so listed during the year ended
December 31, 2006. The Company is involved in the following activities:
− Supply of telecommunication equipment. The equipments are assembled in Pakistan

after importing the major components from EU countries.
− Providing consultancy services in Pakistan to companies operating in the
telecommunication sector.
The Tax Manager of the Company has computed the taxable income for the Tax Year
2007, as under:
Rupees
Note
in “000”
Profit before tax as per Profit & Loss Account 100,000
Add: Accounting depreciation 20,000

Accounting amortization (i) 6,000
Excess cost of perquisites to employees 1,000
Provision for bad debts 2,000
Profit on debt to a foreign bank (ii) 5,000
Tax gain on disposal of fixed assets (iii) 5,000
39,000
Less: Tax depreciation - initial (iv) 5,000

- normal 10,000
Deferred expenditure (v) 1,333
Accounting gain on disposal of fixed assets (iii) 7,000
Bad debts actually written off (vi) 1,000
24,333
Less: Income attributable to services’ revenue subject to
Final Tax Regime (vii) 15,000
Taxable income for the year 99,667
Notes to the Computation:

(i) On December 29, 2006, the Company has acquired rights for use of trade mark
owned by a US company for a period of three years. The trade mark will be used
for the equipments to be sold after March 31, 2007. For accounting purposes, the
cost is being amortized equally over the three-year period.
(ii) The Company obtained a working capital loan from a foreign bank, the proceeds
of which were utilized during the year. The Company did not deduct tax while
paying interest on the loan. The Company is of the view that interest is not taxable
in Pakistan as the bank does not have a Permanent Establishment in Pakistan.
(iii) Tax gains on disposal of fixed assets include a tax profit of Rs 60,000 on the sale
of a car. It was acquired during the year ended December 31, 2004 at a cost of
Rs 1,500,000. However, for the purpose of tax depreciation, the value was
restricted at Rs 1,000,000. As a policy, the car was sold to the Managing Director
of the Company for Rs 200,000. Tax gain represents the difference between fair
market value i.e. Rs 700,000 and the tax written down value i.e. Rs 640,000.
(iv) During the year, the Company acquired second hand equipment at a cost of
Rs 8,000,000. The Company is of the view that since the equipment was not used
by the Company itself, it is entitled to claim initial depreciation allowance.
(v) The Company incurred an expenditure of Rs 2,000,000 on sales promotion. It has
been estimated that the benefit of such expenditure will extend to three years and,
therefore, the same is being amortized over a period of three years. However, for
tax purposes, the whole of the expenditure has been claimed.
(3)
(vi) It includes a loan of Rs 500,000 to an associated undertaking. The amount has

been written off because the borrower is in financial crisis and would not be able
to discharge his debt.
(vii) The income attributable to services revenue has been excluded from the
computation of taxable income. Tax deducted on such receipts was Rs 900,000.
(viii) The fixed assets of the Company include vehicles having fair market value of
Rs 20,000,000 taken on finance lease from a scheduled bank. The tax depreciation
has been computed at 15% of the FMV. Lease rentals paid during the year were
Rs 2,000,000 including financial charges of Rs 500,000.
(ix) The Company disputes certain amounts invoiced by its suppliers. As a matter of
prudence, it has provided such liabilities although the same are still under dispute.
Year-wise breakup of such liabilities is as follows:
Rupees
Year of Supply in “000”
Tax Year 2003 790

Tax Year 2004 1,251
Tax Year 2005 1,244
Tax Year 2006 1,596
4,881
Required:
Give your comments as regards the:
− tax treatment in the computation of taxable income with which you concur or
disagree.
− implication for tax purposes of the information disclosed in the notes to the
computation. (24)
Note: Restrict your answer to comments only. Revised computation is not required.
Q.4 (a) With reference to the concept of geographical source of income as enumerated in
the Income Tax Ordinance, 2001, briefly comment on the taxability of income in
each of the following situations separately:
(i) Profit on debt paid by STU (Private) Limited, a company incorporated in

Pakistan, to a US bank against a short term loan, obtained to meet working
capital requirements of the company’s UK branch.
(ii) Mr. Black, a foreign national working as a General Manager for a Japanese
company, is deputed in Pakistan to carry out market research for a product
sold in Pakistan. His remuneration for the services rendered in Pakistan is
transferred directly to his bank account in Japan.
(iii) Mr. White, a non resident, sold his shareholding in KLM Inc. and derived
capital gains. A significant part (97%) of assets of KLM Inc. consists of the
right to explore natural resources in Pakistan. (06)
(b) Mr. Blue had filed his return of income for tax year 2003 on September 30, 2003.
Discuss the following in terms of the Income Tax Ordinance, 2001:
(i) by what date the Commissioner of Income Tax could make the first
amendment of the assessment, if required?
(ii) by what date any further amendment can be made if the first amendment was
made on September 29, 2006? (04)
(4)
Q.5 (a) To receive and retain recognition, a provident fund has to satisfy various
conditions mentioned in the Sixth Schedule to the Income Tax Ordinance, 2001.
Based on these conditions, comment on the legality of each of the following:
(i) The recognition can also be granted by the Commissioner of Income Tax to
an employer whose principal place of business is not in Pakistan.
(ii) Employer does not have the power to recover any sum whatsoever from the
employees’ provident fund balance, under any circumstances. (04)
(b) During the tax year 2006 and 2007, a local bank provided various types of
consumer loan facilities to its customers. Details of interest earned on consumer
loans and bad debts provided against consumer loans are as follows:
2006 2007
Rupees in million
Interest earned on consumer loans 300 370
Bad debt provision for the year 12 10
Required:
Compute the allowable bad debt provision on consumer loans in accordance with
the Income Tax Ordinance, 2001 for tax years 2006 and 2007. (06)
Q.6 (a) DEF Limited supplied goods valuing Rs 1,000,000 to one of its distributor,
Mr. Pink who is also registered for sales tax purposes. Sales tax invoice was issued
for the said amount plus sales tax of Rs 150,000. The transaction was recorded in
the monthly sales tax return for the month of January 2007.
In February 2007 the internal auditor of the Company observed that the accountant
had applied incorrect selling prices. As a result, the Company will have to refund
the excess amount to Mr. Pink.
Required:
Advise the procedure to be adopted by the Company and the distributor to adjust
the excess amount of sales tax. (05)
(b) Mr. Lal, an unregistered person, is engaged in the supply of imported and locally
purchased good. He has received a notice from a local registration office of the
sales tax for compulsory registration.
Before submitting the application for registration, he wants to know whether he

will be able to claim the input tax paid on the unsold stocks purchased before
registration.
Required:
Explain the legal provisions of the Sales Tax Act, 1990 regarding tax paid on
stocks before registration. (06)
Q.7 GHI Limited has been engaged in the import and supply of taxable goods which are
listed in the Third Schedule to the Sales Tax Act, 1990. You have been provided the
following quarterly information relating to the company’s operations:
Rupees in million
July–Sept Oct–Dec Jan–Mar
2006 2006 2007
Sales 35.00 28.00 26.00
Value of goods imported determined under
section 25 of the Customs Act, 1969 20.00 22.00 19.00
Closing Stock 4.00 5.00 3.20
(5)
Following additional information is available:
(i) There was no opening stock as at July 1, 2006;

(ii) Custom duty is payable at the rate of 20%;
(iii) Minimum value addition on the goods is prescribed at 15% of import value;
(iv) Retail price of goods sold in first, second and third quarter amounted to
Rs 45 million, Rs 37 million and Rs 32 million respectively.
Required:
(a) Compute the sales tax payable, if any, in respect of each of the three quarters;
(b) Work out the amount of input tax, foregone by the commercial importer, if any, in
each of the three quarters. (17)
Q.8 (a) Explain the basis of determination of Federal Excise Duty in each of the following
cases:
(i) Services provided free of charge; and
(ii) Goods liable to duty at a rate dependent on their value. (06)
(b) Explain the term “Franchise” and “Franchiser”. (03)
(THE END)
December 6, 2007

(3 hours)
Q.1 A Pakistani company has engaged a foreign contractor to upgrade its production facility.
The agreement with the foreign contractor specifies that:
▪ The foreign contractor would acquire the required plant and machinery and design
it in accordance with the requirements of the Pakistani company.
▪ Plant and machinery will be assembled and installed at Pakistani company’s
location by a sub-contractor in Pakistan. The sub-contractor would be engaged by
the foreign contractor and would work under the supervision of the foreign
contractor’s personnel who would also come to Pakistan for a certain period.
▪ Foreign contractor would also procure some parts of plant and machinery locally
from the sub-contractor.
▪ On request of the foreign contractor, the Pakistani company will pay for local
service and procurements cost of the sub-contractor directly to the sub-contractor.
Payments to the sub-contractor totaling Rs.35 million will be deducted from the
total contract price of Rs. 200 million. The net contract price of Rs. 165 million
will be remitted outside Pakistan to the foreign contractor.
You are required to mention the critical points to determine the tax implications of the
above contract with reference to the taxability of the foreign contractor as well as the
sub-contractor. (08)
Q. 2 Mr. Kashif Ahmad, a Pakistani National, left the Pakistani subsidiary of a multinational
company and was employed in the role of Commercial Director Middle East for the
Group company with effect from January 1, 2007. Due to certain visa issues, he could
not travel immediately and remained in Pakistan till February 28, 2007. While in
Pakistan, he continued to work for the Middle East region and received payment from the
Group company.
Mr. Kashif is required to return to Pakistan for sorting out certain issues on behalf of the
group company and will be staying in Pakistan for about two months. On his return to
Pakistan he will continue to be employed and paid by the Group company. The Group
company deducts tax @ 20 % of the gross salary.
Required:
Briefly explain the Pakistan tax implications to Mr. Kashif for the tax years 2007 and
2008 in respect of the following:
(a) Salary earned while he was present in Pakistan from January 1, 2007 to February
28, 2007.
(b) If he returns to Pakistan before June 30, 2007.
(c) If he returns to Pakistan after June 30, 2007. (10)
(2)
Q. 3 RA (Pvt.) Limited, is a highly profitable company and is engaged in manufacturing

activities. It has recently started a consultancy business through a newly formed company
RA Consultancy (Pvt.) Limited, whose structure of shareholding is as follows:
RA (Pvt.) Ltd 60 %
Mr. Rashid 20 %
Mr. Arshad 20 %
RA Consultancy (Pvt.) Limited is suffering losses due to heavy expenditures on

marketing and set-up of infrastructure. It is expected to continue incurring losses during
the next few years.
Mr. Rashid and Mr. Arshad are also the Directors and majority shareholders of RA (Pvt.)
Limited. They want to claim the tax losses of the subsidiary against the income of RA
(Pvt.) Limited and have approached you, as their tax advisor for advice.
Required:
Advise your clients about the necessary steps which should be undertaken to avail the
maximum benefit under the Income Tax Ordinance, 2001. (09)
Q. 4 Your company has filed return of income for tax year 2007 on September 30, 2007
according to which income tax amounting to Rs. 50 million was refundable. The Director
Finance of the company is worried about the refund and has consulted you for advice.
Required:
Please advise the Director Finance in respect of the following:
(i) Procedure for claiming the refund.

(ii) Time frame within which cheque must be issued by the tax authorities.
(iii) Compensation allowed if refund cheque is not issued in time. (07)
Q. 5 A foreign Group is contemplating to start business in Pakistan. The Group Finance

Director is analyzing options to establish either a branch or a locally incorporated
company.
Required:
Briefly analyse the rules relating to computation of income and tax liability under each of
the above options as regards the following:
(a) Business income.

(b) Head office expenses.
(c) Payment of royalty or fees for technical services to head office.
(d) Interest payments on loan given by the parent company.
(e) Remittance of profits. (12)
Q. 6 Mr. Aslam, a sole proprietor carrying on the business of trading died on January 1, 2007.
He had the following assets at the time of his death:
Stock in trade Rs. 5,000,000 at cost

Property Rs. 1,200,000 at cost
Shares 200,000 shares of TMC Pakistan Ltd.
The stock in trade was sold by his legal representative on February 1, 2007 at a price of
Rs. 7.0 million. Out of this amount Rs. 1 million has been utilized by him for personal
expenditures. The property and the shares were however retained and were in possession
of the legal representative on May 31, 2007.
(3)
On May 31, 2007 the legal representative received a notice for recovery of arrears of Mr.
Aslam’s income tax of Rs. 15 million.
The market value of Mr. Aslam’s assets is given below:
On January 1 On May 31
---------Rs. in million---------
Stocks 5.50 N/A
Property 1.50 2.5
Shares 1.40 3.0
The legal representative has also received rent of Rs. 10,000 and dividends amounting to
Rs. 40,000 from the above assets, after Mr. Aslam’s death.
Required:
Compute the amount which the taxation authorities can recover from the legal
representative alongwith necessary explanations. (05)
Q. 7 Jabbar and Company Limited carries on business in Pakistan as well as abroad. Sales
revenue from business activity in Pakistan and abroad are separately identified. Some of
the business expenditures relate exclusively to business activity outside Pakistan. The
business expenditure incurred inside Pakistan relates to both and is allocated on the basis
of revenue earned from each type of activities.
The following information is available in respect of the tax year 2007:
Operations Operations
inside Pakistan outside Pakistan
------------Rs. in thousand------------
Sales revenue 105,000 35,000
Allowable business expenses 136,000 12,000
Brought forward business losses Nil 5,000
Taxes paid in foreign countries Nil 1,000
The company has also paid advance tax in Pakistan amounting to Rs. 0.5 million.
Required:
Compute the taxable income of the company for the tax year 2007 and the tax payable
with the return. (07)
Q. 8 Sulpher Pakistan Limited (SPL) manufactures two products locally and is also engaged
in the import of a product which is supplied to the distributors without any further
processing. Some of the details are as under:
Alpha Bravo Charlie

Source of product manufactured manufactured imported
Listed under 3rd schedule of Sales Tax Act Yes No Yes
Federal Excise Duty – rate 10% 10% Exempt
– basis retail price wholesale
cash price -
Retail price-per unit (including all taxes & duties) 100 150 200
Retail price-per unit (excluding all taxes & duties) - - 140
Price to distributors (excluding all taxes & duties) 65 125 122
(4)
Following information is also available:

Price to distributors may be assumed to be the Wholesale Cash Price.
The import value of Charlie under the Customs Act, 1969 is Rs. 100 and the rate
of custom duty is 10%.
All the products are exempt from levy of Special Excise Duty.
Required:
In respect of each unit of the three products, calculate the following:
(a) Sales Tax and Federal Excise Duty payable by SPL.
(b) Withholding tax to be deducted by the distributors. (15)
Q. 9 (a) Sales Tax Act, 1990 places certain restrictions on adjustment of input tax. Please
explain its provisions in respect of the following:
(i) Extent of restriction on admissibility of input tax;

(ii) The conditions under which the amount of input tax which had been so
restricted, may subsequently be allowed;
(iii) Treatment of sales tax paid on acquisition of fixed assets. (06)
(b) XYZ Limited is a public listed company engaged in a wide range of business
activities. You are required to advise them on the following issues:
(i) The procedure for claiming input tax if the claim is not made in the relevant
month.
(ii) The proportion of sales tax that may be claimed as a drawback on re-export
of imported goods and the conditions (if any) which must be complied with
in this regard.
(iii) The admissibility of sales tax paid on courier services as input tax. (07)
Q. 10 Uzair is the senior incharge at the audit of Faysal Technologies Limited for the year
ended June 30, 2007. He has developed serious differences with the management as
regards the computation of the company’s income tax liability. The following
transactions are the subject of the dispute:
(a) Investment in a Pakistani subsidiary at a cost of Rs. 30 million was disposed off
to an associated undertaking at an arm’s length price of Rs. 20 million.
(b) FTL sold self-manufactured goods at a sale price of Rs.20 million to its
customer, Alpha Pakistan Limited (APL). Due to certain financial constraints,
APL could not discharge its liability in cash and instead, under an agreement
with FTL, transferred its land and building on January 1, 2007 as final settlement
of its liability. At the date of transfer, the assets had a tax written down value of
Rs. 16 million, however, the fair market value of the assets was Rs 22 million.
For claiming depreciation, FTL has valued the building at Rs. 15.0 million.
(c) Research & Development expenditure amount to Rs 2 Million. As a result of the
expenditure, FTL has been able to develop a new design for its products, which
will be used for business purposes from the next accounting year. However, the
useful life of the design cannot be ascertained.
(d) FTL is in the process of establishing a subsidiary company in a foreign country,
with the objective of setting up a plant. In order to ascertain the technical
feasibility of establishing the plant, FTL sought consultancy services of a firm
resident of that country and paid Rs. 1.0 million from Pakistan without deduction
of withholding tax.
Required:
As tax manager in the firm you are required to give your views with regard to the tax
treatment of each of the above transaction. (14)
(THE END)
June 5, 2008

Module F (3 hours)
Q.1 Mr. Jehangir Ahmad (JA) worked as Head of I.T. Division in Sutlej Pakistan Limited (SPL)
for last ten years. From July to September 2007 he earned a basic salary of Rs. 900,000. He
was also provided with rent free furnished accommodation, in respect of which SPL paid a
rent of Rs. 35,000 per month. He resigned with effect from October 1, 2007 .
In July 2004, JA was granted an option to acquire 1000 shares of SPL’s Parent Company,
which is listed in a foreign country. The option was exercisable on completion of three
years’ employment with the Company. He paid an amount equivalent of Rs. 100,000 to
acquire the option whereas the fair market value of such option at that time was Rs. 150,000.
On July 4, 2007 he paid a sum equivalent of Rs. 200,000 to acquire the said shares which
were issued to him on July 21, 2007 when the market value of the shares was equivalent of
Rs. 350 per share. JA disposed off the shares on October 1, 2007. The net sales proceeds
received in Pakistan amounted to Rs. 344,000 i.e. after adjustment of income tax deducted
by the foreign government amounting to Rs. 20,000, brokerage commission of Rs. 6,500 and
bank charges of Rs. 2,500.
JA has also been carrying out a software business in the ground floor of a house owned by
his wife, since many years. On March 31, 2008 he converted the business into a limited
company. The company took over the assets of the business at their fair value of Rs. 2.6
million and in consideration thereof, 260,000 shares of Rs. 10 each were issued, in the name
of JA. The book value of the assets taken over on the date of transfer was Rs. 2.2 million.
The company has entered into a large contract for supply of software to a renowned
Japanese firm over a period of two years. In view of limited resources, the company is not
considering offers from other clients.
The office in which the business was being carried out has been rented to the company at Rs.
50,000 per month whereas the prevailing market rate is Rs. 35,000 per month. The profit of
the company up to June 30, 2008, excluding the rent, is expected to be Rs. 350,000.
JA has earned an income of Rs. 850,000 from the business, before the assets were
transferred to the company. His wife has no other income except dividend income of
Rs. 50,000 on which tax has been deducted at source.
Required:
Compute the taxable income of Mr. Jehangir, his wife and the company, for the Tax Year
2008. Give reasons for the treatment made by you, wherever necessary. (15)
Q.2. Crown Enterprises, a branch of a company incorporated in Singapore, intends to dispose off
one of its business segment to Trend Setters Limited (TSL), a company listed on the Karachi
Stock Exchange, for a lump sump consideration of Rs. 500 million. The net assets of the
business segment are separately identifiable. The consideration was agreed keeping in view
the fair market value of net assets, earning potential of the underlying assets and the brand
name of the products. Under a separate agreement Crown Enterprises has agreed to refrain
from competing in the same business for a period of five years and in consideration thereof
TSL has agreed to pay an additional amount of Rs. 50 million.
(2)
The break-up of net assets related to the business segment is given below:
Net book Fair market

value value
------- Rs. in million -------
Plant and machinery 150 180
Land 60 80
Building (costing Rs. 50 million) 40 70
Inventory 90 90
Other current assets including receivables 85 85
425 505
Less: Current liabilities 125 125
300 380
The cost of building to the company is Rs. 50 million and tax WDV is equal to the
accounting WDV of Rs. 40 million.
Required:
(a) Compute the amount that will be included in the taxable income of Crown Enterprises,
as a result of the above transaction. Give appropriate reasons under the Income Tax
Ordinance, 2001, to support your calculations.
(b) Describe the withholding tax obligations of TSL in respect of payments to be made to
Crown Enterprises. (08)
Q.3 Holdings Limited, a public listed company is engaged in the manufacturing and supply of
consumer products. Its profit and loss account for the year ended March 31, 2008 is given
below:
Rs. in million
Sales (local) 30,000
Cost of sales 21,000
Gross profit 9,000
Selling and administration expenses 3,000
6,000
Finance cost 1,200
Other expenses 900
3,900
Other income 1,500
Net profit before taxation 5,400
The following information is available in respect of the above.

(a) Sales are net of sales tax and the break-up is as under:
Manufactured products 70%

Imported products 17%
Locally purchased products 13%
20% of all sales are made to limited companies. Imported products are sold at a profit
of 40% of sales whereas locally purchased goods are sold at a mark-up of 25% above
cost.
(b) The cost of development of a new manufacturing process was capitalized as an
intangible asset in 2003. The product has a life of approximately 15 years. The
amortization thereon amounting to Rs. 4 million is included in the cost of sales.
(c) Selling and administration expenses include bad debts of Rs. 6 million. Opening and
closing balance of provision for bad debt account is Rs. 20.8 and 18.4 million
respectively.
(3)
(d) Other expenses include an amount of Rs. 20 million paid to a commodity exchange to
settle a transaction which was carried out as a hedge against fluctuation in prices of one
of the raw materials used by the company.
(e) Other income includes the following:
Share of income received from an AOP amounting to Rs. 60 million. The
company’s share in the AOP is 40% and the amount has been distributed by the
AOP after paying income tax at the rate of 25%. The income tax authorities have
added back an amount of Rs. 20 million while assessing the income of the AOP.
Indenting Commission of Rs. 11.16 million, received from a party in a foreign
country where withholding tax of 40% was deducted at source. Withholding tax of
5% and bank charges of 2% were deducted by the bank in Pakistan before the
above amount was credited in the company’s account.
(f) The details of tax deducted and paid are as follows:
Million
Imports 153.0
Deducted by corporate clients 174.3
(Rs. 147 million on sale of manufactured goods)
Advance tax under section 147 1,200
(g) Tax rate applicable to the company is 35%.

Required:
Compute the income tax liability of the company for the tax year 2008. Support your answer
with appropriate calculations and comments. (26)
Q.4 The Commissioner of Income Tax – Appeals (CIT) stayed the tax demand of Mr. Bashir
until disposal of his appeal. While deciding appeal the CIT reduced tax demand to 60%.
Subsequently, the Income Tax Department issued an order asking Mr. Bashir to pay
additional tax on the whole amount, for the period during which the demand was stayed.
Explain whether the order issued by the Tax Department is justified. (04)
Q.5 With effect from January 1, 2009, a Scheduled Bank intends to launch an unlisted Unit Trust
by establishing an Asset Management Company. The income of the Unit Trust will be in the
form of dividend, capital gains and profit on debt.
Required:
Advise the management of the Bank on the following:
(a) Taxability of the Unit Trust;
(b) Taxability of the asset management company; and
(c) Taxability of unit-holders including the Scheduled Bank, in respect of
dividend received from Unit Trust;
capital gain on sale/redemption of units. (10)
Q.6 Hashmi Limited purchased a machine for Rs. 20 million on July 1, 2005, when it was
enjoying tax holiday. The tax holiday period expired on June 30, 2006. The machine
remained in the company’s use till March 31, 2008 when it was shipped to an associated
company in Indonesia for sale, on behalf of Hashmi Limited.
Required:
(a) Compute the amount of depreciation which the company could claim in tax year 2007
and 2008. (Assume that the rates of initial and normal depreciation during this period
was 50% and 10% respectively).
(b) How should the company determine the sale price of the machine for computing
gain/loss on sale, under the Income Tax Ordinance, 2008? (06)
(4)
Q.7 Shahid Limited (SL) is engaged in the import, export and distribution of various consumer
goods. SL has recently expanded its business by setting up a manufacturing unit for various
consumer goods. The manufacturing unit will start production in June 2008.
Following transactions were carried out during May 2008:
(i) SL purchased 5,000 bottles of locally manufactured shampoo at a cost of Rs. 100 per
bottle. The retail price of each bottle is Rs. 110. During the month, SL sold all bottles
to the retailers at Rs. 105 per bottle. (Shampoo is included in the items listed on third
schedule to the Sales Tax Act, 1990).
(ii) The company imported 10,000 bottles of hair oil at import value of Rs. 400 per bottle
(exclusive of custom duty and sales tax). Custom duty was paid at the rate of Rs. 20
per bottle. 500 bottles were re-exported to Azerbaijan at Rs 3,000 per bottle whereas
6,000 bottles were sold in the local market at Rs 350 per bottle.
(iii) New plant including ancillary equipment was acquired for the manufacturing unit at
Rs. 200 million on which sales tax of Rs. 30 million was paid.
(iv) SL paid sales tax of Rs 50,000 on foods and beverages used for the entertainment of
the Company’s employees.
(v) Sales tax of Rs 150,000 was paid under Provincial Sales Tax Ordinance on services
provided by customs agents for clearance of imported goods.
Required:
Compute the sales tax payable by Shahid Limited for the month of May 2008. Give proper
comments where any given information has not been utilized in the computation. (13)
Q.8 Through Finance Act 2007, Government departments, autonomous bodies and public sector
organizations have been notified as withholding agents for the purpose of collection of sales
tax.
Briefly discuss responsibilities of a withholding agent as enumerated in the Sales Tax
Special Procedure (Withholding) Rules, 2007. (04)
Q.9 Zohaib & Co., a partnership firm, plans to purchase raw material from Mr. Salman Ahmed
(SA) who has the reputation of evading sales tax. Mr. Khalid, the managing partner of the
firm, however is of the view that failure to deposit sales tax by SA would not have any
bearing for his firm.
Required:
Offer your comments on the views expressed by Mr. Khalid. (03)
Q.10 A consignment imported by ABC worth Rs. 10 million was damaged while in transit from
the port. Due to a limiting clause in the Insurance policy, the claim received from the
insurance company was restricted to an amount of Rs. 6.4 million.
Required:
(a) Explain whether the sales tax paid on import can be claimed as input tax.
(b) Explain whether the delivery of goods to the insurance company against insurance
claim, constitute a taxable supply (05)
Q.11 The Federal Government is empowered to levy special excise duty (SED) on certain goods.
The rate of SED is 1% of the value of such goods.
Required:
Explain the provisions laid down in the Federal Excise Act, 2005 for determining the value
of following goods:
(i) Imported goods. (02)
(ii) Goods chargeable to SED on the basis of retail price. (04)
(THE END)
December 4, 2008

(3 hours)
Q.1 Styles & Styles, Inc. (SSI) is the parent company of a leading foreign group involved in
the manufacturing and sales of consumer products all around the world. They are
considering an option to enter into the Pakistani market. Based on data obtained through
a market survey, they are in the process of preparing financial projections for a proposed
local subsidiary in Pakistan, Styles & Styles Pakistan (Pvt) Limited (SSPL).
Under the proposed business model, business of SSPL is likely to be set-up as under:-
(i) SSPL would be incorporated with a share capital of Rs 100 million to be wholly
owned through a UAE based group company Styles & Styles FZE. The
investment in SSPL would be financed by the UAE company through an interest
bearing loan agreement with SSI;
(ii) SSPL would be involved in commercial imports as well as local manufacturing of
certain products for which the raw material would be imported from group
companies;
(iii) To set up the manufacturing plant in Pakistan, certain second-hand plant and
machinery will be imported from an unrelated supplier outside Pakistan. To save
bank charges/commission etc. it was agreed that LC would not be opened and the
payment will be remitted directly through bank, 30 days after the import of plant.
The supplier is insisting that payment be made without deduction of withholding
tax;
(iv) Construction of factory building is likely to be carried out by a leading Pakistani
engineering company. A contract in this regard would be signed shortly after the
incorporation of SSPL and thereafter a mobilization advance of Rs 50 million will
be paid; and
(v) A foreign currency loan of US $ 75 million would also be provided by SSI,
directly to SSPL. The loan would be payable over a period of five years carrying
an arm’s length interest rate.
Required:
The group wants to determine Pakistan tax implications, if any, and have requested you
to advise on the following issues:
(a) Treatment of income tax paid at the import stage.

(b) Tax depreciation on the plant.
(c) Deduction of tax on interest paid by SSPL to SSI.
(d) Taxability of interest received by SSI. (15)
Q.2 The concept of representatives has recently been introduced in the Sales Tax Act, 1990
through the Finance Act, 2008. You are required to explain the following:
(a) Who can be treated as the representative of a non-resident person?

(b) Under what circumstances, a representative may become personally liable for the
payment of any tax due by the non-resident? (10)
(2)
Q.3 PSK is a public listed company engaged in manufacturing and sale of goods. Extracts
from the financial statements of the company for tax year 2008 are given below:
Rupees
Sales:
- local sales out of manufactured/packed goods 924,306,539
- local sales of imported finished goods 127,721,264
- export sales 25,157,641
Cost of goods sold 665,875,300
Administration expenses 169,453,900
Distribution and marketing cost 37,024,600
Other income 4,628,780
Following further information is available
(i) All exports were made through confirmed LCs except export to Afghanistan
amounting to Rs. 1,610,000 which was received in Pak Rupees and no tax was
deducted by the Banks.
(ii) Certain goods imported from Dubai were later exported to Malaysia, at a price of
Rs. 752,100. Tax deducted on such goods at the import stage amounted to Rs.
25,000 whereas tax deducted from export proceeds amounted to Rs. 7,521. The
transaction is included in export sales.
(iii) Imported goods are sold without any further processing, at a mark-up of 15% of
cost.
(iv) Cost of export sales is Rs. 14,645,500.
(v) Distribution and marketing costs relate to local sales only.
(vi) Other income consists of the following:
Rupees
Return on Pakistan Investment Bonds (PIBs) 3,480,000
Gain on sale of scrap 972,400
Duty drawback on exports 149,280
Bad debts previously written off, now reversed 27,100
(vii) Financial charges include amortization of premium on PIBs amounting to Rs.

70,900.
(viii) Data related to depreciation is as under:

Tax depreciation 51,281,569
Accounting depreciation:
Cost of goods manufactured 10,338,700
Administrative expenses 4,756,300
Distribution and marketing expenses 2,141,200
(ix) Information relating to provisions and right-offs, included in administration

expenses, is as under:
Provision for slow moving stock 6,200,966
Stock written off 366,131
Bad debts written off 38,186
Required:
You are required to compute the company’s taxable income and tax liability (gross) for
the tax year 2008. (20)
(3)
Q.4 Akhter is evaluating the possibility of starting a large scale import and retail business of
consumer goods through a chain of stores supplying to wholesale as well as general
body of consumers.
Required:
(a) Advise him about the payment of advance tax at the import stage and the treatment
thereof, under the Income Tax Ordinance, 2001.
(b) With reference to Sales Tax Act 1990, advise him on the following:
(i) Whether he will be required to obtain separate registration for each outlet?
(ii) Will he be classified as a retailer specially with reference to the supplies
made other than to the general body of consumers?
(iii) Can he claim input tax on his purchases? Assume that 30% of all sales will be
collected in cash. (11)
Q.5 XYZ Limited, a listed company, has made the following payments without deduction of
withholding tax:
(i) Reimbursement of boarding, lodging and incidental expenses incurred by non-

executive directors of the Company for attending the Board’s quarterly meeting
held in Dubai.
(ii) Payment to a non-resident debtor on account of out of court settlement of a
dispute and payment of fee to the lawyer for handling such settlement. The lawyer
was also a non-resident.
(iii) Payment to a resident company as consideration for obtaining a right to
manufacture certain goods.
(iv) Reimbursement made to a foreign associate in respect of salary of the Director
Finance of XYZ Limited. The Director Finance is a foreign national and receives
part payment of his salary in his home country. The foreign associate had not
deducted any tax from the payment made by it to the Director Finance.
Required:
Comment on the above transactions in the light of Income Tax Ordinance, 2001. (10)
Q.6 (a) Describe the rule related to adjustments of duties of excise, for the purpose of
determining the net liability under the Federal Excise Act, 2005. (06)
(b) Explain the following with reference to Income Tax Ordinance, 2001:
(i) Capital assets

(ii) Valuation of capital assets
(iii) Capital gains
(iv) Adjustment of capital loss against capital gains (08)
Q.7 Mr. Bilal, a sole proprietor, had been filing his income tax returns and wealth statements
for the last many years. He was not satisfied with his tax advisor and has appointed you
as his consultant. He has asked you to review his returns for the past five years also.
Your assistant had reviewed the records and observed the following:
(i) During tax year 2003, Mr. Bilal purchased an immovable property at a market
price of Rs. 5 million. At the time of purchase, the property was rented to a tenant
who was paying Rs. 50 thousand per month. The property had not been declared in
the wealth statements filed by Mr. Bilal, over this period.
(4)
(ii) On review of the wealth reconciliation for tax year 2004, it was noticed that
Mr. Bilal borrowed Rs. 1 million from his friend who is a foreign national. The
amount was received in cash while his friend was on a visit to Pakistan and is still
outstanding.
(iii) In tax year 2005, Mr. Bilal’s father who was settled in Dubai had sent an amount
of US$ 10,000 through banking channel which was encashed into Pak rupees @
60.15. This receipt was disclosed in his wealth statement but no explanation has
been given to the authorities so far.
Required:
Advise Bilal about the tax implications, in each of the above situations. (08)
Q.8 Zeta Pakistan Ltd is principally engaged in the purchase, manufacture and supply of
taxable goods and is registered under the Sales Tax Act, 1990. During the usual course
of business, it also carried out the following transactions during the year:
(i) Use of taxable goods for internal testing, training and evaluation purposes. The
goods included own manufactured as well as locally procured goods.
(ii) Free replacement of faulty parts of goods which had been sold under warranty.
(iii) Destruction of damaged goods.
(iv) Payment of sales tax on diesel purchased and used in generation of electricity. The
electricity produced is mainly used in production. However, part of it is also used
in finished goods warehouses and workers canteen.
(v) An amount of Rs 300,000 was paid to the company’s customs agent on import of
raw material used.
Required:
Comment on the chargeability of sales tax in the above situations. (12)
(THE END)
June 4, 2009

(3 hours)
Q.1 Joy Limited is incorporated with a paid up capital of Rs. 500 million under the Companies
Ordinance, 1984. Deep Sea Inc. USA (DSI) and Shallow Waters Inc. USA (SWI) hold 50%
shares each. Green Sea Group is the parent company of both the DSI and SWI. Joy Limited is
following a special tax year i.e. January-December.
On 30th April 2009, Joy Limited has an outstanding loan balance of Rs. 300 million payable to
DSI with interest payable @10% per annum. This loan is repayable in equal annual
installments of Rs. 50 million each, at the end of each year.
To finance a new project of Joy Limited, DSI is considering to provide another long term loan
of Rs. 5.0 billion carrying interest @ 10% per annum. 25% of the loan is expected to be
disbursed in the current year ending December 31, 2009 while the remaining 75% of the loan
would be received by Joy Limited in December, 2010. The new loan would be repayable in
twenty equal annual installments of Rs. 250 million each, with the first installment falling due
in July 2012.
As on December 31, 2008, Joy Limited had a balance of Rs. 500 million in its retained
earnings account. The profits forecast for three years is as under:
Tax Years 2010 2011 2012

-------- Rs. in billions -------
Profit 0.7 0.85 1.0
(a) Explain thin capitalization rule in the light of the provisions of Income Tax Ordinance,
2001. (04)
(b) If Joy Limited acquires the above long term loan from DSI, compute the following in
respect of each tax year:
(i) Amount of foreign debt
(ii) Foreign equity of Joy Limited
(iii) Admissible / inadmissible interest expense (12)
(c) What would be the implication of thin capitalization rule, if Joy Limited acquires a new
loan from another foreign company not related to the Green Sea Group? (03)
Q.2 ABC Limited has incurred losses for the past few years. The Board of Directors of the
company wants to surrender its assessed losses in favour of its holding company, Triangle
Limited. In view of the provisions of Income Tax Ordinance, 2001 you are required to state
the following:
(a) the conditions which must be fulfilled before Triangle Limited can adjust the losses
surrendered by ABC Limited against its income under the head “income from business”. (04)
(b) the limitations, if any, on the types of losses which can be surrendered and also the
period beyond which such losses can not be surrendered. What would be the treatment
of such losses if it remains unadjusted within the specified time period? (03)
(2)
Q.3 Mr. and Mrs. Vakeel, both lawyers of high repute, established their own law firm on July 01,
2008 with the name and style of Vakeel Associates. The firm is primarily engaged in
providing services for both civil and criminal law suits and is equally managed by Mr. and
Mrs. Vakeel. The profit and loss account of the firm, for the first year of their operations, is as
follows:
----- Rupees -----

Gross receipt 25,750,000
Less: Salaries 10,000,000
Rental for office premises 1,200,000
Accounting depreciation 1,000,000
Purchase of technical books 750,000
Subscription fees 250,000
Other expenses 1,300,000 14,500,000
Income for the year 11,250,000
Following further information is available from the firms record:
(i) Mr. and Mrs. Vakeel have an equal share of profits and losses in the firm.
(ii) During the year, the firm was engaged on a retainership basis by various corporate
clients. Gross receipts from such clients amounted to Rs. 10,000,000. Tax at the rate
of 6% of the gross receipts was deducted from payments to the firm by such clients.
Tax so deducted was charged to ‘other expenses’.
(iii) Thomas Associates, a law firm based in UAE, appointed Vakeel Associates under an
agreement to technically assist them in defending a particular law suit in Dubai. The
sum agreed for the services amounted to Rs. 2,500,000. Mr. Vakeel stayed in Dubai
for over a month, for the purpose of this assignment. The fee was transferred to the
firm’s Bank account in Pakistan. No tax was deducted either by Thomas Associates
or the bank transferring the amount from such payment.
(iv) The firm also provided advisory services in Pakistan to different law firms situated
outside Pakistan. An amount equal to Rs. 5,000,000 was received from such services
in foreign currency through normal banking channel. The bank collected tax at the
rate of 1% from the gross receipts. The tax deducted from the proceeds was charged
to ‘other expenses’.
(v) No tax has been deducted on any other receipts of the firm.
(vi) Salary expenses include an amount of Rs. 100,000 each paid to Mr. and Mrs. Vakeel
every month.
(vii) Bonus amounting to Rs. 1,000,000 was paid to the employees of the firm (other than
Mr. and Mrs. Vakeel). No tax was deducted from such payments.
(viii) The office premises are owned by Mrs. Vakeel and rent was paid to her without
deducting any tax from such payments.
(ix) Subscription fee was paid in cash to Pakistan Bar Council without withholding any
tax from such payment.
(x) During the year some structural improvements were made to the office premises at
the cost of Rs. 500,000. This amount was also charged to ‘other expenses’.
(xi) Following details are available in respect of the firm’s assets:
Depreciation
Cost of
charged to
Category of assets acquisition
accounts
----- Rupees ----
Furniture and fittings 2,000,000 200,000
PCs and Laptops 1,600,000 320,000
Motor vehicle (provided to Mr. & Mrs. Vakeel) 2,400,000 480,000
(3)
(xii) In 2006, Mr. Fazil the father of Mrs. Vakeel gave her 1,000 shares of Fortune Inc.
USA, a company listed on New York Stock Exchange, by way of a gift. Mr. Fazil had
purchased those shares in 2003 at a cost of USD 10 per share, when he was working
in the USA. The dollar rupee parity at the time of purchase was USD 1 = PKR 58.
The fair market value of the shares at the time of transfer to Mrs. Vakeel was USD 25
(USD 1 = PKR 60). Mrs. Vakeel disposed off the shares during the year at a price of
USD 60 per share. She also paid USD 1,000 in taxes in the USA, in respect of such
receipts. The dollar rupee parity on the date of disposal was USD 1 = PKR 80.
Required:
In the light of the provisions of Income Tax Ordinance, 2001, compute the taxable income
and tax liability of the following for the tax year 2009:
(a) Vakeel Associates. (14)
(b) Mrs. Vakeel. (08)
Show all necessary calculations and give brief reasons, wherever necessary, in support of your
treatment of each item.
Note:-
(i) Rate chart is available on the last page
(ii) Section references are not required
Q.4 (a) Explain the conditions under which no gain or loss shall be taken to arise on the
disposal of an asset, under the provisions of the Income Tax Ordinance, 2001. (06)
(b) When an asset is disposed of in a non-arms length transaction, how would you
determine the consideration:
(i) received by a seller; and
(ii) paid by a buyer. (03)
Q.5 Mr. Hijrat has informed you that he would be permanently migrating to USA with his family
on July 10, 2009 and has no intention of returning to Pakistan. He is seeking your advice as to
his obligations, if any, under the Income Tax Ordinance, 2001 in this regard. (04)
Q.6 Narrate the provisions of Sales Tax Act, 1990 relating to the following:
(a) extra tax. (04)
(b) due date of payment of sales tax. (03)
Q.7 (a) Describe input tax and output tax as defined in the Sales Tax Act, 1990. (05)
(b) Mr. Insaf, the executive director of Super Tech (Pvt.) Ltd, a company engaged in the
manufacture and sale of electronic goods, has reviewed the sales tax return for the
month of May 2009, in place of its director finance, who is currently on leave. During
the review he noticed that certain input tax has not been claimed by the company. He
does not accept the view point of the chief accountant and is of the opinion that all
input tax paid by the company should be available for adjustment. You are required to
clarify the following matters in the light of Sales Tax Act, 1990.
(i) The conditions that need to be satisfied for the adjustment of input tax against the
output tax liability and the remedy available to the company if it fails to adjust
the input tax in the period in which it is paid. (07)
(ii) Identify the circumstances in which input tax is not allowed to be adjusted
against the output tax liability. (04)
(4)
Q.8 Fragrance (Pvt.) Limited (FPL), buys perfumes from a local supplier, which are directly used
in the production of toiletries. FPL wants to adjust the duty of excise paid on perfumes from
the amount of duty on its finished products. Explain the necessary conditions required to be
fulfilled for the adjustment of such duty, under the Federal Excise Act, 2005. (04)
Q.9 In the light of the Federal Excise Act, 2005 you are required to explain the following:
(a) the persons who are responsible to pay the duty of excise. (04)
(b) the requirements related to the issuance of invoices. (05)
(c) meaning of the term “franchise”. (03)
RATES OF TAX
Division I
Rates of Tax for Individuals and Association of Persons
Rate of
S. No. Taxable Income
Tax
(1) (2) (3)
1. Where the taxable income does not exceed Rs. 100,000 0.00%
2. Where the taxable income exceeds Rs. 100,000 but does not exceed Rs. 110,000 0.50%
10 Where the taxable income exceeds Rs. 500,000 but does not exceed Rs. 600,000 12.50%
12. Where the taxable income exceeds Rs. 800,000 but does not exceed Rs. 1,000,000 17.50%
13. Where the taxable income exceeds Rs. 1,000,000 but does not exceed Rs. 1,300,000 21.00%
14. Where the taxable income exceeds Rs. 1,300,000 25.00%
Division VI
Income from property
S. No. Gross amount of rent Rate of tax

1. Where the gross amount of rent does not Nil
exceed Rs. 150,000.
2. Where the gross amount of rent exceeds 5 percent of the gross amount exceeding
Rs. 150,000 but does not exceed Rs. 400,000. Rs. 150,000.
3. Where the gross amount of rent exceeds Rs. 12,500 plus 10 percent of the gross amount
Rs. 400,000 but does not exceed Rs. 1,000,000. exceeding Rs. 400,000.
Rs. 1,000,000. exceeding Rs. 1,000,000.
RATES OF NORMAL DEPRECIATION
I. Building (all types). 10%

II. Furniture (including fittings) and machinery and plant (not otherwise specified),
motor vehicles (all types), ships, technical or professional books. 15%
III. Computer hardware including printer, monitor and allied items (machinery and
equipment used in manufacture of I.T. products), aircrafts and aero engines. 30%
(THE END)
December 10, 2009

(3 hours)
Q.1 Ms. Saima is a telecommunication engineer working with a leading GSM operator as their
chief technical officer for the last many years. She has provided you with the following
information relating to her assessment for the year ended June 30, 2009.
(i) Monthly salary of Rs. 500,000 was paid to her by the company consisting of the
following:
Rupees
Basic Salary 400,000
Medical allowance 40,000
Conveyance allowance 60,000
The salary was credited to her bank account on the 25th of every month. She incurred
actual medical expenses of Rs. 100,000 during the year. These expenses were
reimbursed to her by the company in accordance with the terms of her employment.
(ii) She received a bonus of Rs. 1.0 million. Employer also agreed to pay tax on such
bonus to the extent of Rs. 200,000.
(iii) Apart from her employment with a GSM operator, she also served as a visiting faculty
member at a local engineering university and received a total of Rs. 470,000. Ms.
Saima incurred an expenditure of Rs. 70,000 towards this service. Withholding tax
was deducted from the payments made by the university.
(iv) In August 2008, she participated and won a quiz competition arranged by Pakistan
Urdu Academy. The prize money of Rs. 200,000 was paid to her after deduction of a
tax of Rs. 40,000.
(v) She inherited a plot of land from her father on his death in July 2000. On October 1,
2008 she entered into a contract of sale with Mr. Moin for a consideration of Rs. 50.0
million. Mr. Moin paid a deposit of Rs. 1.0 million and agreed to pay the balance
within one month of the date of contract. On due date, Mr. Moin defaulted in making
the payment upon which Ms. Saima forfeited the deposit in accordance with the terms
of the contract. Later on, the plot was sold to Mr. Parkash at a price of Rs. 50.0
million.
(vi) Ms. Saima purchased another plot of land for a consideration of Rs. 56 million. She
borrowed Rs. 5.0 million from her sister for the purchase of this plot. The amount was
received in cash.
(vii) Ms. Saima also inherited a painting from her father. The painting was valued at Rs.
500,000. On April 1, 2009 she gifted the painting to her brother who came from
Canada after five years. He went back to Canada after staying in Pakistan for a period
of two months. The value of the painting was Rs. 1.0 million when it was gifted.
Required:
Compute the taxable income of Ms. Saima for the tax year 2009. Give brief reasons under
the Income Tax Ordinance, 2001 in support of your treatment of each of the above items. (18)
(2)
Q.2 Supreme Limited (SL), a registered importer, exporter and manufacturer, is primarily
engaged in the manufacture and export of a wide range of consumer durables, falling under
the third schedule to the Sales Tax Act, 1990. Following activities were carried out by the
company during the year:
(i) In view of the high cost of manufacturing the product locally, SL imported certain
finished beauty products from France. In addition to the normal sales tax, value
addition tax of 2% was levied by the collector of customs on the value of imports. Tax
credit was not claimed by the company on the value addition tax.
(ii) A number of raw materials were imported for in-house consumption in various
manufacturing processes. Sales tax on account of minimum value addition was not
paid at the import stage. The management is now considering paying it with the
monthly returns.
(iii) At the time of preparing sales tax return for the month of January 2009, it was found
that an input tax credit pertaining to June 2008 inadvertently remained unclaimed. An
adjustment was, therefore, claimed in January 2009 without any intimation to the sales
tax authorities.
(iv) In June 2009, SL acquired a new plant for the manufacture of beauty soaps. Sales tax
of Rs. 1.2 million paid at the time of purchase was claimed as an input tax in the
monthly return for June 2009.
(v) Electricity bill of Rs. 100,000 for June 2009 was paid in cash. The company however,
did not claim the related input tax credit as cash transactions exceeding Rs 50,000 are
inadmissible.
(vi) Sales tax paid on advertisements in electronic media was not claimed as it was paid
under the Punjab Sales Tax Ordinance, 2000.
(vii) The company acquired an existing manufacturing business of textile products from
Sun Textiles (ST) as an ongoing concern. ST is registered under the Sales Tax Act,
1990.
Required:
In the light of the provisions of Sales Tax Act, 1990 advise the management of the company
as to the chargeability/ adjustment of sales tax in each of the above situations. (11)
Q.3 Plasma Pakistan (Pvt.) Limited (PPL) is engaged in the manufacture and sale of
pharmaceutical products. During 2009, it started a new business related to aerated water.
After scrutiny of the tax return filed by the company for the tax year 2009, the Additional
Commissioner has issued a notice under section 122(5A) in which he has raised the
following issues:
(i) The parent company reimbursed 60% of the expenses, incurred by PPL in 2007, on
marketing a new product imported from Germany. The commissioner wants to add the
recouped expenditure to the taxable income of the company.
(ii) Expenses incurred under the account head “Travel fare” aggregating to Rs. 500,000
were paid in cash and should be added back.
(iii) The commissioner wants to disallow an expense of Rs. 90.0 million, incurred by PPL
on the promotion of a vaccine which is expected to generate revenue for three years.
Required:
With reference to the provisions of Income Tax Ordinance, 2001 advise the management
about the tax implications in each of the above situations. (06)
Q.4 In the light of the provisions of Income Tax Rules, 2002 you are required to explain the
following:
(a) Expenditures which can be described as entertainment expenditures and limitations as

to the admissibility of such expenditures. (05)
(b) Meaning of the term “Common expenditure” and the rule relating to the apportionment
of such expenditures. (07)
(3)
Q.5 Fresh Stream Limited (FSL) is engaged in the manufacturing and import of food &
beverages. Following is the extract from the profit and loss account of FSL for the period
ended June 30, 2009.
Rs. in ‘000
Sales (Note 1) 5,000,000
Cost of sales (Note 2) (3,000,000)
Gross profit 2,000,000
Administrative and selling expenses (Note 3) (750,000)
Finance cost (Note 4) (250,000)
Other income (Note 5) 500,000
Provision for taxation (200,000)
Profit after taxation 1,300,000
Following additional information is also available:

1. Sales:
Net exports to Afghanistan (self manufactured) 495,000
Tax deducted on export @ 1% 5,000
Local sales out of imports 1,000,000
Local sales of manufactured items 3,500,000
5,000,000
2. Cost of sales:
Imported finished goods (C & F) 300,000
Raw materials consumed during the year 1,000,000
Electricity & gas (incurred in cash) 300,000
Salaries, wages and other benefits 800,000
Local freight charges (paid in cash) 100,000
Depreciation 500,000
Cost of goods manufactured during the year 2,700,000
3,000,000
Cost of imported finished goods includes withholding taxes paid on imports @

3.5%. The value of goods for the purpose of advance tax deduction amounted to
Rs. 280.0 million.
10% of the total salaries were paid in cash. Of these, Rs. 20.0 million were paid to
daily wage employees @ Rs. 400 per day, whereas Rs. 60.0 million were paid to
contract employees who earn a monthly salary of Rs. 20,000 each.
3. Administrative & selling expenses
Salaries and other benefits 200,000
Advertisement expenses 100,000
Insurance 85,000
Rent, rates and taxes 65,000
Entertainment expenditure 25,000
Contributions to approved retirement funds 100,000
Depreciation 75,000
Amortization 25,000
Penalties paid under Sales Tax Act 25,000
Miscellaneous expenses 50,000
750,000
Rent, rates & taxes include Rs. 0.5 million paid under a provincial tax law imposed
on all beverage manufacturing companies having a manufacturing facility in the
province of Punjab. The said tax was computed as 0.1% of the accounting profit
before tax.
(4)
On July 1, 2008, FSL acquired export quota from the Government of Pakistan by
paying an amount of Rs. 375.0 million having useful life of 15 years. For accounting
purposes, the cost of export quota has been amortized over the period of 15 years.
Depreciation computed under the Income Tax Ordinance, 2001 on all depreciable
assets is Rs 500.0 million.
4. Finance cost includes Rs 10.0 million paid to a scheduled bank on account of vehicles
obtained on lease. Total lease rentals paid for such vehicles were Rs 100.0 million.
5. Other income includes a gain of Rs 10.0 million on disposal of shares of Alpine
Limited, a company listed on Karachi Stock Exchange. These shares were acquired by
the company in the year 2007 at a cost of Rs 5.0 million.
Required:
and gross tax liability of FSL. The normal tax rate applicable to the company is 35%. (21)
Q.6 Alpha Limited (AL) is engaged in the trading and manufacture of detergents and toiletries.
During the month of November 2009 following activities were carried out by the company:
Rs. in ‘000
Purchases:
Import of raw material for in house consumption:
• subject to sales tax only 10,000
• subject to federal excise duty only 4,000
Import of finished products for sale 2,000
Import of items governed under the third schedule 1,000
Local items governed under third schedule (50,000 @ Rs.175 each) 8,750
Supplies:
Manufactured products:
• subject to sales tax only 20,000
• subject to federal excise duty only 6,000
Exempt items out of manufactured products 2,000
Commercial imports 2,750
Imported third schedule items 7,500
Local third schedule items to wholesalers (30,000 @ Rs. 225 each) 6,750
Goods costing Rs. 3.0 million were returned by different customers. Out of these, Rs. 1.0
million worth of goods were subject to federal excise duty only. Proper debit/credit notes
have been raised in this regard. Retail price of local third schedule items is Rs. 250 each.
Sales tax is payable at the rate of 16% whereas custom duty and federal excise duty are
levied at the rate of 10% each. All the above amounts are exclusive of any duty and taxes.
Required:
In the light of the provisions of Sales Tax Act, 1990 and Federal Excise Act, 2005, compute
the following for the tax period November 2009. Give brief reasons, wherever necessary.
(a) Net sales tax payable with return. (12)
(b) Net federal excise duty payable with return. (03)
Q.7 (a) Describe the provisions of Sales Tax Act, 1990 relating to the maintenance and keeping
of records by a registered person making taxable supplies. (07)
(b) Explain the requirements of registration as specified in Federal Excise Act, 2005. (04)
(c) Explain the following with reference to the provisions of Federal Excise Act, 2005.
(i) Goods (02)
(ii) Wholesale dealer (02)
(iii) Adjudicating authority (02)
(THE END)
June 10, 2010

(3 hours)
Q.1 Mr. and Mrs. Adil are equal partners in Burq Enterprises (BE). The firm is engaged in the
import and supply of electric generators. It also provides project consultancy services to
various corporate customers. Following figures have been extracted from the accounting
records of the firm for the tax year 2010:
Rs. in ‘000
Sales of imported generators 574,200
Receipts from consultancy services 55,000
Total revenue 629,200
Cost of sales (generators) (429,520)
Gross profit 199,680
Administrative and selling expenses (96,300)
Finance cost (9,000)
Following further information is also available from the records:
(i) The generator sales are inclusive of 16% sales tax.

(ii) Cost of sales includes customs duty of Rs. 50.0 million, sales tax Rs. 63.0 million and
withholding taxes paid at import stage @ 4% of the value of goods of Rs. 413.0
million.
(iii) Administrative and selling expenses are common in nature. These include salary of Rs.
500,000 paid to each partner every month and withholding taxes deducted @ 6% on
receipts from consultancy services.
(iv) Finance cost is related to commercial imports except interest of Rs. 1.20 million paid
to Mrs. Adil on her capital account.
(v) On January 01, 2010 Adil started using one of the office equipment at his residence.
The market price of the equipment at that time was Rs. 1.5 million with a written down
value of Rs. 1.0 million.
(vi) On July 01, 2009 Adil let out his apartment to a close relative at a monthly rent of Rs.
10,500. The fair market rent in the area was Rs. 12,250. He also received a non-
adjustable deposit of Rs. 110,000. Another non-adjustable deposit of Rs. 85,000
received from an earlier tenant in July 2007 was refunded.
(vii) Adil purchased 50,000 shares of Rs. 10 each, of an unlisted public company in July
2005 at the rate of Rs. 150 per share. In August 2006 he received bonus shares, ranking
pari passu, in the ratio of 1 bonus share for every 5 shares held. In May 2010 he sold
80% of his bonus shares at a price of Rs. 135 per share.
Required:
and tax liability of the following for the tax year 2010:
(a) Burq Enterprises (10)
(b) Mr. Adil (09)
(2)
Q.2 Big Pharma Limited (BPL) is engaged in the manufacturing of pharmaceuticals products.
The Company has three branches in Pakistan and one branch each in Qatar and Oman. BPL
sells its products through various distributors. Assume that the company’s profit and loss
account and the related details for the period ending June 30, 2010 are as under:
Rs. in ‘000
Sales 96,000
Cost of sales (66,850)
Gross profit 29,150
Finance cost (3,100)
Other charges ( including WWF of Rs. 0.350 million) (2,400)
Other income 4,100
Cost of sales includes: Rs. in ‘000

Provision for slow moving stock 1,300
Demurrage paid to custom authorities 100
Royalty paid against manufacturing rights to a non resident 1,200
Administrative and selling expenses include: Rs. in ‘000

Accounting depreciation 800
Damages paid to distributors on breach of contract 300
Small items of office equipment charged off ( Useful life is more than 1 year) 1,400
Opening and closing balance of provision for bad debt account was Rs. 2.50 million and 3.10
million respectively. Bad debts written off during the year include an interest free loan of Rs.
0.20 million provided to Oman branch.
Finance cost includes unrealized exchange loss of Rs. 1.35 million and interest of Rs. 1.30
million paid on a working capital loan acquired from a non resident foreign bank. No tax was
deducted by the company on payment of interest considering the bank did not have any
permanent establishment in Pakistan.
Other income includes: Rs. in ‘000

Profit from Qatar branch 2,700
Loss from Oman branch (3,400)
Tax depreciation for the year was Rs. 6.00 million. There was also a carried forward tax loss
of Rs. 6.10 million and an unadjusted foreign tax credit of Rs. 0.12 million from tax year
2009. Following taxes were paid by the company during the year:
Rs. in ‘000
Deducted and paid by distributors 2,450
Paid on import of raw material 2,000
Taxes paid in Qatar 225
Unadjusted minimum tax for prior years 450
Required:
Compute the income tax liability of the company for the tax year 2010. Tax rate applicable
to the company is 35%. (13)
(3)
Q.3 (a) Mr. Furqan intended to commence a manufacturing business and obtained the sales tax
registration in November 2009. Due to unavoidable circumstances, he could not start
his business as stipulated. No sales tax returns were filed since he did not carry on any
taxable activity. In April 2010, he received a notice from the department of Inland
Revenue directing him to furnish the return by May 15, 2010.
Required:
Advise Mr. Furqan as regards the following:
(i) Whether he is required to file the sales tax return and the consequences, if any, for
non-filing of such return under the Sales Tax Act, 1990. (03)
(ii) Various reasons on account of which he may be liable for de-registration from
sales tax. Also state briefly, the procedure for de-registration as enumerated under
the Sales Tax Rules, 2006. (08)
(b) List the persons specified as “Withholding agents” for the purpose of collection of sales
tax under the Sales Tax Special Procedure (Withholding) Rules, 2007. (03)
Q.4 (a) In the light of the provisions of Income Tax Ordinance, 2001, briefly explain the
taxability of income in each of the following situations.
(i) Mr. Danishwar, a renowned author, completed his book on “Human Behavior” in
two and a half years time. He received a lump sum amount of Rs. 900,000 in May
2010 on account of royalty. (03)
(ii) Mr. Bari, a Pakistani national, was working as a clearing agent in Taiwan for the
past six years. He came back to Pakistan in July 2008 and joined a clearing house
of his brother Ikram. In March 2010 he received Rs. 1.0 million as his share of
commission from the discontinued business in Taiwan. (03)
(iii) Mr. Ravi transferred his house to a trust with a condition that out of the total
rental income of Rs. 840,000 per annum, Rs. 500,000 would be paid to his wife
and the balance of Rs. 340,000 would be paid to his minor son Ashok. Ravi also
provided Rs. 350,000 to the trustees for the acquisition of his property. (03)
(b) Mr. Hayat, chief engineer in Mega Limited, had received 6000 shares of the company
in July 2007, under an employee share scheme. Mr. Hayat had the option to transfer the
shares in tax year 2009 or thereafter. The market value of shares at the time of issue
was Rs. 12 per share. In 2009 the share attained a market value of Rs. 20; however, Mr.
Hayat sold the shares in May 2010 when the share price was Rs. 35 per share.
Required:
(i) With reference to above, briefly explain the relevant provisions of the Income Tax
Ordinance, 2001 relating to employee share scheme. (06)
(ii) Compute the amount to be included in the taxable income of Mr. Hayat for each
tax year. (04)
Q.5 (a) In the light of the provisions of Income Tax Ordinance, 2001, describe the conditions
which need to be satisfied before a person can claim deduction for a bad debt. (03)
(b) Barn Limited (BL) wrote off a debt amounting to Rs. 500,000 in June 2007. A suit was,
however, filed by the company for the recovery of the debt. Tax authorities allowed Rs.
350,000 as a deduction in tax year 2007. In tax year 2010, court adjudicated the case in
favour of BL. In view of the provisions of Income Tax Ordinance, 2001 compute the
amount which would be added to income or expense, as the case may be, if the
company.
(i) Recovers Rs. 200,000

(ii) Recovers Rs. 120,000 (04)
(4)
Q.6 Olive Limited (OL) is registered at the Large Taxpayer Unit of the Inland Revenue
Department. It is engaged in the manufacture and trading of FMCG in the country. During
the month of May 2010 following activities were carried out by the company:
Rs. in ‘000
Purchases:
(Items subject to sales tax and special excise duty):
Import of raw material for in-house consumption 15,000
Import of finished products 8,000
Packing material manufactured locally 6,000
Supplies:
Manufactured products:
- local sales (subject to sales tax and special excise duty) 20,000
- Exempt goods 4,000
- Export to Bangladesh 4,000
(i) In order to meet the high consumer demand, OL purchased a new machinery for
Rs. 1,200,000. The machinery was put to use during the same month. A motor vehicle
of Rs. 1,500,000 was also acquired for the sales department.
(ii) Sales tax of Rs. 20,000 was paid under Provincial Sales Tax Ordinance on services
provided by clearing agents for imports.
(iii) Rs. 650,000 were paid against advertisement services.
(iv) Sales tax of Rs. 60,000 was deducted from payments to suppliers of packing material.
(v) Sales tax withheld by customers amounted to Rs. 238,000.
(vi) Sales tax credit of Rs. 325,000 was brought forward from previous month.
Sales tax and special excise duty are payable at the rate of 16% and 1% respectively. All the
above amounts are exclusive of sales tax and special excise duty, wherever applicable.
Required:
In view of the provisions of Sales Tax Act, 1990 and Federal Excise Act, 2005, compute the
following for the tax period May 2010. Show computation wherever necessary.
(a) Sales tax liability and net sales tax payable with return. (15)
(b) Special excise duty payable (05)
Q.7 (a) In the light of the provisions of Federal Excise Act, 2005, fill in the following blanks
with the appropriate answers.
(i) Every person who for any reason whatever has collected any duty in excess of the
duty actually payable and the incidence of which has been passed on to the
consumer, shall pay the amount so collected to __________
(ii) __________ means Azad Jammu and Kashmir, Northern Areas and such other
territories or areas to which the Federal Excise Act does not apply.
(iii) __________ includes an undertaking, firm or company, whether incorporated or
not, an association of persons and an individual.
(iv) __________ means a person appointed by a manufacturer in or for a specified area
to purchase goods from him for sale to a wholesale dealer in that area. (02)
(b) Explain the following with reference to the provisions of Federal Excise Act, 2005.
(i) Applicable value and rate of duty. (04)
(ii) Supply (02)
(THE END)
(5)
RATES OF TAX
Division I
Rates of Tax for Individuals and Association of Persons
S. No. Taxable Income Rate of Tax

(1) (2) (3)
1. Where the taxable income does not exceed Rs. 100,000 0.00%
12. Where the taxable income exceeds Rs. 800,000 but does not exceed Rs. 1,000,000 17.50%
13. Where the taxable income exceeds Rs. 1,000,000 but does not exceed Rs. 1,300,000 21.00%
14. Where the taxable income exceeds Rs. 1,300,000 25.00%
DIVISION VI
Income from property
S. No. Gross amount of rent Rate of taxes

1. Where the gross amount of rent does not exceed NIL
Rs. 150,000.
2. Where the gross amount of rent exceeds 5 percent of the gross amount exceeding
Rs. 150,000 but does not exceed Rs. 400,000. Rs. 150,000.
3. Where the gross amount of rent exceeds Rs. 12,500 plus 7.5 percent of the gross amount
Rs. 400,000 but does not exceed Rs. 1,000,000. exceeding Rs. 400,000.
Rs. 1,000,000. exceeding Rs. 1,000,000.
The Institute of Chartered Accountants of Pakistan
Advanced Taxation
Final Examinations – Winter 2010 December 9, 2010
Module F 100 marks - 3 hours
Q.1 Rainbow Limited (RL) is incorporated under the Companies Ordinance, 1984 and is engaged in
the manufacturing of solar powered equipments. RL is 60% owned by a Dubai based company Burj
P.l.c (BP), 10% by a German company ATX Gmbh and 30% by a Pakistani company Muqami
Limited (ML).
BP in turn is 70% controlled by ATX Gmbh whereas the Pakistani company ML is 90% owned by
a French company FRS Limited.
On August 10, 20X1 RL received a loan of US$ 4.2 million from BP to partly finance a major
industrial investment project at an interest rate of 12% per annum. Interest is to be paid quarterly in
arrears by the 6th day of the next quarter.
On September 15, 20X1 RL received another loan of US$ 1.0 million from FRS Limited for the
same project at an interest rate of 10% per annum. Interest is to be paid monthly in arrears by the
3rd day of each following month.
On May 15, 20X2 RL received a third loan of US$ 3.8 million from ATX Gmbh at an interest rate
of 8% per annum. Interest is to be paid quarterly in arrears by the 4th day of the next quarter.
The above loans are duly registered with the State Bank of Pakistan and the principal repayment in
each case would commence from the year 20X3.
The following information is available in respect of RL at June 30, 20X2.
Rs. in million
Assets 2,900
Liabilities 2,670
Net profit after taxation for the year 150
Interim dividend paid during the year 100
Assume that the dollar rupee parity during the year ended June 30, 20X2 remained constant at
US$1=Rs. 85.
Required:
(a) State, with reasons, which of the above lenders can be classified as “Foreign controller” in
relation to the thin capitalisation rules under the Income Tax Ordinance, 2001. (04 marks)
(b) Calculate the deductible profit on debt for the tax year ended June 30, 20X2. (15 marks)
Q.2 Hip Hop (Private) Ltd (HHPL), a registered tax payer, has received a notice from the department of
Inland Revenue requiring it to show cause in respect of discrepancies in the quarterly sales tax
return.
The management wants to appoint a representative to persuade their case before the adjudicating
authority. Under the provisions of Sales Tax Rules, 2006 advise the management about the
qualification and disqualifications of the person to act as the authorized representative of HHPL.
(09 marks)
Advanced Taxation Page 2 of 4
Q.3 Herbal Trading (HT) is a sole proprietorship business owned by Mr. Adnan. The business is
engaged in the manufacturing and supply of Herbal Medicines for the past many years. On May 01,
2010 Mr. Adnan decided to transfer his proprietary business, including all the assets and liabilities,
to a private limited company Medicare (Pvt.) Limited (MPL). Following is an extract from the
balance sheet of HT immediately before the disposal of business to MPL.
Herbal Trading
Balance Sheet as at April 30, 2010
Capital and Liabilities Rupees Assets Rupees

Owner’s Capital 9,000,000 Fixed Assets (WDV) 5,400,000
Accumulated Profit 1,500,000 Patents (WDV) 2,000,000
10,500,000 Stock in Trade 4,600,000
Short Term Loan 500,000 Debtors 3,000,000
Trade Creditors 7,000,000 Cash and Bank Balances 3,000,000
18,000,000 18,000,000
Following information is available relating to the proposed scheme of transfer and the status of
MPL:
(i) 50% of the purchase consideration would be paid to Mr. Adnan in terms of fully paid shares
of MPL whereas the remaining 50% would be paid in cash.
(ii) The break-up value of each share of MPL as at April 30, 2010 is Rs. 15.
(iii) MPL has a share capital of Rs. 30 million consisting of equity shares of Rs. 10 each. Mr.
Adnan owns 70% of the paid up share capital of MPL whereas the remaining 30% is equally
owned by his spouse Razia, whose income is clubbed with Mr. Adnan, and his elder brother
Rais. Due to financial constraints, Rais is considering to dispose off his ownership interest in
the company.
(iv) MPL would assume all the liabilities of HT with the exception of Rs. 2 million, which is
payable to Barkat Enterprises.
(v) The net realizable value of stock in trade as at April 30, 2010 is Rs. 4 million.
(vi) Rs. 1.0 million receivable against sale of medicines to Parker & Sons last year is not
recoverable due to insolvency of the customer. All possible efforts have already been made by
HT for the recovery of debt.
(vii) Following is the tax written down value (WDV) and fair market value (FMV) of HT’s patents
and fixed assets as at April 30, 2010:
Rupees
Cost Tax WDV FMV
Fixed assets 7,000,000 3,000,000 5,200,000
Patents 5,000,000 2,500,000 2,300,000
Required:
(a) Any transaction that is related to disposal of assets becomes the subject matter of gain or loss.
Advise Mr. Adnan about the conditions, which are required to be fulfilled under the Income
Tax Ordinance, 2001 if he wishes to avoid recording any gain or loss on the disposal of his
business to MPL. (07 marks)
(b) Advise the necessary changes, if any, required to be made by Mr. Adnan in his proposed
scheme of transfer in order for it to be in compliance with the conditions identified in part (a)
above. (03 marks)
(c) Calculate the following, assuming the conditions in (a) above have been fully complied with.
(i) Number and the value of shares to be received by Mr. Adnan from MPL. (06 marks)
(ii) MPL’s cost of acquisition of assets. (03 marks)
(iii) Mr. Adnan’s cost in respect of the shares received by him as consideration. (02 marks)
Q.4 The income of an approved non profit organization, subject to certain conditions, is exempt from
tax under the provisions of Income Tax Ordinance, 2001. Rahat Foundation, an approved NGO,
operating in Gilgit Baltistan has recently received a notice from the Regional Commissioner of
Income Tax, requiring it to justify as to why its approval should not be withdrawn under the
relevant provisions of the Income Tax Rules, 2002.
Required:
Advise the management of Rahat Foundation about the circumstances under which the Regional
Commissioner of Income Tax may withdraw the approval granted to the Foundation. (12 marks)
Q.5 In view of the provisions of Income Tax Ordinance, 2001 and the stated rules, determine the
residential status of the following persons for the tax year ended June 30, 20X2 under the given
circumstances.
(i) Mr. Mubeen came to Pakistan for the first time on a special assignment from his company on
April 01, 20X1 and left the country on September 30, 20X1.
(ii) Mr. Rana, who had never travelled abroad in his life, got a job in Canada. He went to Canada
on December 29, 20X1 to assume his responsibilities as a CFO. In June, 20X2 his company
sent him to India on a training workshop. On June 30, 20X2 on his way back to Canada he
had to stay in Karachi for a whole day in transit.
(iii) Mr. Baber, a Federal Government Employee was posted to the Pakistan mission in Geneva
from July 01, 20X1 to June 30, 20X2.
(iv) Mr. Francis, a sugar dealer in Brazil, came to Pakistan on July 31, 20X1. During his visit he
stayed at Lahore for 60 days and spent the rest of the days in Karachi. He left the country on
January 31, 20X2. Assume that the Commissioner has granted him permission to use calendar
year as a special tax year. (06 marks)
Q.6 (a) Folad Limited (FL) has supplied 50 tons of Iron Bars to Tameer Limited (TL). The market
price of the supply is Rs. 2.5 million exclusive of sales tax. Owing to financial difficulties, TL
has requested to settle the price by transferring a piece of land having a market value of Rs. 2.3
million and to pay Rs. 75,000 in final settlement along with the applicable sales tax by way of
a cheque drawn in favour of FL.
Required
Comment on the chargeability of sales tax in the above situation. (04 marks)
(b) Under the provisions of Sales Tax Rules, 2006 narrate the procedure to be followed by Tameer
Limited, in the above situation, if it decides to return 20 tons of Iron Bars to Folad Limited
due to sub-standard quality. Assume that both FL and TL are registered taxpayers. (05 marks)
Q.7 (a) Briefly describe the requirements relating to the maintenance and keeping of records by a
person registered under the provisions of Federal Excise Act, 2005. (05 marks)
(b) Explain the following under the provisions of Federal Excise Act/Rules, 2005.
(i) Non-fund banking services (02 marks)
(ii) Franchiser (02 marks)
Q.8 Kamyab Engineering Limited (KEL) is registered under the Sales Tax Act, 1990. The company is
engaged in the manufacture and supply of appliances. Following information has been extracted
from the records of KEL for the month of November 2010.
Rs. in ‘000
Purchases:
Local:
components from registered suppliers 70,700
components from un-registered suppliers 15,250
Import of finished goods (inclusive of custom duty and FED) 10,000
Supplies:
Manufactured goods:
local taxable supplies to registered persons 40,000
local taxable supplies to un-registered persons 24,000
exempt goods 11,000
export to Malaysia 13,000
Following additional information is also available:
(i) Supplies from commercial imports include appliances of Rs. 2,040,000 which were sold on
instalment basis to an industrial consumer at a mark-up of 2%.
(ii) Imported appliances worth Rs. 100,000 were provided to the company’s managing director for
use at his residence.
(iii) Sales tax of Rs. 60,000, Rs. 21,000 and Rs. 26,000 was paid in cash on account of electricity,
gas and mobile phone bills respectively.
(iv) Sales tax of Rs. 85,000 was paid by the company on purchase of uniforms for its line staff.
(v) An amount of Rs. 200,000 on account of purchases made from a registered supplier is
outstanding since March 2010. The related input tax was accounted for in the relevant tax
period.
(vi) A penalty of Rs. 50,000 and additional tax of Rs. 25,000 was levied on KEL under the Income
Tax Ordinance, 2001 which was unpaid as of November 30, 2010.
Sales tax is payable at the rate of 17%. All the above figures are exclusive of sales tax, wherever
applicable.
Required:
(a) Sales tax payable / refundable.
(b) Input tax credit to be carried forward, if any. (15 marks)
(THE END)
Advanced Taxation
Final Examinations June 9, 2011
Reading time – 15 minutes
Module F – Summer 2011 100 marks – 3 hours
Q.1 Mr. Khan has been working for a listed company Turtle Limited (TL) for the last many years. The
details of his emoluments during the tax year ended June 30, 20X4 are as under:
Rupees
Basic salary (per month) 350,000
Conveyance allowance (per month) 50,000
In addition to the above cash emoluments, Mr. Khan was also provided with the following:
(a) A rent free furnished accommodation with a fair market rent of Rs. 100,000 per month.
(b) An 1800cc company maintained car, both for business and private use. The car was
purchased by TL on July 1, 20X1 at a fair market value of Rs. 2,000,000.
(c) On July 1, 20X3 he was provided with an interest free loan of Rs. 2,500,000 which is
repayable in lumpsum in December 20X4. The prescribed benchmark rate is 13% per annum.
On December 1, 20X3 Mr. Khan utilized 60% of the amount of loan for purchasing a double
storey bungalow. The total cost of the bungalow was Rs. 25,000,000. The bungalow, on its
ground floor, also had a suitable space for opening a departmental store.
In order to increase its operational efficiency, TL announced a redundancy scheme to its

employees. Mr. Khan opting for the scheme resigned from TL with effect from January 1, 20X4.
Upon resignation, 25% of his outstanding loan balance was waived by TL and the remaining loan
amount was adjusted from his final settlement. He received the following payments from TL:
Rupees
Compensation under the redundancy scheme 4,000,000
Gratuity under unapproved scheme 2,000,000
Following further information is also available:
(i) Tax of Rs. 1,837,000 was withheld by TL from the above payments.
(ii) Mr. Khan was allowed to purchase the 1800cc car at an accounting book value of
Rs. 1,000,000 which he sold in the open market at a price of Rs. 1,500,000.
(iii) On March 1, 20X4 Mr. Khan rented out the ground floor of his bungalow to Mr. Riaz, for
establishing a departmental store, at a monthly rent of Rs. 137,500. Due to the strategic
location of the store, he also received adjustable and non-adjustable deposits of Rs. 600,000
and Rs. 500,000 respectively.
(iv) On April 1, 20X4 he rented out the residential portion of the bungalow to a Commercial Bank
for their marketing executive. He received gross amount of Rs. 2,400,000 as two year’s
advance rent. The Bank deducted tax of Rs. 197,500 from such payment.
(v) A donation of Rs. 500,000 was made to an un-approved trust for the construction of mosque.
(vi) In July 20X1, Mr. Khan was issued shares in TL. The fair market value of shares at the time
of issue was Rs. 500,000. He disposed off these shares in June 20X4 at a gain of Rs. 500,000.
Required:
Compute the taxable income, tax liability and tax payable/ refundable, if any, to Mr. Khan for the
tax year 20X4. The average rate of tax of Mr. Khan for the last three years was 18%. (20 marks)
Note: Show all exemptions, exclusions and disallowances where relevant. Tax rates are given on the last page.
Q.2 Ms. Hina started her business on January 12, 2011 at a kiosk, located at Karachi Airport. She sells
an exclusive blend of coffee imported from Kenya and packed dates purchased from a company in
Khairpur. Ms. Hina though not registered with Inland Revenue Department, paid sales tax on all
taxable purchases.
In order to increase the efficiency and profit margin of her business, she decided to get herself
registered with the sales tax authorities enabling her to reclaim the input tax on her purchases. She
made an application for voluntary registration under the Sales Tax Act, 1990 on April 25, 2011 and
was registered with effect from May 2, 2011. Following was the position of her unsold stock of
coffee and dates at April 25, 2011:
S. No. Description Date of purchase Sales Tax paid (Rs.)

(i) 25 kg of coffee imported January 15, 2011 23,750
(ii) 125 packets of dates purchased February 2, 2011 12,325
(iii) 42 kg of coffee imported February 25, 2011 39,900
(iv) 458 packets of dates purchased March 28, 2011 41,325
Required:
In the light of the provisions of Sales Tax Act, 1990.
(a) Explain whether and under what circumstances Ms. Hina could reclaim the amount of tax
paid on the unsold stock acquired before registration.
(b) Calculate the amount of input tax, if any, which she can reclaim with her sales tax return for
the month of May 2011. (07 marks)
Q.3 Beetle Limited (BL), an industrial undertaking, is engaged in the manufacture and supply of
pesticides. The company manufactures its products from the raw material imported from Malaysia.
BL also imports certain pesticides from Dubai, which are supplied to the local distributors without
any further processing.
After scrutiny of the tax return filed by BL for the tax year 20X4, the Additional Commissioner has
issued a notice under section 122(5A) in which he has raised the following issues:
(i) Tax collected on the import of certain plant and machinery installed at BL’s factory has been
claimed as an adjustment in the return. The Commissioner is of the view that such tax should
instead be treated as a final tax.
(ii) While computing the taxable income, BL has not apportioned the “Cost of goods
manufactured” between its income from sale of manufactured products and income from sale
of commercial imports. The Commissioner wants such costs to be apportioned between the
two revenue streams.
(iii) The audited financial statements show a gain of Rs. 50 million on the disposal of an
immovable property comprising office in a commercial building. This property was purchased
by the company for Rs. 90 million and was sold for Rs. 120 million. Its tax written down
value at the time of disposal was Rs. 70 million. The gain has not been offered to tax by BL.
The Commissioner wants to add the amount of Rs. 50 million to the company’s taxable
income.
(iv) The financial statements also disclose an outstanding liability on account of royalty of
Rs. 250 million. This amount payable to BL Dubai Plc. is outstanding for the last four years,
pending approval from the State Bank of Pakistan. The expense was claimed by BL in the tax
year 20X0. The Commissioner wants to add back the amount to the taxable income of BL.
(v) Bad debts written off during the year include an amount of Rs. 10 million which was
provided to a distributor as a loan who has now been declared insolvent. The Commissioner
wants to add this amount to the taxable income of BL.
Required:
Under the provisions of Income Tax Ordinance, 2001 explain, giving reasons, as to whether or not
the Commissioner’s contention with regard to each of the above situation is valid. (12 marks)
Q.4 Gadget Limited (GL) is registered at the Large Taxpayer Unit (LTU) of Inland Revenue
Department, Islamabad. It is engaged in the manufacture and supply of electrical appliances.
Following information has been extracted from GL’s records for the month of May 2011.
Rupees
Purchases:
Steel sheets, copper wire, aluminum and allied raw materials 2,500,000
Lubricants, spare parts and stores (include cash purchases of Rs. 900,000) 5,400,000
Gift items for customers - carpets, fancy watches etc. 700,000
Supplies:
Electric switch-gears and electric motors to diplomatic mission in Islamabad 1,900,000
Air Coolers to customers based in Lahore, Islamabad and Faisalabad 7,000,000
Electric air coolers to customers in Spain and Zanzibar 3,800,000
(i) Technical fee of Rs. 1,400,000 was paid to Mr. Michael in Finland for the grant of right,
under a contract, to use the latest Humidifier Process for the production of air coolers.
(ii) Rs. 700,000 was paid against bill board advertisement to Z Inc. which is registered with LTU.
(iii) Motors and switches of Rs. 650,000 were supplied for consumption on board a container ship
with gross tonnage of 150 LDT. The ship was proceeding to the port of Antwerp.
(iv) Printed stationery of Rs. 500,000 was purchased from registered suppliers for the maintenance
of factory records. These suppliers are however not registered with LTU.
(v) Rs. 500,000 was paid to bank on account of L/C opening charges and Rs. 100,000 on
account of safe custody fees.
(vi) Sub-standard supplies of Rs. 900,000 were returned to vendors. Proper debit/credit notes
were raised in this regard.
All payments for the purchase of goods and services have been made through crossed cheque or
crossed pay order/credit card except as otherwise indicated. Sales tax is payable at the rate of 17%.
All the above figures are exclusive of federal excise duty (FED) and sales tax wherever applicable.
The goods manufactured by GL are not subject to duty under the Federal Excise Act, 2005.
Required:
In the light of the provisions of Sales Tax Act, 1990 and Federal Excise Act, 2005 compute the
following for filing the sales tax-cum-federal excise return for the tax period May 2011.
(a) Sales tax payable/refundable.

(b) FED payable, assuming the rate of duty is 10% on all excisable items/ services. (18 marks)
Q.5 (a) Describe the benefits available under the Income Tax Ordinance, 2001 to persons who are
registered under the Sales Tax Act, 1990. Also state the conditions which such persons are
required to fulfill in order to be eligible for claiming such benefits. (05 marks)
(b) Skilled (Pvt.) Limited (SPL) wants to form a joint venture with Expert Consultants (Pvt.)
Limited (ECPL) for providing disaster management services to corporate clients.
Required:
Under the provisions of Income Tax Ordinance, 2001 advise the CEO of the two companies
about the tax treatment of the following:
(i) Income / loss derived by the joint venture; and

(ii) Share of venturer’s profit / loss from such venture. (09 marks)
(c) Who may be regarded as short-term resident individual under the Income Tax Ordinance,
2001? Discuss the provisions relating to the taxability of foreign source income of such
individuals. (04 marks)
Q.6 Al Maratib, a large group of companies is contemplating to avail the benefits of Group Taxation by
offering it to be taxed as one fiscal unit.
Required:
In the light of the provisions of Income Tax Ordinance, 2001 explain the provisions of Group
Taxation to the chairman of the group. (08 marks)
Q.7 (a) Under the provisions of Sales Tax Act, 1990 and Rules made thereunder, certain restrictions
have been placed on the adjustment of input tax. Explain those provisions in respect of each
of the following situations.
(i) X Limited is registered with Inland Revenue Department. It purchased copper wires of
Rs. 24 million on credit, for the manufacture of electric fans. The payment was made
after 210 days of the issuance of tax invoice by way of a crossed pay order drawn on the
business bank account of the company.
(ii) Mr. Baba is working with Y Limited as director procurement. He paid Rs. 698,456 on
behalf of the company for the purchase of lubricants using his own credit card.
(iii) Z Limited acquired new machinery for its manufacturing department at a price of
Rs. 150 million. Sales tax paid at the time of purchase amounted to Rs. 25.5 million.
(iv) Mr. Haq is registered as a wholesaler under the Sales Tax Act, 1990. He paid sales tax
of Rs. 88,750 including extra tax of Rs. 3,750 on the purchase of certain specified
electric appliances from a manufacturer in Lahore. (07 marks)
(b) “The Commissioner may amend an assessment order for a tax year only on the basis of
definite information acquired from an audit or otherwise”. What do you understand by the
term “Definite information” as described in the Income Tax Ordinance, 2001? (03 marks)
Q.8 Explain the provisions of Federal Excise Act, 2005 with regard to the following:
(a) Excess duty collected from the customer. (05 marks)

(b) Duty on services provided free of charge. (02 marks)
(THE END)
EXTRACTS FROM THE FIRST SCHEDULE OF THE INCOME TAX ORDINANCE, 2001
Division I – Rate of Tax for Salaried Individuals
Rate of
S. No. Taxable Income
Tax
(1) (2) (3)
16. Where the taxable income exceeds Rs. 2,850,000 but does not exceed Rs. 3,550,000, 17.50%
17. Where the taxable income exceeds Rs. 3,550,000 but does not exceed Rs. 4,550,000, 18.50%
18. Where the taxable income exceeds Rs. 4,550,000. 20.00%
Division VI – Income from property
S. No. Gross amount of rent Rates of tax

(1) (2) (3)
1. Where the gross amount of rent does not exceed NIL
Rs. 150,000.
2. Where the gross amount of rent exceeds Rs. 150,000 5 percent of the gross amount exceeding Rs.
but does not exceed Rs. 400,000. 150,000.
3. Where the gross amount of rent exceeds Rs. 400,000 Rs. 12,500 plus 7.5 percent of the gross
but does not exceed Rs. 1,000,000. amount exceeding Rs. 400,000.
4. 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.
Advanced Taxation
Final Examination 8 December 2011
Winter 2011 100 marks - 3 hours
Module F Additional reading time – 15 minutes
Q.1 Mateen and Vaqas are planning to commence a business venture selling pesticides to the farmers.
They are however, not certain whether the business venture should be in the form of a partnership
or a limited liability company. They intend to make investment and share the profits in the
following ratio:
Mateen 60%
Vaqas 40%
Further, in case of incorporation of a limited liability company they would distribute 60% of the
after tax profits as dividends.
Following are the expected results of their twelve months' operation:

Rupees
Sales 10,500,000
Cost of sales (4,410,000)
Salaries and wages (3,165,000)
Rent and rates (582,000)
Travelling and entertainment (273,000)
Depreciation (975,000)
Salaries and wages include salaries of Rs. 1,100,000 and Rs. 970,000 to be paid to Mateen and
Vaqas respectively.
Depreciation relates to delivery vehicles. In the first year tax depreciation allowance on these
vehicles is estimated at Rs. 1,462,500.
Required:
Under the provisions of Income Tax Ordinance, 2001 advise Mateen and Vaqas on the preferable
structure of their business, whether it should be a partnership or a limited liability company, in
terms of the amount of tax payable, assuming that they have no other sources of income.
(For the purpose of your calculations, tax rates are given at the end of this paper.) (11 marks)
Q.2 (a) Describe the powers of an officer of Inland Revenue with regard to the recovery of arrears of
tax as enumerated under the Sales Tax Act, 1990. (10 marks)
(b) In view of the provisions of Sales Tax Act, 1990 identify the persons who may be regarded as
the representative of a non-resident person for a tax year. (04 marks)
Q.3 Explain the following in the light of the provisions of Federal Excise Act, 2005.
(a) The persons who are liable to pay Federal Excise Duty. (05 marks)
(b) The alternative sources on which duty may be levied and collected by the Board, in lieu of
levying and collecting duties on goods and services. (02 marks)
(c) The circumstances under which duty drawback may be allowed to a taxpayer. Also state the
relevant authority who may grant such drawback. (04 marks)
Q.4 Mega Limited (ML), an unlisted public company, owns an industrial undertaking which is engaged in
the manufacturing and supply of specialized machinery to power projects.
Following is the extract from the profit and loss account of ML for the period ended 30 June 20X8:
Rs. in ‘000
Sales 1,100,000
Cost of Sales (792,000)
Gross Profit 308,000
Financial charges (110,000)
Other income 117,000
Additional information:
(i) In July 20X7, ML purchased and installed plant and machinery for the purpose of balancing,
modernization and replacement of existing plant and machinery from an Austrian based non-
resident supplier at a cost of Rs. 52 million. The title in goods was transferred outside Pakistan.
ML did not deduct any tax from payments made to the supplier. The plant is depreciated on a
straight line basis over its useful life of ten years. The investment in plant was made with borrowed
funds.
(ii) Cost of sales includes a penalty of Rs. 0.5 million paid in respect of breach of customs regulations.
(iii) Administrative expenses include amounts of Rs. 4.8 million, paid against purchase of industrial
software having a useful life of three years and Rs. 5 million paid in cash for electricity expenses.
The software was installed and used with effect from 01 April 20X8.
(iv) Other charges include a donation of Rs. 13 million paid to a university established under
provincial law by the Government of Punjab.
(v) Other income includes the following:
An amount of Rs. 27 million earned from consultancy services provided to the UAE
Government. The gross receipts from such services were Rs. 90 million. No tax was paid by
the company in UAE on such income.
A royalty of Rs. 50 million which was received from Solar Pte Limited, a company based in
Singapore, for providing scientific and commercial knowledge under an agreement.
Withholding tax of Rs. 10 million was deducted by Solar Pte Limited from such payment. This
amount is included in other charges.
The above amounts were brought into Pakistan in foreign exchange through normal banking
channels in compliance with the foreign exchange regulations of the State Bank of Pakistan.
(vi) Unadjusted business loss, brought forward from tax year 20X1, amounted to Rs. 50 million. This
loss is inclusive of an unabsorbed tax depreciation of Rs.11 million and amortisation of pre-
commencement expenditure of Rs. 7.7 million.
(vii) Following taxes were deducted / paid by the company during the year:
Rs. in ‘000
Advance tax paid under section 147 5,000
Paid on import of raw material 55
Paid on import of plant and machinery 1,560
Deducted by banks on profit on debt 250
(viii) Assume that tax depreciation on all assets acquired before July 20X7 is the same as their
accounting depreciation.
Required:
(a) Under the provisions of Income Tax Ordinance, 2001 compute the taxable income and net tax
liability of ML for the tax year 20X8. Tax rates are given on the last page.
(Show all exemptions, exclusions and disallowances where relevant.) (21 marks)
(b) Based on the computation of tax liability in (a) above, briefly explain whether the advance tax paid
quarterly by ML under section 147 could result in any further tax liability to the company with
reference to the provisions of Income Tax Ordinance, 2001. (05 marks)
Q.5 Sunshine Limited (SL), a registered person under the Sales Tax Act, 1990 is engaged in the
production and supply of three products Alpha, Beta and Gama. Beta is a by-product of Alpha and
is governed under the third schedule. It is sold in the market at a retail price of Rs. 25 per unit.
Following information is available from SL’s records for the month of November 2011:
Purchases: Rupees
Raw material used in the production of Alpha 10,000,000
Raw material used in the production of Gama 15,000,000
Supplies:
Local taxable supplies of Alpha to registered persons 15,000,000
Local taxable supplies of Alpha to un-registered persons 3,000,000
Local supplies of Gama to registered persons 18,000,000
Export of Gama to Turkey 7,000,000
Local taxable supplies of Beta to wholesalers ( 250,000 units @ Rs. 20 each) 5,000,000
Supply of 25,000 units of Beta to Export Processing Zone for further processing 625,000
(i) Supplies of Alpha to registered persons include sale of Rs. 2,000,000 to an associated
company. The open market price of Alpha at the time of sale was Rs. 4,000,000.
(ii) Free replacement of defective units is made in the case of Alpha, which is sold under
warranty. The market value of replacement units during the month of November 2011 was
Rs. 1,000,000.
(iii) SL provided 50,000 units of Beta to its employees free of charge.
(iv) In November 2011 SL imported new machinery from Japan for the purpose of launching a
new product Zeta. The production of Zeta is expected to commence from April 2012. Sales
tax paid on this machinery amounted to Rs. 3,000,000.
(v) Input tax of Rs. 500,000 was inadvertently not adjusted in the return for the month of
October 2011.
(vi) The local supplies of Gama are exempt from the charge of sales tax.
(vii) All purchases are from registered suppliers.
All the above figures are exclusive of sales tax, wherever applicable. Sales tax is payable at the rate
of 16%. The above products are not subject to duty under the Federal Excise Act, 2005.
Required:
In the light of the provisions of Sales Tax Act, 1990 and Rules made thereunder, calculate the sales
tax payable/refundable/carried forward, if any, for the tax period November 2011. (15 marks)
Q.6 (a) In the light of the provisions of Income Tax Ordinance, 2001 explain the term “Tax avoidance
scheme”. Under what circumstances the Commissioner may exercise his powers to
recharacterise or disregard a transaction? (05 marks)
(b) A foreign company, for the purpose of executing construction contracts, intends to establish a
branch office in Pakistan.
Required:
Under the provisions of Income Tax Ordinance, 2001 advise the company on the following:
(i) Circumstances under which taxes withheld from the payments made to a non resident
person would be construed as final tax under the presumptive tax regime. (03 marks)
(ii) The tax implication in each of the following cases while determining chargeable income
of the branch office in Pakistan.
Head office expenditure
Compensation for management services performed by the branch
Profit payable on debt to finance the operations of the branch (05 marks)
Q.7 Rose Petal Limited (RPL) is engaged in the construction business for the past many years. In April
20X1, Sind Provincial Government awarded a contract of Rs. 9.0 million to RPL for the
construction of 10 primary schools in the districts of Khairpur and Badin over a period of three
years. The company expects to earn a profit of 25% of the contract value. The project was
scheduled to start in July 20X1 and be completed on 30 June 20X4.
The amount received and costs incurred by RPL on the contract over the period of three years were
as under:
Receipts Costs
Tax Year
Rupees
20X2 3,000,000 3,105,000
20X3 3,000,000 2,632,500
20X4 3,000,000 1,012,500
Required:
Under the provisions of Income Tax Ordinance, 2001 calculate the taxable income for each of the
above three tax years. (10 marks)
(THE END)

S. # Rate of
Taxable Income
Tax
(1) (2) (3)
8 Where the taxable income exceeds Rs. 900,000 but does not exceed Rs. 1,050,000, 9.00%
9 Where the taxable income exceeds Rs. 1,050,000 but does not exceed Rs. 1,200,000, 10.00%
10 Where the taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 1,450,000, 11.00%
11 Where the taxable income exceeds Rs. 1,450,000 but does not exceed Rs. 1.700,000, 12.50%
12 Where the taxable income exceeds Rs. 1,700,000 but does not exceed Rs. 1.950,000, 14.00%
Division IB
Rate of Tax for Association of Persons
The rate of tax imposed on the taxable income of Association of Persons shall be 25%.
Division II
Rates of Tax for Companies
1. The rate of tax imposed on the taxable income of public/private company shall be 35%.
2. The rate of tax imposed on the taxable income of a small company shall be 25%.
Division III
Rate of Dividend Tax
The rate of tax imposed on dividend received from a company shall be 10%.
The Third Schedule

Depreciation Rates
1. Building (all types) 10% 2. Furniture and fittings 15%
3. Plant and machinery 15% 4. Motor vehicles (all types) 15%
5. Computer hardware 30%
Initial Allowance and First Year Allowance

The rate of initial allowance for eligible depreciable assets shall be 50%.
Advanced Taxation
Final Examination 7 June 2012
Summer 2012 100 marks - 3 hours
Q.1 (a) Saturn Limited (SL), an unlisted public company, is engaged in the manufacture and sale of
Talc both locally and in international markets. The company has two overseas branches
located in Korea and China. Following information has been extracted from company’s
records for the year ended 31 March 20X2:
Pakistan Operation Overseas Branches

Local Export Korea China
---------------Amount in Rupees---------------
Sales 10,000,000 7,000,000 6,000,000 8,000,000
Profit before taxation 4,000,000 3,500,000 800,000 1,000,000
Taxes paid during the year 1,600,000 70,000 250,000 400,000
SL’s net profit from local operation includes the following:

(i) Profit on debt amounting to Rs. 1,000,000 paid by SL to a Swiss bank against a short
term loan obtained to meet the working capital requirements of its China branch.
(ii) Rs. 100,000 written back on account of excess provision for bad debts, made last year.
A donation of Rs. 600,000 deposited to Prime Minister’s Flood Relief Fund 2010 has been
erroneously excluded from the computation of income.
Required:
Under the provisions of Income Tax Ordinance, 2001 compute the taxable income and net
tax payable / refundable for the tax year 20X2. Give brief reasons for the treatment of the
items excluded from computation or for which no expense deduction is allowed. (12 marks)
(b) Identify the authority and briefly describe the methods by which SL may be selected for the
audit of its Income Tax affairs in the tax year 20X2. Also state whether SL can again be
selected for audit in tax year 20X3 if nothing was found during its audit in the tax year 20X2.
(06 marks)
Q.2 Mr. Abid is a recently qualified chartered accountant. He wants to establish a sales tax practice and
intends to become an e-intermediary for the purpose of electronically filing the returns and other
prescribed documents on behalf of his clients. Under the provisions of Sales Tax Rules, 2006 advise
Mr. Abid on the following:
Required:
(a) Procedure for appointment as e-intermediary. (05 marks)
(b) Responsibilities of an e-intermediary. (03 marks)
(c) Cancellation of appointment as an e-intermediary. (05 marks)
Q.3 Briefly describe the provisions of Federal Excise Act, 2005 with respect to the liability for payment
of excise duty in case of following:
(a) Discontinued business enterprise. (04 marks)
(b) Transfer of ownership of a business to another person as an ongoing concern. (05 marks)
Q.4 Sun Limited (SL), a listed company, owns 100% ordinary share capital of an unlisted public
company Venus Limited (VL). Both SL and VL are engaged in the manufacturing and supply of
chemicals.
VL holds 85% ordinary share capital of Mars Limited (ML), who is engaged in the trading of
packing materials and sells its products to individual customers. Following information has been
extracted from the records of the above companies for the period ended 31 March 20X2:
(i) SL VL ML
Rs. in ‘000
Sales 17,000 6,000 3,500
Profit/(loss) before taxation 3,700 (1,400) 1,300
(ii) The above profit/(loss) for each company has been arrived at after inclusion/adjustment of
the following:
In case of SL:
Rs. 1,000,000 paid by SL towards a scientific research conducted in Belgium. The
research helped SL in improving the quality of its products.
Income of Rs. 150,000 on account of profit on debt.
Gain of Rs. 100,000 on sale of machinery to VL. The cost of machinery was Rs. 300,000
and its tax written down value at the time of transfer to VL was Rs. 200,000.
In case of VL:
Rs. 80,000 written off against a loan provided to an employee.
Sales promotion expenses of Rs. 600,000 paid by VL to Moon Advertisers. The benefits
are expected to extend to three years.
A loss of Rs. 500,000 on disposal of shares in a private company. These shares were
acquired by VL on 31 March 20X0.
In case of ML:
Net income of Rs. 600,000 from a goods transportation business. ML started this business
during the year and earned gross revenue of Rs. 1,500,000. Withholding tax of Rs. 30,000
was deducted by customers from ML’s gross receipts.
A gain of Rs. 400,000 on disposal of shares in a private company. These shares were
acquired by ML on 01 April 20X0.
(iii) Accounting depreciation of SL, VL and ML amounted to Rs. 760,000, Rs. 660,000 and
Rs. 100,000 respectively.
(iv) A delivery truck costing Rs. 1,500,000 was purchased by ML during the year for its new
transportation business.
(v) The tax written down values of the plant and machinery of SL, VL and ML as at 01 April
20X1 were Rs. 4,500,000, Rs. 4,200,000 and Rs. Nil respectively.
(vi) Tax depreciation on all assets, other than plant and machinery and delivery truck, of SL, VL
and ML amounted to Rs. 495,000, Rs. 330,000 and Rs. 135,000 respectively.
(vii) The assessed losses brought forward from tax year 20X1 were as follows:
SL VL ML
Rs. in ‘000
Business loss 200 500 50
Unabsorbed tax depreciation 250 500 100
Capital loss 750 250 200
(viii) Following taxes were deducted / paid during the year:
SL VL ML
Rs. in ‘000
Advance tax u/s 147, 148 and 153 789 275 -
Motor vehicle tax under u/s 234 - - 40
Required:
Assuming SL wants to avail the benefits of group relief as envisaged under the Income Tax
Ordinance, 2001, compute the taxable income, net tax payable / refundable and unabsorbed losses,
if any, to be carried forward for each of the above three companies for the tax year 20X2.
Note: Show all relevant exemptions, exclusions and disallowances. Tax rates are given on the last page.
(22 marks)
Q.5 Ummeid Limited (UL) is registered under the Sales Tax Act, 1990. The company is engaged in the
manufacture and sale of a range of fibre glass products. Following information has been extracted
from UL’s records for the month of May 2012.
Rupees
Purchases:
Local:
raw material from registered suppliers 25,000,000
raw material from un-registered suppliers 10,000,000
Import of raw material 4,000,000
Supplies:
Local:
taxable supplies to registered persons 20,500,000
taxable supplies to un-registered persons 9,000,000
exempt goods 6,000,000
Export to Portugal 12,500,000
(i) Raw materials purchased from a registered supplier in April 2012 were destroyed by fire.
However, UL received full insurance claim of Rs. 1,000,000 against such loss. Input tax paid
on such raw material was however adjusted by UL in its April 2012 return.
(ii) On scrutiny of the company’s previous sales tax returns, the internal auditor has pointed out
that input tax on raw materials of Rs. 200,000 purchased in October 2011 from a local
registered supplier has not been claimed / adjusted by UL.
(iii) UL under misapprehension collected additional sales tax of Rs. 64,000 from one of its
customers. 70% of the goods on which additional sales tax was collected are still lying with
the customer as unsold stock.
(iv) Taxable supplies to registered persons include the following:
Goods worth Rs. 500,000 supplied to AB Limited which is registered as an exporter with
the Large Taxpayer Unit.
Supplies of Rs. 2,000,000 to a domestic airline for regular maintenance of an aircraft
weighing 8,500 kilograms.
(v) Raw materials purchased from local registered suppliers include an invoice of Rs. 100,000
which was issued in the name of a director of UL.
All the above amounts are exclusive of sales tax, wherever applicable. Sales tax is payable at the
rate of 16%. The value of imported raw material is inclusive of custom duty and federal excise duty.
However, other goods are not subject to duty under the Federal Excise Act, 2005.
Required:
In the light of the provisions of Sales Tax Act, 1990 and Rules made thereunder, calculate the sales
tax payable by or refundable to UL for the tax period May 2012. Give brief reasons for the
treatment of:
− goods destroyed by fire;
− the input tax not claimed in the return for the month of October 2011; and
− additional sales tax collected from the customer. (18 marks)
Q.6 Under the provisions of Income Tax Ordinance, 2001 discuss the tax treatment in case of each of
the following independent situations.
(a) Khalq Limited (KL) is engaged in the manufacture and supply of polio vaccines. In order to
meet the increasing demand for vaccines, KL expanded its manufacturing facilities in July
20X1. This expansion project involved a capital expenditure of Rs. 75 million including a
cost of Rs. 50 million which was spent on the acquisition of new plant and machinery.
The Federal Government, realising the importance of the project, voluntarily paid a grant of
Rs. 20 million to KL towards the cost of new machinery. KL transferred the amount of grant
to capital reserve in its financial statements for the year ended 31 March, 20X2. The
management is of the view that Rs. 20 million should be claimed as exempt from tax in the
return of income for the tax year 20X2. (05 marks)
(b) Moon Limited (ML), an unlisted public company, engaged in the manufacture of sports
goods, remitted US $ 30,000 to JH Hospital in Boston, USA for the medical treatment of its
CEO. According to the terms of his employment the CEO is entitled to free provision of
medical treatment and hospitalization. The amount was remitted on 1 March 20X2 in
compliance with the regulations of the State Bank of Pakistan. The management of ML is of
the view that the expenditure would not be allowed as a deductible expense in tax year 20X2
as no tax was withheld from the payment to JH Hospital in Boston, USA. (06 marks)
(c) Mr. Pansari, a resident taxpayer, is operating a departmental store in Lahore. He received a
dividend of Rs. 45,000 from Rasila Farms Limited (RFL) for the year ended 31 March 20X2.
The amount received was credited to his capital account. Mr. Pansari is of the view that since
RFL derives its entire income from agriculture, which is exempt from tax, the dividend of Rs.
45,000 being paid from an exempt income is also not chargeable to tax. (03 marks)
(d) Gadget Limited (GL) is a public company engaged in the manufacture and sale of electrical
appliances. During tax year 20X2, GL launched an advertising campaign for the promotion
of a new product. An Indian artist was hired for making a TV commercial at an agreed
remuneration of Rs. 10 million. GL’s management is of the view that in order to claim the
expense as deductible, payment of Rs. 10 million should be made through normal banking
channel and no tax should be deducted from the payment as the entire advertisement was
produced in India. (06 marks)
(THE END)
Division II
1. The rate of tax imposed on the taxable income of a public/private company shall be 35%.
The Third Schedule

Depreciation Rates
Advanced Taxation
Module F Additional reading time - 15 minutes
Q.1 Mr. Yaqeen, a Pakistani citizen, returned to Pakistan on 30 June 20X1 after residing for six years in
Norway. On 1 July 20X1 he joined a private hospital KKUH and received following emoluments:
Rupees
Medical allowance (per month) 60,000
Leave fare assistance 240,000
On 1 January 20X2 Mr. Yaqeen resigned from the hospital and joined Dil (Private) Limited (DPL), a
company engaged in health care and production of dental products. Mr. Yaqeen received
Rs. 3,000,000 from DPL as consideration for joining the company. DPL agreed to pay following
emoluments to Mr. Yaqeen for the tax year 20X2:
Rupees
Utilities allowance (per month) 100,000
On 1 January 20X2 DPL provided him with refrigerator, cooking range and washing machine for his
use at home. The book value of these appliances was Rs. 200,000 and these were returnable to the
company after four years. 15% depreciation was charged by DPL on these appliances.
On 31 March 20X2 he was given an option to purchase 2,000 shares of DPL at Rs. 50 per share. The
breakup value of the company on that date was Rs. 150 per share.
On 1 April 20X2 he received a loan of Rs. 5,000,000 from DPL for the purchase of a house. The profit
on loan was payable at the rate of 8% per annum. The prescribed bench mark rate is 10% per annum.
Other information relevant to Mr. Yaqeen for the tax year 20X2 is as under:
(i) On 15 April 20X2 he fell ill and was admitted to KKUH where he had been working during his
employment. The hospital incurred Rs. 50,000 on his treatment but charged nothing to him.
(ii) On 30 April 20X2 he received salary arrears of Rs. 900,000 from his ex-employer in Norway.
(iii) Mr. Yaqeen had 30 acres of agricultural land in Dheer which he did not cultivate himself.
During tax year 20X2 he received annual rent of Rs 600,000 from the tenant cultivating the
land.
(iv) On 1 May 20X2 he spent Rs. 800,000 on the renovation of his residential house. The entire
amount was obtained as a loan from a scheduled bank on which a profit of Rs. 20,000 was paid
to the bank during the tax year 20X2.
(v) On 15 June 20X2 he received insurance claim of Rs. 600,000 against theft of a painting which
was stolen on 31 May 20X2. The painting was purchased by him on 1 January 20X1 for Rs.
350,000. He had paid insurance premium of Rs. 24,000 and also paid lawyer’s fee of Rs. 50,000
who represented him in the settlement proceedings.
(vi) On 15 July 20X1 Mr. Yaqeen received 20,000 shares in AB (Private) Limited (ABL), a
company incorporated under the Companies Ordinance, 1984 as a dividend in specie. On 30
June 20X2 he sold 15,000 shares in ABL for Rs. 425,000. The fair market value of these shares,
on the date of issue, was estimated at Rs. 25 per share.
Required:
Under the provisions of Income Tax Ordinance, 2001 compute the taxable income and net tax
payable for the tax year 20X2. Give brief reasons for the treatment of items in (v) and (vi) above. Also
explain the treatment of any items that are not appearing in your computation.
Note: Tax rates are given on the last page. (25)
Q.2 (a) Who may be regarded as the representative of the following under the provisions of Sales Tax
Act, 1990?
(i) Individual with legal disability
(ii) Association of persons
(iii) Federal Government
Also identify the circumstances when such representative becomes personally liable for the
payment of any tax due by the above registered persons. (08)
(b) In view of the provisions of Sales Tax Act, 1990 when does a notice served by the commissioner
on a non-resident individual is treated as properly served? (04)
Q.3 Under the provisions of Income Tax Ordinance, 2001:

(a) Identify the persons and the conditions subject to which such persons paying taxes under
Presumptive tax regime may opt for Normal tax regime. (05)
(b) What is meant by “Associates”? State the circumstances under which the following may be
regarded as associates:
A member of an association of persons and the association
A shareholder in a company and the company (07)
(c) State the meaning of the terms “Tax evasion” and “Tax avoidance” giving example of the
situation when each can occur. (04)
Q.4 (a) Mr. Sohail, a resident individual, owns a building in Clifton area of Karachi. On 1 October
20X1 he rented out the building to Mr. Baqir at an annual rent of Rs. 1,200,000. This amount
included Rs. 15,000 per month for arranging two security guards for the building. Following
expenses were incurred by Mr. Sohail on the building during the tax year 20X2.
Rupees
Repairs and renovation 35,000
Property tax 20,000
Insurance premium 10,000
Rent collection charges 3,000
Mr. Sohail also paid a salary of Rs. 4,000 per month to each of the two security guards at the
building.
Required:
Under the provision of Income Tax Ordinance, 2001 calculate the taxable income of Mr. Sohail
under the appropriate heads of income for the tax year 20X2. (06)
(b) Under the provisions of Income Tax Rules, 2002 briefly describe the following:
(i) Derivative Products (03)
(ii) Wash Sales (03)
(iii) Tax Swap Sales (03)
Q.5 Under the provisions of Federal Excise Act, 2005 and Rules made thereunder, explain:
(a) “Due date” and “Duty due” (04)
(b) “Establishment” and “Person” (04)
(c) How and under what circumstances a collector may suspend a person’s registration. (04)
Q.6 Mazboot Furnishers (MF), a retailer, has been in operation for a number of years but was not
registered with Inland Revenue Department due to low turnover. However, after engaging in
engraving process of household furniture, MF was compelled to register with the sales tax authorities
and got registration as a manufacturer-cum-retailer. The application for registration was made on
1 November 2012 and the certificate of registration was issued on 7 November 2012.
Following information has been extracted from MF’s records for the month of November 2012:
Rupees
Sales 700,000
Less: Cost of sales
Opening stock 125,000
Purchases 250,000
375,000
Less: closing stock (95,000)
280,000
Add: engraving charges 50,000
(330,000)
Gross profit 370,000
Less: Operating expenses
Salaries and wages (45,000)
Rent (25,000)
Insurance (30,000)
Bank charges (15,000)
General expenses (25,000)
Depreciation (15,000)
(155,000)
Net profit 215,000
(i) 20% of the sales relates to goods purchased locally and exported to customers in Iran whereas
5% of the sales were made against international tenders.
(ii) Opening stock is verifiable and consists of purchases made in different months as follows:
15 August Rs. 50,000 (import)
10 September Rs. 25,000 (local)
4 October Rs. 50,000 (local)
(iii) Rent was payable to Dir Furnishers, a local vendor.
(iv) Insurance expense includes Rs. 25,000 paid against fire and theft insurance whereas Rs. 5,000
relates to staff’s health insurance policies.
(v) General expenses comprises of charges paid against inland carriage of furniture by air, purchase
of shoes for field staff, expenses incurred on the purchase of printed stationery and staff
entertainment expenses in the ratio of 40:25:20:15 respectively.
(vi) 65% of the depreciation relates to a car which was acquired for Rs. 780,000 whereas 25%
depreciation pertains to a wood engraving machine purchased for Rs. 300,000. The car as well
as engraving machine was acquired at the beginning of November 2012.
(vii) All purchases, unless otherwise mentioned, are from local registered suppliers against prescribed
sales tax invoices.
All the above figures are exclusive of federal excise duty (FED) and sales tax, wherever applicable.
Sales tax is payable at the rate of 16%. The goods supplied by MF are not subject to duty under the
Federal Excise Act, 2005.
Required:
Under the provisions of Sales Tax Act, 1990, Federal Excise Act, 2005 and Rules made thereunder,
calculate the following for filing the sales tax-cum-federal excise return for November 2012.
(a) Sales tax and FED payable/refundable/carried forward, if any, assuming the rate of duty is
10% on all excisable items/services. (16)
(b) Give brief reasons for the treatment accorded to opening stock. (04)
(THE END)
PART I
S. # Taxable Income Rate of Tax
1. Rs. 0 to 400,000 0%
2. Rs. 400,000 to Rs. 750,000 5% of the amount exceeding Rs. 400,000
3. Rs. 750,000 to Rs. 1,500,000 Rs. 17,500+10% of the amount exceeding Rs. 750,000
4. Rs. 1,500,000 to Rs. 2,000,000 Rs. 95,000+15% of the amount exceeding Rs. 1,500,000
5. Rs. 2,000,000 to Rs. 2,500,000 Rs. 175,000+17.5% of the amount exceeding Rs. 2,000,000
6. Rs. 2,500,000 and above Rs. 420,000+20% of the amount exceeding Rs. 2,500,000
Division III
The rate of tax imposed on dividend received from a company shall be 10%.
Advanced Taxation
Q.1 (a) What is meant by “Securities” under the provisions of Income Tax Ordinance, 2001?
Briefly describe “Holding period” in relation to securities as provided under the
Income Tax Rules, 2002. (05)
(b) Mr. Parekh acquired and disposed of 3,500 shares of a listed company, Big Limited
(BL). The details are as follows:
Acquisition Disposal
Dated
No. of shares Rate No. of shares Rate
31-03-2012 1,400 20 - -
15-09-2012 700 22 - -
01-04-2013 900 18 - -
01-05-2013 - - 600 17
07-05-2013 - - 800 19
21-05-2013 - - 700 18
31-05-2013 500 23 400 25
31-05-2013 - - 1,000 27
Required:
Under the provisions of Income Tax Ordinance, 2001 and Rules made thereunder,
calculate the amount of capital gain / loss and tax thereon, if any, on the above
transactions. Ignore incidental expenses on cost of acquisition of securities.
Q.2 (a) Under the provisions of Sales Tax Act, 1990 and Rules made thereunder, briefly
explain whether the persons under each of the following situations are required to be
registered with Inland Revenue Department. Also compute the amount of sales tax, if
any, payable by or refundable to such persons. The rate of sales tax is 16%.
(i) A manufacturer whose annual turnover during the last twelve months ended
31 March 2013 is Rs. 4,500,000 and the amount of his annual utility bills for the
same period is Rs. 700,000.
(ii) A distributor whose annual turnover during the last twelve months is
Rs. 3,000,000.
(iii) An importer whose annual turnover is Rs. 12,000,000.
(iv) A commercial exporter who intends to claim a refund of Rs. 200,000. (13)
(b) Aroma Limited (AL), a company registered under the Sales Tax Act, 1990 is engaged
in the business of production and supply of assorted blend of tea in the local market.
Mr. Pali, the sales director, requested the finance manager to issue a credit note in
favour of one of AL’s customers, who had bought 50 kg of a special blend of tea on
4 December 2012. Finance manager issued the credit note on 5 June 2013.
Required:
In view of the Sales Tax Rules, 2006 explain whether AL can adjust the amount of its
output tax in relation to the above credit note in its return for June 2013. (04)
Q.3 Pills (Pvt.) Limited (PPL) is engaged in the business of manufacturing wide range of
pharmaceutical products for both local and overseas markets. Following is an extract from
PPL’s profit and loss account for the year ended 31 December 20X2:
Rs. in ‘000
Sales 39,150
Gross profit 13,450
Other income 900
(i) 20% of the above sales are made to customers in Indonesia and Singapore. Export
sales are stated after deduction of foreign withholding tax of Rs. 1,170,000.
(ii) Local sales are inclusive of 16% sales tax. All the above expenses, other than cost of
sales, are related only to the company’s local sales.
(iii) On 1 January 20X2, Capsule plc. a Malaysian company which owns 60% of the share
capital in PPL, granted a loan of Rs. 8,500,000 to PPL at a mark-up of 12% per
annum. The loan was given for the production of Hepatitis vaccines in Swat, a
project fully approved by the Federal Government. The principal repayment is due to
commence from July 20X3. Mark-up on above loan, included in financial charges,
amounted to Rs. 1,020,000. PPL’s equity at the beginning of the year amounted to
Rs. 4,000,000.
(iv) On 15 June 20X2, Capsule plc., under a group scheme, awarded its own shares to
some of the senior employees of PPL. As the shares were vested immediately, PPL
recognised an expense of Rs. 1,758,000 at a grant date fair value of the award, with a
credit recognised in equity. The expense is included in other charges.
(v) Administrative and selling expenses include the following:
Rs. 800,000 paid against professional books purchased from a website of a
company in UK. No tax was withheld by PPL from such payment.
Rs. 200,000 paid as donation to a hospital established under a private trust.
Rs. 600,000 payable as rent to the landlord for PPL’s parking area. Withholding
tax has not been deducted from this amount.
(vi) On 1 July 20X2, PPL granted an interest free loan of Rs. 500,000 to one of its
shareholders.
(vii) Financial charges include interest of Rs. 180,000 on account of machinery obtained
on finance lease. Total lease rentals paid during the year amounted to Rs. 500,000. At
the end of the lease term which expired on 31 August 20X2, the machinery was
transferred to PPL at a residual value of Rs. 640,000. The market value of the
machinery on the date of its transfer amounted to Rs. 760,000.
(viii) Other income includes gain on sales of delivery van of Rs. 130,000. The van was
acquired on 1 January 20X1 at a cost of Rs. 900,000 and was depreciated at the rate
of 20% per annum. No depreciation is charged by PPL in the year of disposal.
(ix) Accounting depreciation charged to cost of sales and administrative and selling
expenses amounted to Rs. 1,440,000 and Rs. 810,000 respectively.
(x) Tax depreciation on assets acquired before January 20X2 amounted to Rs. 1,800,000.
(xi) Tax paid u/s 147 amounted to Rs. 400,000 whereas tax deducted u/s 154 by banks
from export proceeds amounted to Rs. 78,300.
Required:
Under the provisions of Income Tax Ordinance, 2001 compute the taxable income and net
tax payable for the tax year 20X3. Give reasons for the treatment of items in (iii) and (vii)
above. Also explain the treatment of items not appearing in your computation.
Q.4 (a) Under the provisions of Federal Excise Act, 2005 describe the circumstances under
which a person is liable to pay default surcharge. What would be the period of default
under the above circumstances? (06)
(b) Under the provisions of Federal Excise Act, 2005 explain the following:
(i) Special excise duty (04)
(ii) KIBOR (02)
Q.5 (a) Under the provisions of Income Tax Ordinance, 2001 briefly describe the method(s)
under which a person accounting for income under the head “Income from Business”
may compute the cost of stock-in-trade. (03)
(b) In the light of the provisions of Income Tax Ordinance, 2001 narrate the
circumstances under which salary received by an employee of a foreign government
shall be exempt from tax. (04)
Q.6 Tender Pops Limited (TPL) is registered under the Sales Tax Act, 1990. The company is
engaged in the business of manufacture and supply of consumer goods. Following
information has been extracted from TPL’s records for the month of May 2013:
Rupees
Purchases:
Raw material from local registered suppliers 20,000,000
Local items governed under third schedule (75,000 @ Rs. 150 each) 11,250,000
Packing material from a local cottage industry 2,000,000
Supplies:
Taxable supplies to registered persons 19,000,000
Taxable supplies to un-registered persons 8,000,000
Local third schedule items to wholesalers (55,000 @ Rs. 180 each) 9,900,000
Taxable supplies against international tender for Afghan refugees. 3,000,000

(i) TPL has entered into a hire purchase agreement with Web Limited for the supply of
goods worth Rs. 459,000 inclusive of 2% mark-up.
(ii) Goods worth Rs. 200,000 were supplied to a creditor against final settlement of his
debt of Rs. 175,000.
(iii) Taxable supplies to registered persons include the sale of old stock at a discounted
price of Rs. 350,000. TPL allowed an unusually high discount of 30% to the
customer. The discount amount was however reflected on the invoice.
(iv) Sales tax paid on electricity bill was Rs. 25,000.
(v) TPL received advance of Rs. 100,000 for the supply of goods to one of its customers.
(vi) Third schedule items are sold in the market at a retail price of Rs. 200 per unit.
(vii) Supplies against international tender were made to WFP in full compliance with the
procedures laid down by State Bank of Pakistan and foreign exchange regulations.
All the above figures are exclusive of sales tax, wherever applicable. Sales tax is payable at
the rate of 16%.
Required:
Under the provisions of Sales Tax Act, 1990 and Rules made thereunder, calculate the sales
tax payable by or refundable to TPL for the tax period May 2013. (18)
(THE END)
EXTRACTS FROM THE INCOME TAX ORDINANCE, 2001
The First Schedule
Division II
Division VII
Capital Gains on disposal of Securities
S.No. Period Tax Year Rate of Tax
1. Where holding period of a security is less than six months. 2012 10%
2013 10%
2. Where holding period of a security is more than six months 2012 8%
but less than twelve months. 2013 8%
3. Where holding period of a security is twelve months or more. - 0%
The Third Schedule
Depreciation Rates

Advanced Taxation
Q.1 Mr. Iqbal, aged 45 years, is working as a Chief Engineer in a listed company Tameer
Limited (TL). The company is engaged in the manufacture of chipboards for the local
market. He derived following emoluments during the tax year ended 30 June 20X4:
Rupees
Basic salary ( per month) 300,000
Cost of living allowance (per month) 50,000
Milk allowance (per month) 10,000
In addition to the above emoluments, Mr. Iqbal was also provided the following:
(i) Special bonus equal to one month’s basic salary paid on 5 June 20X4.
(ii) A new company maintained car for his personal use. The car was purchased on
1 March 20X4 at a cost of Rs. 1,800,000. However, the cost of the car would have
been Rs. 3,000,000 had the company obtained it on finance lease. Mr. Iqbal, in
accordance with the terms of his employment, purchased his previous car from TL
for Rs. 250,000. This car was provided to him solely for business purposes. The fair
market value of the car at the time of sale to Mr. Iqbal was Rs. 600,000.
(iii) A reimbursement of Rs. 36,000 in respect of driver’s salary. Mr. Iqbal paid Rs. 60,000
to the driver for four months.
(iv) A fully furnished accommodation in DHA, Karachi. The fair market value of the rent
was estimated to be Rs. 85,000 per month.
(v) An option to acquire 4,000 shares in TL’s parent company, Tameer Inc. which is
listed on New York Stock Exchange was granted to him in May 20X3. Mr. Iqbal
exercised the option on 5 January 20X4 at a price of USD 1.5 per share. The market
value of the shares at the close of business on 5 January 20X4 was USD 2.5 per share.
He sold 3,000 shares on 30 June 20X4 at a price of USD 3 per share. The dollar rupee
parity on both the above dates was USD 1 = Rs.100.
(vi) On 15 May 20X4 Mr. Iqbal was provided 800 shares in TL as a reward for his
excellent performance. However, he was restricted from selling or transferring these
shares before 16 November 20X4. The market value of these shares at the close of
business on 15 May 20X4 was Rs. 12.5 per share.
Mr. Iqbal received additional income from the following sources, for the tax year 20X4:
(i) Brokerage fee of Rs. 200,000 in connection with the transfer of two apartments in
Islamabad. The brokerage fee was received in cash. Mr. Iqbal incurred an expense of
Rs. 30,000 against telephone costs and air travel to Islamabad in connection with the
above deal. He also paid Rs. 10,000 as a gift to his brother for showing the
apartments to his clients in Islamabad.
(ii) Profit of Rs. 150,000 on a savings account maintained with an Islamic bank. The
bank deducted withholding tax of Rs. 15,000 and Zakat of Rs. 25,000.
(iii) He also received an income tax refund of Rs. 225,000 related to tax year 20X2. The
amount included Rs. 25,000 being compensation for delayed refund.
(iv) Annual rent of Rs. 800,000 from letting out a building to KK Enterprise. Following
expenses were incurred by Mr. Iqbal in relation to the building: Repairs Rs. 200,000,
Fire insurance premium Rs. 30,000, Ground rent Rs. 10,000, Watchman’s salary
Rs. 8,000 and Interest of Rs. 15,000 on a loan obtained for building renovation by
creating first charge on the building in favour of a scheduled bank.
Other related information is as under:

TL deducted withholding tax of Rs. 1,200,000 from Mr. Iqbal’s salary during tax year
20X4.
On 1 July 20X3, Mr. Iqbal acquired a life insurance policy and paid a premium of
Rs. 500,000. He also contributed Rs. 1,600,000 to an approved pension fund.
On 1 August 20X3, he purchased 50,000 shares in a listed company AB Limited at a
price of Rs. 20 each. On 1 January 20X4, AB Limited announced 20% right shares to
existing shareholders at a price of Rs. 18 per share. On 25 January 20X4, Mr. Iqbal
subscribed the right issue in full.
During tax year 20X3 his assessed taxable income was Rs. 3,000,000.
Required:
Under the Income Tax Ordinance, 2001 and Rules made thereunder, compute the taxable
income and income tax payable by or refundable to Mr. Iqbal for the tax year ended
30 June 20X4. (22)
Note: Show all exemptions, exclusions and disallowances where relevant. Tax rates are given on
last page.
Q.2 (a) Describe the following with reference to the Sales Tax Act, 1990:
(i) Time of supply (ii) CREST (iii) Supply chain (09)
(b) Under the Sales Tax Rules, 2006 the Board or the Commissioner may appoint a
Chartered Accountant for conducting special audit of the records of a registered
person.
Explain the scope of special audit under the above circumstances. (06)
Q.3 Masawi Limited (ML) is engaged in the business of production and supply of packaged fruit
and vegetable juices. ML is incorporated under the Companies Ordinance, 1984 and is duly
registered with the Inland Revenue Department for sales tax purposes. Following data has
been extracted from ML’s records for the month of November 2013:
Rupees
Purchases:
Raw material:
from local registered suppliers 5,000,000
from local un-registered suppliers 1,000,000
import 800,000
Supplies:
Taxable supplies to duty free shops 1,020,000
Export to Qatar 680,000

(i) Raw materials purchased from un-registered suppliers include preservatives
purchased from FJ Limited at a discounted price of Rs. 380,000. ML received a
normal discount of 5% on this purchase.
(ii) Juices worth Rs. 100,000 were provided to the workers at the company’s workshop
free of cost.
(iii) Rs. 500,000 was paid to an advertising agency through banking channels for
providing advertising services on television in Pakistan.
(iv) 20% of the taxable supplies to registered persons were made to private limited
companies and public sector organizations whereas the rest of the supplies were made
to wholesalers / retailers.
(v) ML had no outstanding liability against purchases at the end of November 2013.
the rate of 17%. The goods supplied by ML are not subject to federal excise duty.
Required:
Under the provisions of Sales Tax Act, 1990 and Rules made thereunder, calculate the
amount of sales tax payable by or refundable to ML for the tax period November 2013. (18)
Q.4 (a) Maroof Limited (ML) is a resident company engaged in the business of construction
for the past many years. In July 2012, the company was awarded a contract for the
construction of roads in district Badin at a total contract price of Rs. 100,000,000. ML
estimated to incur total cost of Rs. 60,000,000 on the project.
Work on the project started in September 2012 and was completed in November
2013. ML received following amounts after deduction of 6.5% withholding tax:
Months Feb. 2013 May 2013 Sep. 2013 Dec. 2013

Amount received (Rs.) 12,622,000 15,760,000 35,000,000 30,118,000
The actual costs incurred by ML for the tax years 2013 and 2014 were Rs. 33,000,000
and Rs. 27,000,000 respectively.
Required:
Under the provisions of Income Tax Ordinance, 2001 calculate ML’s taxable income
and withholding tax credit, if any, for the tax years 2013 and 2014. (08)
(b) Explain the following in relation to Income Tax Ordinance, 2001:

(i) Exceptions to the rule that ‘a tax shall be imposed at a specified rate on every
non-resident person who receives any Pakistan source royalty or fee for
technical services’. (03)
(ii) The term ‘Prescribed person’ with reference to deduction of tax from rent of
immovable property. (06)
(iii) Significance of the Circulars issued by the Board. (04)
Q.5 Big Limited (BL) was incorporated in Pakistan in 1992. It holds the entire share capital of
several locally incorporated companies including Zeta Limited (ZL). Following information
has been extracted from ZL’s records for the year ended 30 September 2013:
Rs. in ‘000
Income from business 500
Capital gain 800
Income from other sources 100
Total income before tax 1,400
ZL is engaged in the business of manufacturing scaffoldings since its incorporation.

Following further information is available from ZL’s records:
(i) The income from business includes deemed income in respect of a loan of Rs. 85,000
received otherwise than by a crossed cheque.
(ii) Business losses brought forward from tax years 2012 and 2013 amounted to
Rs. 130,000 and Rs. 200,000 respectively. ZL’s tax assessment has been finalized
upto tax year 2012.
(iii) Capital losses brought forward from assessment years 2007 and 2008 amounted to
Rs. 50,000 and Rs. 65,000 respectively.
(iv) The amount of tax depreciation adjusted during the year against income from
business amounted to Rs. 490,000. Unabsorbed tax depreciation brought forward
from previous assessment years amounted to Rs. 135,000.
(v) A loss from speculation business brought forward from tax year 2012 amounted to
Rs. 100,000.
(vi) One of BL’s subsidiaries, which is qualified for group relief, surrendered its assessed
losses of Rs. 250,000 in favour of ZL. These losses include brought forward business
loss of Rs. 25,000, capital loss of Rs. 45,000 and an unabsorbed tax depreciation of
Rs. 10,000.
Required:
Under the provisions of Income Tax Ordinance, 2001 compute the taxable income of Zeta
Limited for the tax year 2014 and the amount of loss, if any, to be carried forward to next
tax year. State the reason where any of the loss cannot be adjusted against the given income. (13)
Note: The order in which various deductions are to be set-off against ZL’s income should be
followed.
Q.6 Under the provisions of Federal Excise Act, 2005 explain the following:
(i) Conveyance (02)
(ii) Distributor (02)
(iii) Mode of recovery of duty in case of short payment (03)
(iv) Particulars to be stated on the invoice issued at the time of providing services (04)
(THE END)
THE FIRST SEHEDULE

RATES OF TAX
Division I
Rates of Tax for Salaried Individuals
11. Above Rs. 7,000,000 Rs. 1,425,000+30% of the amount exceeding Rs. 7,000,000
Division VII
S. # Period Tax Year Rate of Tax
2014 10%
but less than twelve months. 2014 8%
Advanced Taxation
Q.1 Saif is a country manager in Rio (Pvt.) Limited (RPL), a company engaged in the business
of manufacturing and supply of beauty products. During tax year 2014, RPL paid him a
monthly basic salary of Rs. 600,000. He is also entitled to a bonus of Rs. 900,000 to be paid
in July 2014.
In addition to above, Saif was also provided the following:
(i) A company maintained car for both his personal and official use. The car was
obtained on lease in 2013 at total rentals of Rs. 2,000,000 to be paid over the lease
term. The fair market value of the car at the commencement of lease was Rs.
1,500,000. RPL also paid Rs. 100,000 for its maintenance to a local workshop.
(ii) A fully furnished two storey bungalow in a posh locality. The annual rental value of
the bungalow was Rs. 2,400,000.
On 1 January 2014 Saif let out the first floor of the bungalow to his brother Moiz at a
monthly rent of Rs. 75,000 and also insured it against the risk of fire. The premium
payable to the insurance company amounted to Rs. 50,000. Saif paid 50% of the
premium immediately and agreed to pay the balance on 1 July 2014. He also bought
an LCD TV for Rs. 70,000 for the first floor.
(iii) Reimbursement of Rs. 120,000 against air tickets for family vacation. Total cost of
tickets was Rs. 200,000. Saif paid Rs. 10,000 as advance tax on purchase of tickets.
(iv) On 1 January 2014 RPL sold certain items of old stock to Saif for Rs. 5,000. The net
realizable value of the stock in RPL’s books as on 30 June 2013 and 31 December
2013 were Rs. 12,000 and Rs. 14,000 respectively. The original cost of the stock was
Rs. 25,000.
(v) Withholding tax deducted by RPL from Saif’s salary amounted to Rs. 2,100,000.
(i) On 1 July 2013 he borrowed Rs. 3,000,000 from a bank at 11% mark-up. The amount
is payable in two equal annual instalments starting from 1 July 2014. Out of the
above loan, Saif utilized Rs. 2,550,000 for the acquisition of a plot of land in an
industrial area and Rs. 450,000 for the purchase of a car for his son. On 1 September
2013 he let out the plot of land to Amir at a monthly rent of Rs 25,000. He also
received an un-adjustable deposit of Rs. 150,000 and paid Rs. 10,000 for levelling and
cutting of grass, Rs. 15,000 against ground rent and Rs. 18,000 for rent collection.
(ii) On 1 May 2014 he sold 1,200 shares in Mio Limited at Rs. 50 per share and incurred
incidental expenses of 0.5% of sale proceeds. Mio Limited is an unlisted company in
which 55% of the shares are held by Chinese Government. Saif had received these
shares on 30 June 2013 as dividend in specie from Rahat (Pvt.) Limited. He holds
12,800 shares in Rahat (Pvt.) Limited costing Rs. 35 each.
(iii) In August 2013 Saif started a fitness club for corporate executives. The admission and
monthly membership fees for the potential members were fixed at Rs. 25,000 and Rs.
5,000 respectively. A group of 20 persons joined the club in August 2013 whereas 25
persons joined in January 2014 and 30 in March 2014.
Following items were included in club’s profit and loss account for the tax year 2014:
Monthly salary of Rs. 60,000 to Saif and Rs. 45,000 to his son by way of a direct
transfer of funds to their bank accounts. His son is a trainer at the club.
Withholding tax deducted from their salaries amounted to Rs. 13,000 and Rs.
4,750 respectively.
Rs. 2,750,000 against import of old fitness machines from China. The
withholding tax paid at import stage was Rs. 150,000.
Fine of Rs. 15,000 which was paid when the truck delivering the fitness
machines from the port to the club was found to be overloaded.
A fire occurred in a section of the club and repairs had to be undertaken as
follows:
− Cost of replacing electrical wiring damaged by fire Rs. 85,000
− Cost of a new non-removable fire protection screen installed to prevent fire
in future Rs. 200,000.
Other miscellaneous expenses amounting to Rs. 120,000.
(iv) On 15 June 2014 Saif donated a plot of land to Pakistan Sports Board. He had
purchased this plot in tax year 2001 at a price of Rs. 300,000. However, at the time of
donation, a broker had given him an offer of Rs. 500,000 for the said plot.
Required:
Under the provisions of Income Tax Ordinance, 2001 and Rules made thereunder, compute
the taxable income and income tax payable by or refundable to Saif for the tax year 2014. (25)
Note: Show all relevant exemptions, exclusions and disallowances. Tax rates are given on last
page.
Q.2 (a) Describe the following concepts as envisaged under the Sales Tax Act, 1990:
(i) Joint and several liability of registered persons in supply chain. (03)
(ii) Change in the rate of tax. (06)
(b) Under the provisions of Sales Tax Rules, 2006, on receipt of the demand note from
the referring authority, a recovery officer shall serve upon the defaulter a notice
attaching his moveable and immovable property.
List any five particulars which are not liable to attachment and sale in execution of
such notice. (05)
Q.3 Under the provisions of Income Tax Ordinance, 2001 and Rules made thereunder, compute
the taxable income or explain the tax treatment, wherever applicable, in each of the
following cases:
(i) Hamid held 2,000 shares in Beta Limited (BL) which he had acquired on 1 July 2013
at Rs. 15 each. BL subsequently merged into Gama Limited (GL) through a scheme
approved by the High Court. GL issued 1 share for 2 shares held in BL. (03)
(ii) Bari acquired 100 shares in Pie Limited (PL) on 1 January 2014 at Rs. 40 per share
and deposited them into CDC account. On the same date i.e. 1 January 2014, PL
declared 25% bonus shares with 1 April 2014 as the date of entitlement. On 31 March
2014, the market value of these shares was Rs. 50 each. On 15 April 2014 Bari
disposed of 50 shares in PL at Rs. 40 each. The bonus shares were credited to Bari’s
account on 15 May 2014. He sold the remaining shares including bonus shares on 18
May 2014 at Rs. 40 each (06)
(iii) Anjum borrowed 5,000 shares from Nazia for a short term. The value of the
borrowed shares was agreed at Rs. 100 per share. Anjum agreed to pay, for the
specified period, a mark-up of Rs. 2 per share to Nazia at the time of settlement.
Anjum sold the borrowed securities at Rs. 105 each and subsequently, on the date of
return of borrowed securities, re-purchased 5,000 shares at Rs. 95 per share. (06)
Q.4 Omega Limited (OL), a conglomerate, is registered at the large taxpayers unit (LTU) of
Inland Revenue Department, Karachi for the last one year. OL is engaged in multiple
businesses across Pakistan. However, due to regulatory issues, OL commenced its business
operations in May 2014. Following information has been extracted from OL’s records for
the month of May 2014:
(i) Taxable purchases of Rs. 100,000 were made from an unregistered supplier.
(ii) Invoices issued by OL’s bank against various excisable / taxable services rendered to
OL shows a sum of Rs. 5,000 as federal excise duty towards services rendered in
Islamabad, Rs. 2,000 towards Punjab sales tax for services rendered in Lahore and
Rs. 500 as service charges for issuing a new cheque book in Karachi on the last
working day of the month.
(iii) OL’s Textile Division rendered toll manufacturing to Big Associates for which value
of supply has been estimated at Rs. 45,000. Big Associates operates a large garments
unit which is registered under the sales tax act as an AOP. During the month,
finished cloth of Rs. 500,000 was sold to Asia Airways Limited for its aircraft’s seats.
Sales invoices were settled during the month.
(iv) Sales tax of Rs. 5,000 was paid on imports made ten days before the start of business.
(v) OL sold goods worth Rs. 250,000 to Small Corporation, a proprietary concern
registered under the Sales Tax Act, 1990. However, due to limited storage capacity at
buyer’s premises the goods are still lying at OL’s godown. In view of its revenue
recognition policy, OL has not recognized any revenue in the accounts.
(vi) Other purchases amounting to Rs. 725,000 were made on 45 days credit from
corporate suppliers. All the suppliers were withholding tax agents.
(vii) OL’s Furniture Division supplied furniture of Rs. 125,000 to an unregistered school
in Karachi. However, in view of negative market feedback and consequential losses,
OL has decided to close down the Furniture Division at the end of May 2014. Stock
of unsold furniture at the close of month amounted to Rs. 200,000.
(viii) As part of a strategic tripartite contract, OL supplied ‘tooth brushes’ worth
Rs. 400,000 in small villages and towns at a discounted price of Rs. 250,000. The
terms of the contract stipulate that the balance amount of Rs. 150,000 will be
reimbursed to the company by the Government of Pakistan.
(ix) OL paid an advance of Rs. 75,000 to a registered supplier, Pearl Limited, against
future purchases. However, Pearl Limited has not issued any document against the
advance receipt.
(x) OL sold sugar worth Rs. 240,000 to SPL. The sugar was purchased in February 2014.
(xi) OL procured tyres and tubes of Rs. 850,000 from a distributor for trading purposes.
All the above figures are exclusive of sales tax / federal excise duty, wherever applicable.
Sales tax is payable at the rate of 17%.
Required:
In the light of the provisions of Sales Tax Act, 1990 / Federal Excise Act, 2005 and Rules
made thereunder, compute the sales tax payable by or refundable to OL for filing the sales
tax-cum-federal excise return for the tax period May 2014. (18)
Q.5 (a) Explain the circumstances under which a cottage industry is required to be registered
under the Federal Excise Act, 2005. Also state the condition under which the
provisions of Sales Tax Act, 1990 would not be applicable to such cottage industry. (05)
(b) Under the provisions of Federal Excise Act, 2005 describe the following:
(i) The person(s) who are construed to be included in the word ‘Manufacturer’. (04)
(ii) The concept of ‘Sales tax mode’. (03)
Q.6 (a) What do you understand by ‘Profit on a debt’? Describe the circumstances under
which any profit received by a non-resident person on a security issued by a resident
person shall be exempt from tax under the Income Tax Ordinance, 2001. (06)
(b) Briefly explain the difference between tax admissible expenses and tax reliefs as
provided in the Income Tax Ordinance, 2001. (05)
(c) For the purpose of computing income of a person from a transaction with an
associate, certain steps are applied by the Commissioner in determining the arm’s
length result. Briefly describe those steps under the ‘resale price method’ as provided
in the Income Tax Rules, 2002. (05)
\
(THE END)
THE FIRST SEHEDULE

RATES OF TAX
Division I
Rates of Tax for Salaried Individuals
11. Above Rs. 7,000,000 Rs. 1,425,000+30% of the amount exceeding Rs. 7,000,000
Division III
Rate of dividend tax
The rate of tax imposed under section 5 on dividend received from a company is 10%
Division VII
Capital gains on disposal of securities
S. # Period Tax Year Rate of Tax
2015 17.5%
but less than twelve months. 2015 9.5%
THE THIRD SCHEDULE

Part I
Depreciation rates
1. Building (all types) 10%
2. Furniture and fittings 15%
3. Plant and machinery 15%
4. Motor vehicles (all types) 15%
Part II
Final Examination
Module F
The Institute of 4 December 2014
Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Advanced Taxation
Q.1 Bharosa Limited (BL) was incorporated on 1 July 2011 as an un-listed public company
under the Companies Ordinance, 1984. The company is engaged in the business of
manufacturing and distribution of soap and toiletries. On 1 November 2013 BL was enlisted
on Karachi and Lahore Stock Exchanges. Following is an extract from BL’s un-audited
summarised profit and loss account for the year ended 30 September 2014:
Rupees
Sales 24,900,000
Administrative and selling expenses (6,900,000)
(i) Sales include insurance compensation of Rs. 5,000,000 received from Big Insurance
Limited against the loss of one of BL’s factory buildings which was destroyed by fire
due to short circuit. This building was constructed in July 2011 at a cost of
Rs. 6,000,000. The accounting and tax WDV of the building when it caught fire were
Rs. 5,347,000 and Rs. 4,374,000 respectively. However, no depreciation on this
building was charged in the books for the year.
BL reconstructed a similar building at a cost of Rs. 3,800,000. Construction of the
new building was completed in November 2013 and BL installed used plant and
machinery therein at a cost of Rs. 1,500,000. The unit was given on lease to
Mr. Marvi on 1 January 2014 at a monthly lease rent of Rs. 150,000. The relevant
depreciation at the rate of 5% and 10% on building and plant and machinery
respectively and property tax of Rs. 96,000 which was paid in respect of the new
building were properly recorded in BL’s books as part of Administrative expenses.
The amount of lease rent received from Mr. Marvi is included in sales.
(ii) Cost of sales includes the following:
a compensation of Rs. 100,000 payable annually to a former employee, who was
injured and permanently disabled while on duty.
a penalty of Rs. 25,000 on failure to deposit income tax withheld from the
salaries of factory staff.
Accounting depreciation of Rs. 870,000.
(iii) Administrative and selling expenses include the following:
impairment loss of Rs. 200,000 on BL’s investment in ABC (Pvt.) Limited. The
loss occurred due to considerable decrease in the breakup value of these shares
as compared to their book value.
legal fees of Rs. 50,000 and Rs. 125,000 which were paid in connection with the
filing of statements with Karachi and Lahore Stock Exchanges and increase in
BL’s authorized capital respectively.
scientific research expenditure of Rs. 400,000 which was incurred in Cannes,
France. The research has helped BL in improving the quality of its products.
Rs. 480,000 which was incurred in relation to an advertising campaign launched
prior to the introduction of a new product line in an effort to enhance public
awareness.
a donation of Rs. 300,000 was paid to a fund which is listed in the second
schedule of the Income Tax Ordinance, 2001 for the promotion of science and
technology in Pakistan.
Workers’ Welfare Fund of Rs. 98,000 and accounting depreciation of
Rs. 1,100,000.
(iv) Financial charges include a profit of Rs. 180,000 earned from saving accounts
maintained with banks.
(v) Other income includes sale proceeds of Rs. 700,000 from sale of shares in Nafa (Pvt.)
Limited. BL purchased these shares in June 2012 at a cost of Rs. 230,000.
(vi) The tax written down values of BL’s assets on 1 October 2013 were:
Building (excluding the building destroyed by fire) Rs. 3,270,000

Plant and machinery Rs. 3,400,000 Motor vehicles Rs. 1,500,000
Furniture Rs. 2,380,000 Computers Rs. 1,100,000
(vii) Tax paid u/s 147 amounted to Rs. 260,000 whereas tax deducted by banks u/s 151
from profit on debt amounted to Rs. 18,000.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
compute the taxable income and net tax payable by/refundable to BL for the tax year 2015.
Note: Show all relevant exemptions, exclusions and disallowances. Tax rates are given on the last page. (25)
Q.2 (a) Under the provisions of Income Tax Ordinance, 2001 briefly explain the following:
(i) Group taxation (04)
(ii) Pre-commencement expenditure (05)
(b) Sweet Limited (SL) is an unlisted public company engaged in the business of
manufacture and sale of sugar. SL’s income year ends on 30 September each year. In
tax year 2014 following taxes were deducted/paid by SL:
Rupees
Advance tax paid under section 147 20,500,000
Paid on import of machinery 2,250,000
Deducted by banks on profit on debt 250,000
SL filed its return of income for the tax year 2014 on the due date for filing of return
with a gross tax liability of Rs. 32,500,000.
Required:
In view of the provisions of the Income Tax Ordinance, 2001 explain whether the
advance tax paid quarterly by SL under section 147 could result in any further tax
liability to the company, if yes, compute the amount of such additional tax liability. (08)
Q.3 (a) After providing a reasonable opportunity of showing cause and of being heard,
Mr. Khayanat was declared a defaulter by the Officer Inland Revenue under the Sales
Tax Act, 1990. However, at the time of issuance of a demand note to the Recovery
Officer, Mr. Khayanat died.
Required:
In view of the Sales Tax Rules, 2006 explain the status of the proceedings against
Mr. Khayanat under the above circumstances and provisions relating to the payment
of the dues as stated in the demand note. (04)
(b) Under the provisions of the Sales Tax Act, 1990 identify the disputes in relation to
which a registered person may apply to the Board for the appointment of a
committee for the resolution of a dispute which is under litigation in any Court or an
Appellate authority. Explain the composition of such committee and state the time
frame within which such committee may be constituted by the Board. (06)
(c) Explain the following under the provisions of the Sales Tax Act, 1990:
(i) Similar supply in relation to the open market price of goods (02)
(ii) Special returns (04)
Q.4 Harfun Limited (HL) is registered as a manufacturer cum commercial importer with the
Inland Revenue Department for sales tax purposes. Besides carrying on various trading
businesses across the country, HL is primarily engaged in the business of production and
supply of syrups and squashes covered under third schedule of the Sales Tax Act, 1990.
Following data has been extracted from HL’s records for the month of November 2014.
(i) Taxable purchases of raw material of Rs. 8,750,000 were made from registered AOP.
(ii) Packing materials of Rs. 450,000 were purchased from registered distributors.
(iii) Rs. 158,000 was paid to a local beverage company for providing mineral water at
HL’s annual dinner arranged for the entertainment of its customers and employees.
(iv) Preservatives of Rs. 589,000 were purchased from a cottage industry.
(v) Mango and banana worth Rs. 1,500,000 were purchased from local registered person
for further processing.
(vi) 3,000 boxes of Lemon and Mango squashes were imported from Malaysia at the
price of Rs. 550 per box. The value determined by custom authorities under section
25 of the Customs Act, 1969 amounted to Rs. 680 per box. The retail price however
was fixed at Rs. 625 per box. HL sold 2,800 boxes of squashes to BM Limited.
(vii) For the purpose of generating steam for one of its production processes, HL
purchased fuel wood from registered wholesalers for Rs. 1,050,000.
(viii) HL also purchased a fiscal electronic cash register and office equipments from a
corporate supplier at a price of Rs. 650,000 and Rs. 375,000 respectively. These items
were purchased on 60 days credit.
(ix) A mixing machine was acquired by HL on finance lease. The total lease rentals to be
paid to the lessor are Rs. 3,000,000. The fair value of the machine at the inception of
the lease amounted to Rs. 2,500,000. HL has the option to purchase the machine at
the end of the lease term (in three years’ time) and the directors estimate that it is
more likely that this option to purchase will be exercised.
(x) Delivery trucks worth Rs. 2,340,000 were purchased for timely distribution of goods
to customers.
(xi) Cool day light energy saver lamps were sold to AF Engineering for Rs. 500,000.
(xii) Locally produced squashes worth Rs. 13,800,000 were sold to corporate distributors.
the rate of 17%.
Required:
In the light of the provisions of the Sales Tax Act, 1990 and Rules made thereunder,
compute the amount of sales tax payable by or refundable to HL for the tax period
November 2014. (18)
Q.5 Under the provisions of the Federal Excise Act, 2005 briefly describe the following:
(a) The liability for payment of excise duty in case of closure of a private company and
sale of a business to another person as an ongoing concern. (09)
(b) Franchise (03)
Q.6 Khawar Associates (KA) is engaged in the business of supplying stationery items to both the
individuals and corporate customers. Following is an extract from the summarised income
statement for the year ended 30 June 2014.
Rupees
Sales 2,348,000
Operating expenses (470,000)
Profit before tax 648,000

(i) The above sales include the following:
An amount of Rs. 573,000 (net of tax) received from Mr. Iqbal. Mr. Iqbal is
registered for sales tax purposes. The rate of withholding tax is 4.5% of the gross
receipts.
Goods worth Rs. 825,000 sold to SP Limited (SPL). SPL deducted tax of
Rs. 37,125 from the payment against this sale.
The rest of the sales were made to individual customers having turnover of less
than fifty million rupees.
(ii) Cost of sales includes Rs. 20,000 paid to SPL as a penalty for late delivery of goods.
(iii) Operating expenses include the following:
Salaries of Rs. 50,000 paid to part time sales staff working exclusively on SPL’s
assignment. The rest of the expenses were common to all the customers.
A donation of Rs. 60,000 to an educational institution established by the
Provincial Government.
Zakat of Rs. 10,000 under the Zakat and Ushr Ordinance, 1980.
(iv) KA also received a dividend of Rs. 36,000 (net of tax) from a private company.
Required:
compute KA’s taxable income for tax year 2014. Give reasons for the treatment of the
amounts of donation and dividend as mentioned above. (12)
(THE END)
The First Schedule
Division II
THE THIRD SCHEDULE

Part I
Depreciation rates
1. Building (all types) 10%
2. Furniture and fittings 15%
3. Plant and machinery 15%
4. Motor vehicles (all types) 15%
Part II
Final Examinations
Module F
The Institute of 1 June 2015
Advanced Taxation
Q.1 Khalis Limited (KL), a listed company, is primarily engaged in the business of
manufacturing, supply and export of wide range of products. KL also renders services both
locally and in international markets. Following information has been extracted from KL’s
records for the year ended 31 December 20X4:
Rupees
Gross sales 350,500,000
Financial charges (15,515,000)
Gross sales:
(i) 50.2% of the gross sales are related to goods exported to countries in Europe and
USA. These sales reflect the C&F price of the goods exported. 85% of the above
export sales were realized in current year. KL also realized Rs. 20,000,000 from last
year’s export sales. No separate accounts were maintained by KL for the business of
export of goods manufactured in Pakistan.
(ii) 3% of the gross sales comprise of receipt from an export house against provision of
services of dying and embroidery to them. However, the export house inadvertently
failed to deduct withholding tax from payments made to KL. These goods were
subsequently exported to Japan by the export house.
(iii) Rest of the sales are inclusive of 17% sales tax and were made to both corporate and
individual customers in the local market.
Cost of sales includes:

(i) Freight of Rs. 500,000 paid in respect of transportation of goods to above export
house.
Administrative and selling expenses include the following:

(i) Ocean freight of Rs. 4,700,000, clearing and forwarding expenses of Rs. 485,000. No
withholding tax was deducted from these payments.
(ii) Provision for doubtful export rebate and duty drawback of Rs. 700,000 and
Rs. 400,000 respectively.
(iii) Legal expenses of Rs. 1,000,000 in respect of a dispute over territorial rights.
(iv) Rs. 3,000,000 paid in respect of an unsuccessful marketing campaign.
(v) Rs. 800,000 incurred for acquiring a long-term business contract.
(vi) Rs. 2,000,000 contributed to a foreign pension fund.
(vii) Sales tax of Rs. 950,000 paid in respect of entertainment and courier charges relating
to KL’s business. No input tax credit was allowed to KL in respect of such
expenditures.
Financial charges include the following:

(i) Mark-up of Rs. 1,200,000 paid on a loan obtained from AB Bank Limited for the
purpose of advancing concessional loans to KL’s staff in accordance with the terms
of their employment.
(ii) Mark-up of Rs. 9,000,000 on short term borrowings obtained to finance the working
capital requirements of export sales.
(iii) Rs. 2,150,000 charged by banks for the collection of export proceeds.
Other income includes the following:

(i) Exchange gain of Rs. 2,000,000. This gain was related to export sales.
(ii) Export rebate of Rs. 3,900,000 and duty drawback of Rs. 1,600,000
(iii) Fees of Rs. 10,000,000 received under an agreement from enterprises in Bahrain in
consideration for the use of KL’s design, patent and scientific knowledge. This
amount was directly transferred into KL’s bank account in Pakistan. No direct
expenditure was incurred in relation to this income.
(iv) KL is also engaged as a commission agent by M Limited, a renowned
communication company in Pakistan. KL remitted Rs. 50,000,000 to its principal,
M Limited, after retaining Rs. 4,300,000 on account of commission. However,
M Limited mistakenly collected advance tax from KL only on Rs. 3,600,000.
(v) Capital gain on sale of 30,000 shares in Blue Limited, a listed company, at a price of
Rs. 120 per share. KL purchased these shares in May 20X1 at a cost of Rs. 35 per
share. No direct expenditure was incurred in respect of sale of these shares.
Tax paid by KL u/s 147 amounted to Rs. 3,450,000.
Required:
compute the taxable income and net tax payable by or refundable to KL.
Note: Ignore WWF, Minimum Tax and Alternative Corporate Tax.
Show all relevant exemptions, exclusions, reclassification and disallowances.
Tax rates are given on the last page. (22)
Q.2 (a) Under the provisions of the Income Tax Ordinance, 2001 briefly discuss the
following:
(i) “Depreciable asset” and “Eligible depreciable asset”. (05)
(ii) In tax year 2015 Mr. Surmawala suffered a net loss of Rs. 850,000 on account of
a forward contract for the purchase and sale of gold in the Mercantile Exchange
and settled the contract otherwise than by the actual delivery or transfer of gold. (04)
(b) Mirza Trading Enterprise (MTE) is a resident AOP engaged in the business of
manufacturing and supply of office furniture. On 31 May 2015 all the partners in
MTE decided to form a limited liability company in the name and style of Taqdeer
(Pvt) Limited (TPL) and dispose of all the assets of the business to TPL.
Required:
Being a tax consultant of MTE, advise the partners about the conditions which must
be satisfied in order to avoid any gain or loss arising on disposal of MTE’s business to
TPL under the provisions of the Income Tax Ordinance, 2001. (08)
(c) Mr. Hoshyar, a non-salaried individual, declared a taxable income of Rs. 8,430,000
for the tax year 20X4. He filed his return of income on 27 November 20X4 and paid
a total tax of Rs. 2,173,000 on his declared income.
Required:
Under the provisions of the Income Tax Ordinance, 2001 analyse the above situation
and:
(i) compute the amount of penalty which may be payable by Mr. Hoshyar in
addition to his above tax liability. (04)
(ii) explain whether Mr. Hoshyar would be liable to pay any penalty, if his declared
income in return filed u/s 114 was below the taxable limit. (02)
Q.3 Razi Limited (RL) is engaged in the business of production and supply of large variety of
consumer goods. RL is registered with the Inland Revenue Department for sales tax
purposes. Following data has been extracted from RL’s records for the month of May 2015:
Rupees
Purchases:
Raw material:
from local un-registered suppliers 2,000,000
import 900,000
Import of Foam from China 1,200,000
Supplies:
Local:
exempt goods 250,000
sale of Foam imported from China 1,500,000
Export to Malta 600,000
(i) RL imported specific machinery at Rs. 1,000,000 from Taiwan for the purpose of
production of Shampoo. The machinery is covered under Eight Schedule of the Sales
Tax Act, 1990.
(ii) Purchases from local registered suppliers include purchase of Waste Papers of
Rs. 300,000 from Parsa Limited.
(iii) 7,500 boxes of Tissue Papers were purchased from registered suppliers, not included
above, at a wholesale price of Rs. 60 per box. The retail price of these boxes was
Rs. 90 per box. These Tissue Papers were used by RL as a packing material.
Shampoo worth Rs. 700,000 supplied to a registered exporter Baramad Limited.
Tiles of Rs. 650,000 supplied to Raja (Pvt) Limited. These Tiles were purchased
directly from the manufacturer in April 2015.
(v) Taxable supplies to un-registered persons include supply of Storage Batteries worth
Rs. 400,000 to a private school. Purchase invoice confirms that these Batteries were
purchased in March 2015 from an importer for Rs. 325,000 against payment of sales
tax at the rate of 17%.
(vi) Shampoo and Tissue Papers are covered under Third Schedule and waste papers are
covered under Sixth Schedule of the Sales Tax Act, 1990 whereas Foam, Tiles and
Storage Batteries are designated as specified goods under Chapter XIII of the Sales
Tax Special Procedures Rules, 2007. All the other items are NOT specified in the
Third Schedule of the Sales Tax Act, 1990.
(vii) At the end of May 2015, there was no outstanding liability against items mentioned
in (ii), (iii) and (iv) above.
All the above figures are exclusive of sales tax, wherever applicable. Except for the item
specified under Eight Schedule, sales tax is payable at the rate of 17%.
Required:
compute the amount of sales tax payable by or refundable to RL for the tax period May
2015. Also compute the amount of withholding tax, if any. (18)
Note: Show all relevant exemptions, exclusions and disallowances.
Q.4 (a) Under the provisions of the Sales Tax Act, 1990 describe the following:
(i) The effects of blacklisting or suspension of a registration. (04)
(ii) Exemption of tax not levied or short levied as a result of general practice. (05)
(b) In the light of the provisions of the Sales Tax Special Procedures Rules, 2007:
(i) Identify the categories of retailers who are required to be registered as a retailer
and pay sales tax on standard rate of 17% under the Sales Tax Act, 1990 and
Rules made thereunder. (06)
(ii) Briefly describe the mechanism of charging sales tax from retailers not falling in
categories specified in (i) above. (02)
Q.5 Under the provisions of Federal Excise Act, 2005 and Rules made thereunder, explain:
(a) how and under what circumstances a Collector may withdraw the order for
suspension of a person’s registration. (04)
(b) the consequences of wrong registration due to inadvertence or misconstruction. (04)
(c) what would be the value and the rate of duty applicable to any goods or services. (04)
Q.6 Mr. Pansari, a Pakistani citizen, is working as a company secretary in Sukoon Limited (SL),
an un-listed public company, engaged in the business of production and supply of olive oil.
Following are the details of his emoluments during the year ended 30 June 20X4.
Rupees
Basic salary per month 450,000
Conveyance allowance per month 50,000
In addition to the above cash emoluments, Mr. Pansari was also provided with the
following:
(i) A 2000cc company maintained car both for business and private use. The car was
purchased in tax year 20X3 at a cost of Rs. 3,000,000. However, the current market
value of the car is Rs. 3,500,000.
(ii) A special payment of Rs. 75,000 in lieu of leave was made available to him.
Mr. Pansari however, voluntarily waived his right to receive such payment.
(iii) Free provision of two cans of olive oil per month. The market value of each can was
Rs. 500.
(iv) In July 20X2 he was granted an employee stock option to purchase up to 15,000
shares in SL’s holding company Trio Limited, situated in Bermuda, at an option
price of USD 3 per share. The shares were required to be purchased within eighteen
months from the option date. Mr. Pansari exercised the option in September 20X3 to
purchase 8,000 shares when the market price of the shares was USD 5 per share.
After two months of the acquisition, Mr. Pansari sold 6,000 shares at a price of
USD 8.5 per share. [Assume the dollar rupee parity on the above dates was
USD 1 = PKR 102].

(i) Received a royalty of Rs. 2,000,000 from K Publishing on a book written on Wild
Hunting. Mr. Pansari completed the book in nineteen months and all the costs
relating to its publication were borne by the publisher. The applicable tax rates in tax
years 20X2 and 20X3 were 16% and 18% respectively.
(ii) Received a pension of Rs. 50,000 from his ex-employer.
(iii) Received a fee of Rs. 200,000 for attending a directors’ meeting of SL’s associated
company Nice (Pvt) Limited held in June 20X3.
(iv) There was a brought forward capital loss of Rs. 25,000. The loss was suffered by
Mr. Pansari on sale of shares in Ghareeb (Pvt) Limited.
Required:
compute the taxable income of Mr. Pansari for the tax year 20X4. (08)
(THE END)
The First Schedule
Part I Division II
Part I Division VII

3. Where holding period of a security is less than twelve months. 12.5%
4. Where holding period of a security is twelve months or more but
10%
less than twenty-four months.
5. Where holding period of a secuity is twenty-four months or more. 0%
Part III Division IV and Part IV Division II

Deduction of Taxes at Source
S. No. Withholding Agent Nature of Payment/Transaction Rate
1. Exporter/Export House Services rendered or provided for stitching, dying, 1%
printing, embroidery, washing, sizing and weaving.
2. Authorized On realization of proceeds on account of export of 1%
dealer/Banking company goods.
3. Authorized On realization of proceeds on account of commission to:
dealer/Banking company (i) non-export indenting agent 5%
(ii) export indenting agent/export buying house 5%
4. Banking company On realization of proceeds on account of sale of goods 1%
to an exporter under inland back to back LC or any
other arrangement as may be prescribed by FBR
5. EPZ Authority Export of goods located in EPZ 1%
6. Direct exporter/export Payment to indirect exporters as defined in DTRE 1%
house registered under Rules, 2001
DTRE Rules, 2001
7. Collector of Custom Clearance of goods exported 1%
8. Federal Government, Brokerage and commission income (including non-
Provincial Government, resident agents)
Local authority, Company, (a) In case of advertising agents 7.5%
AOP consitituted by or (b) In all other cases 12%
under any law.
Final Examinations
Module F
Advanced Taxation
Q.1 ZJ Limited (ZJL) is an unlisted public company engaged in the business of manufacturing,
supply and export of pharmaceutical products. Following information has been extracted
from ZJL’s un-audited financial statements for the year ended 30 September 2015.
Rs. in ‘000
Sales-net 218,500
Gross profit 60,920
Other income 29,280
Sales includes:
(i) Sale of polio vaccines of Rs. 30,000,000 to Red Cross mission in Somalia. The entire
amount was realized during the year.
(ii) Discounted sale of Rs. 3,600,000 to one of the NGO’s operating welfare hospitals in
KPK province. A discount of 25% was allowed to the NGO on their purchases.

(i) Cost of opening and closing stock-in-trade of Rs. 25,690,000 and 29,200,000
respectively comprising of raw and packing materials, work-in-process and finished
goods. ZJL computes the cost of stock-in-trade using marginal cost method. The
values of opening and closing stock-in-trade under absorption cost method were
Rs. 28,460,000 and Rs. 32,350,000 respectively.
(ii) Accounting depreciation of Rs. 2,210,000.
Administrative and selling expenses include:

(i) Withholding tax of Rs. 600,000 i.e. 20% of purchase price, paid in August 2015
(borne by ZJL) on the plot of land handed over to the winner of a lucky draw which
was organized under a sales promotion scheme. ZJL acquired this plot in January
2014 at a cost of Rs. 3,000,000. The market value of the plot at the time of lucky
draw was Rs. 10,000,000.
(ii) Rs. 1,800,000 paid to improve the embodied features of production software.
(iii) Rs. 650,000 in respect of the cost of two ramps. The ramps were built to provide
access to persons with disabilities.
(iv) Accounting depreciation of Rs. 1,980,000.
Other income includes:

(i) Rs. 2,450,000 received from employees against sale of five vehicles. The market value
and tax written down value of these vehicles at the time of sale was Rs. 5,250,000
and Rs. 3,320,000 respectively. As per company’s policy the vehicles are sold at their
book values.
(ii) Net profit of Rs. 20,000,000 from ZJL’s associates. ZJL records its earnings from
associates using equity method of accounting.
(iii) Gain on sale of securities in Mali Limited (ML), a listed company, amounting to
Rs. 6,000,000. On 1 July 2012 ZJL acquired 200,000 shares in ML at Rs. 50 per share
constituting 55% interest in ML. On 1 August 2015 ZJL sold 100,000 shares in ML at
a negotiated price of Rs. 85 per share to a foreign investor. The market value of these
shares at the time of sale was Rs. 80 per share. On 15 September 2015 ZJL sold the
remaining 100,000 shares in ML at a negotiated price of Rs. 75 per share to a local
investor. The market value of the shares at the time of sale was Rs. 78 per share. The
gain was computed at the average of the negotiated prices.
ZJL reported the above transactions to the relevant Stock Exchange through its
broker and was also in compliance with all the requirements of the SECP.
Other information: (not reflected in the above financial results)

(i) On 30 June 2015 ZJL received Rs. 1,250,000 as share of income from AOP. The
gross turnover of the AOP was Rs. 30,000,000. ZJL holds 35% interest in the AOP.
Further information:
(i) ZJL has filed the option to opt out of the final tax regime.
(ii) Total tax depreciation amounts to Rs. 4,300,000.
(iii) Tax paid u/s 147 was Rs. 1,000,000, tax deducted on import of packing materials
u/s 148 was Rs. 1,200,000, tax deducted by distributors u/s 153 was Rs. 1,050,000
and tax deducted on realization of export proceeds u/s 154 was Rs. 300,000.
(iv) The assessed losses brought forward from tax years 2014 and 2015 were as follows:
2015 2014
------- Rupees -------
Business loss 2,900,000 3,550,000
Unabsorbed tax depreciation 2,550,000 -
Required:
compute the taxable income, net tax payable by or refundable to ZJL for tax year 2016 and
amount of tax to be carried forward along with the amount of default surcharge, if any. (25)
Note: Your computation should commence with the profit before tax figure of Rs. 46,500K.
Ignore WWF and WPPF.
Show all relevant exemptions, exclusions and disallowances.
Tax rates are given on the last page.
Q.2 (a) Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, who
may be regarded as a ‘Non-active taxpayer’? State the consequences which a
registered person may face on removal of his name from the list of active taxpayers. (06)
(b) Explain the circumstances in which a temporary registration may be allowed to a

person under the Sales Tax Rules, 2006. (04)
(c) Under the provisions of any of the Provincial Sales Tax on Services Acts, briefly
describe the meaning of ‘Taxable Service’. (03)
(d) On 15 September 2015 Mr. Munaf, a registered supplier, filed an application to the
Inland Revenue Department for the refund of Rs. 75,000 on account of zero rated
local supplies. However, Munaf was required to pay a penalty of Rs. 15,000 to the
income tax department at KIBOR (the rate of KIBOR is 10%).
Under the provisions of the Sales Tax Act, 1990 compute the amount of refund in the
above circumstances. (Assuming that the date of refund is 1 December 2015) (03)
Q.3 (a) Explain the provisions of Federal Excise Act, 2005 with regard to the determination
of the value and chargeability of excise duty on the basis of retail price of goods. (05)
(b) Under the provisions of the Federal Excise Rules, 2005 explain the circumstances in
which a person, who is also registered for sales tax purposes, may be de-registered.
Also, briefly state the procedure of de-registration. (07)
Q.4 Karma Limited (KL) is registered at the large taxpayers unit (LTU) of Inland Revenue
Department and is engaged in the business of import, manufacture and supply of various
products. Following information has been extracted from KL’s records for November 2015.
Rupees
Purchases:
Raw material:
from local un-registered suppliers (Third Schedule items) 3,000,000
import 5,000,000
Supplies:
(i) Raw material purchased from local un-registered suppliers includes goods worth
Rs. 950,000 which were returned by an un-registered customer. These goods were
sold in August 2015. Proper debit/credit notes were raised in respect of the returned
goods.
(ii) The imports include raw materials worth Rs. 2,000,000 which were imported for the
purpose of manufacture of Fat Filled Milk, specified against S. No. 12 of the Fifth
Schedule. KL has complied with all the requirements of Chapter XIV of the Sales
Tax Special Procedure Rules, 2007 in this regard.
(iii) Taxable supplies to registered persons include the following:
a forward transaction on Pakistan Mercantile Exchange Limited for the supply
of goods worth Rs. 600,000 to a large trading house in Karachi.
supply of Confectionery, Chocolates and Candies worth Rs. 2,500,000 to a
retail outlet in Islamabad. These goods are designated as specified goods under
Chapter XIII of the Sales Tax Special Procedure Rules, 2007.
the rest of the products were supplied to trusts/non-profit organizations. KL
did not receive any payment during the month against any of these supplies.
(iv) Taxable supplies to un-registered persons include goods worth Rs. 5,500,000 which
were supplied to various cottage industries in Multan. The rest of the goods were
supplied to the end consumers.
(v) On 25 September 2015 KL received Rs. 2,250,000 from Trading Corporation of
Pakistan (TCP) against grant of a tender for the supply of 50 metric tons of sugar. On
5 November 2015 TCP removed 30 metric tons of sugar from KL’s premises for the
purpose of export to Oman. The remaining 20 metric tons of sugar were removed on
20 November 2015 and were supplied to wholesalers in the local market.
(vi) KL delivered Fertilizers, covered under Third Schedule, to Small Bank Limited
under a Murabaha financing arrangement at a price of Rs. 1,584,000. The amount
was receivable in equal monthly instalments over a period of one year. The retail
price of the Fertilizer in the market at the time of delivery was Rs. 1,320,000.
(vii) KL supplied 400 kg of a special brand of Tea, covered under Third Schedule, to FM
Enterprises at a wholesale price of Rs. 500 per kg. In October 2015 KL had purchased
600 kg of this particular brand of Tea from a local registered supplier, ST Limited
(STL), at a price of Rs. 450 per kg. This Tea is sold in the market at a retail price of
Rs. 700 per kg. STL declared this brand in their return for November 2015.
(viii) All the above products, unless otherwise specified, are NOT covered under Third
Schedule of the Sales Tax Act, 1990.
All the above figures are exclusive of excise duty and sales tax, wherever applicable. Sales
tax is payable at the rate of 17% whereas excise duty, if any, is payable at the rate of 8%.
Required:
In the light of the provisions of the Sales Tax Act, 1990, Federal Excise Act, 2005 and Rules
made thereunder, compute the amount of sales tax payable by or refundable to KL for filing
the sales tax-cum-federal excise return for the tax period November 2015. Also compute the
amount of withholding tax, if any. (19)
Q.5 The concept of “Advance Ruling” was brought into tax laws to facilitate foreign investors.
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder
explain the following:
(a) The meaning of the term “Advance Ruling”. Who may issue such a ruling and
within what time it is required to be issued. (03)
(b) The circumstances under which an advance ruling may be binding on the
Commissioner. Also state the conditions in which it may cease to be binding. (04)
Q.6 (a) Desi (Pvt.) Limited (DPL), a resident company, is 70% owned by Mega Inc. USA
(MI). On 15 March 2015 DPL received a loan of US$ 3.0 million (equivalent to
PKR 315.0 million) from MI with interest at the rate of 11% per annum. Interest is to
be paid half yearly in arrears. Repayments of the principal would commence after
2015. The loan was received to finance a rural development project in Punjab duly
approved by the Federal Government in accordance with the Second Schedule.
On 1 June 2015 DPL received another loan of US$ 1.6 million (equivalent to
PKR 168 million) from MI with interest at the rate of 6% per annum. Interest on this
loan is to be paid monthly in arrears. This loan was received for the construction of a
new factory building. The principal repayment would commence from November
2016.
On 31 August 2015 DPL wrote-off Rs. 1.0 million in respect of a debt owed by one of
MI’s associates who was based in Australia. The outstanding debt balance in DPL’s
books at the end of 30 September 2015 was Rs. 4.0 million.
Following information has been extracted from DPL’s records for the year ended
30 September 2015.
Rs. in million
Assets (including the above outstanding debt of Rs. 4.0 million) 3,500
Liabilities 2,870
Net profit after taxation for the year 350
Amount credited during the year to asset revaluation reserve 150
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute the amount of
interest on debt that shall be allowed as expense, for tax year 2016. (13)
(b) Under the provisions of the Income Tax Ordinance, 2001 state the following:
(i) Circumstances under which a person may automatically be selected for audit of
its income tax affairs. (02)
(ii) Conditions in which a claim for reward by the ‘Whistleblower’ may be rejected. (02)
(c) Under the provisions of the Income Tax Ordinance, 2001 state the meaning of:
(i) Imputable income. (02)
(ii) PMEX. (02)
(THE END)
The First Schedule
Part I Division II
Part I Division VII

1. Where holding period of a security is less than twelve months. 15%
2. Where holding period of a security is twelve months or more but
12.5%
less than twenty-four months.
3. Where holding period of a security is twenty-four months or more
7.5%
but less than four years.
4. Where holding period is more than four years 0%
Part I Division VIII

Capital Gains on disposal of Immovable Property
1. Where holding period of immovable property is up to one year. 10%
2. Where holding period of immovable property is more than one
5%
year but not more than two years.
3. Where holding period of immovable property is more than two
0%
years.
Final Examinations
Module F
Advanced Taxation
Q.1 Tehreek Limited (TL), an unlisted public company, owns industrial undertaking and is
engaged in diversified businesses. Following information has been extracted from TL’s
profit and loss account for the year ended 31 December 20X5.
Rupees
Gross sales includes:
(i) Rs. 11,250,000 on account of construction contracts executed outside Pakistan. The
net income from the contracts amounting to Rs. 2,812,000 was brought into Pakistan
in foreign exchange, equivalent to USD 26,780, through normal banking channel.
(ii) Share of profit of Rs. 13,000,000 received from an industrial undertaking set up on
1 August 20X5 for operating cold chain facilities for storage of agricultural produce.
The industrial undertaking was set up by TL at a cost of Rs. 165,000,000. Fifty
percent of the cost of project including working capital was financed through equity
investment from an investor in China.

(i) Freight charges of Rs. 250,000 paid in cash to goods transport company. TL did not
collect withholding tax from the payment.
(ii) Rs. 400,000 in respect of the cost of two cows as they became permanently useless for
milking purposes. These cows were originally purchased for TL’s dairy farm in
Faisalabad for Rs. 200,000 each. TL sold these cows in the market for Rs. 80,000
each, for which no entry has been made in the accounts.

(i) Rs. 5,000,000 being the cost of a right to use a formula for the development of a new
chemical compound. TL obtained the rights on 1 March 20X5 from High Tec Inc.
USA for twelve years.
(ii) Rs. 300,000 paid in cash to a restaurant for providing food at TL’s annual dinner. No
withholding tax was deducted from the payment made to the restaurant.
(iii) Rs. 186,000 paid in cash to one of the engineers for dangerous working conditions. TL
collected due amount of tax from the payment.
(iv) Rs. 700,000 on account of forfeiture of security deposit for breach of contract with one
of the suppliers.
Financial charges include:

(i) Profit on debt of Rs. 50,000 paid to a scheduled bank for a loan obtained for one of
TL’s directors for the renovation of his ancestral house in Multan.

(i) 57,000 bonus shares issued by Bali Limited (BL), a listed company, after complying
with all the regulatory requirements. BL’s share transfer books remained closed from
9 October 20X5 to 15 October 20X5, both days inclusive. The value of each share at
the close of business on 8 October 20X5 was Rs. 75 whereas its value at the close of
business on 9th and 15th October 20X5 respectively was Rs. 70 and Rs. 85. TL did not
pay five per cent tax to BL on the amount of bonus issue.
(ii) Net dividend of Rs. 630,000 received in the form of 15,000 shares in Nawab Limited
(NL) as dividend in specie. NL is engaged in the business of supplying coal
exclusively to power generation projects. NL collected tax of Rs. 90,000 from the
payment.
(iii) Cash dividend of Rs. 350,000. The dividend was paid by Mithas Farms Limited
(MFL), a corporate agricultural enterprise, from its agricultural income. MFL did not
deduct withholding tax on the payment of dividend.
Tax paid by TL u/s 147 amounted to Rs. 6,634,000. Assume that tax depreciation on all
assets is the same as their accounting depreciation.
Required:
compute the total income, taxable income and net tax payable by or refundable to TL for
tax year 20X6. (23)
Ignore WWF, WPPF, Minimum Tax and Alternative Corporate Tax.
Q.2 (a) Under the provisions of the Sales Tax Rules, 2006:
(i) Describe the term ‘Reciprocity’. (02)
(ii) ‘A Commissioner, having jurisdiction, if satisfied that a registered person has
issued fake invoices, evaded tax or committed tax fraud, may suspend the
registration of such person through the system, without prior notice, pending
further inquiry’. List any five basis for such satisfaction. (05)
(b) Under the provisions of the Sales Tax Act, 1990 briefly state:
(i) The salient benefits which may accrue to buyers who opt for DTRE Scheme. (03)
(ii) Who may appoint the “Special Audit Panels” and what may be the
composition of such panel. (03)
(c) ‘Where a service is provided over a period of time and payment for the same is made
on a periodic basis, the service is treated as comprising two or more separate and
distinct services each corresponding to the part of the service to which each separate
part of the consideration relates.’
Under the provisions of the Provincial Sales Tax on Services Acts, give two examples
to illustrate the above provision. (04)
Q.3 (a) Under the provisions of the Income Tax Rules, 2002 briefly explain how capital gain
or loss in case of each of the following derivatives would be computed:
(i) Cash settled futures contracts. (02)
(ii) Options. (02)
(iii) Contracts of right shares. (02)
(b) Being a tax consultant, you have been asked by Mr. Baykhabar to file his return of
income along with wealth statement for tax year 2016. While reconciling his net
wealth you have discovered the existence of an immoveable property which was
acquired by Mr. Baykhabar in tax year 2012 but has never been disclosed to tax
authorities.
Required:
Under the provisions of the Income Tax Ordinance, 2001 advise Mr. Baykhabar about
the consequences of non-disclosure or inaccurate disclosure of his property in the
wealth statement or failure to offer any explanation about the nature and source of his
investment in such property. (08)
Q.4 Sadabahar Limited (SL), a conglomerate, is registered at the large taxpayers unit (LTU) of
Inland Revenue Department and is engaged in multiple businesses across Pakistan. SL’s
sales tax-cum-federal excise return for the tax period May 2016 shows a net sales tax refund
of Rs. 250,000.
Following information has been extracted from SL’s records for the month of May 2016:
Profit & Loss Account

For the month of May 2016
Rupees
Sales 9,000,000
Less: Cost of sales (3,300,000)
Operating profit 2,100,000
Net profit 2,700,000
Sales includes:
(i) Sale of leather jackets amounting to Rs. 1,800,000. The jackets were produced by
SL’s Leather Division and were sold through SL’s factory outlets. Sales tax & further
tax have been accounted for in the return.
(ii) Sale of smartphones, covered under Ninth Schedule, to an un-registered buyer
amounting to Rs. 750,000. These phones were purchased from a local distributor in
April 2016. SL has booked sales tax liability at the rate of 17% in its return.
(iii) Sale of cotton waste of Rs. 300,000 to Furniture Mart, a registered buyer. Sales tax
was collected @ 3% of the value of sales.
(iv) Sale of goods worth Rs. 300,000 under Morabaha arrangement to Big Associates, an
unregistered buyer. The sale has been treated as non-taxable activity in the return.

(i) Sales tax of Rs. 75,000 paid on advertisement of certain products on radio.
(ii) Purchase of cooking oil of Rs. 680,000 from a distributor on which 17% sales tax was
paid and claimed in the return. However, SL failed to withhold sales tax on this
purchase.

(i) Royalty of Rs. 1,000,000 payable to Halat International LLC. SL has not recorded
any tax liability on this transaction.
(ii) Domestic air travel amounting to Rs. 600,000. Federal excise duty paid on air tickets
were duly claimed as input tax in the relevant months except for excise duty of
Rs. 20,000 paid in April 2016 which has still not been claimed.
(iii) Sales tax of Rs. 65,000 paid on purchase of wires and cables attached to production
machinery.

(i) Gain on disposal of office vehicle of Rs. 50,000. The vehicle was sold for Rs. 580,000.
No sales tax was recorded on this transaction.
(i) Stationary worth Rs. 45,000 was sold to an NGO for its office use. However, further
tax @ 2% was not collected from the NGO.
(ii) Security deposit of Rs. 200,000 was received from a supplier. No sales tax was
collected on such receipt.
(iii) Further tax recovered from unregistered buyers amounting to Rs. 150,000 was
classified as output tax.
(iv) An obsolete stock of Rs. 150,000 was written off. However, the stock is still lying in
the warehouse. Sales tax liability of Rs. 25,500 was booked against such write off.
(v) SL manufactures chemicals on toll basis for registered customers. An invoice of
Rs. 850,000 raised last month has still not been recorded in the accounts.
(vi) Custom authorities have detained a consignment of ‘Tiles’ for non-payment of extra
tax on it. SL has not admitted the liability as yet. The import cost of the consignment
is Rs. 1,250,000.
(vii) In April 2016, stock in transit amounting to Rs. 450,000 was damaged rendering
them un-saleable. In May 2016, SL has offered back the input tax it claimed last
month at the time of purchase of such stock.
(viii) Sindh Sales Tax amounting to Rs. 25,000, levied on auditor’s remuneration, has been
left unclaimed in the return. However, it is inadmissible under the Sindh Sales Tax
Act.
(ix) On 25 May 2016, SL’s Car Rental Division imported an ‘inspection kit’ for its
operations for Rs. 800,000. Sales tax @ 20% has been recorded in the return.
tax is payable at the rate of 17% whereas excise duty, if any, is payable at the rate of 16%.
Required:
made thereunder, compute the corrected amount of sales tax payable by or refundable to SL
for the tax period May 2016. (18)
Note: Your computation should commence with the refund amount of Rs. 250,000
Q.5 (a) Farhan Engineering Limited (FEL) is engaged in the business of manufacturing
excisable goods and is registered under the Federal Excise Act, 2005. In July 2014,
FEL did not levy and pay excise duty on certain goods as the liability of payment of
duty was disputed.
Required:
In view of the provisions of the Federal Excise Act, 2005 briefly state the following:
(i) How the unpaid duty would be recovered by the Inland Revenue Department
from FEL. (05)
(ii) The time frame, if any, within which an order may be made by the Department,
after issuance of show cause, under the above circumstances. (03)
(b) Describe the term ‘Curing’ under the Federal Excise Rules, 2005. (02)
(c) Under the provisions of the Federal Excise Rules, 2005, list the matters in relation to
registration, for which the procedures prescribed under the Sales Tax Law shall
mutatis mutandis apply in case of persons who are registered under both the Federal
Excise and Sales Tax Laws. (02)
Q.6 Yawar is working as a lead engineer in Lajawab Chemicals (Pvt) Limited (LCL). He
received following emoluments from LCL during the tax year ended 30 June 20X6.
Rupees
Conveyance allowance (per month) 18,000
In addition to the above emoluments, Yawar was also provided the following:
(i) A company maintained car for official use. The car was purchased on 1 July 20X5 at a
discounted price of Rs. 2,500,000. The fair market value of the car as on 30 June 20X6
was Rs. 2,600,000.
(ii) Travelling allowance of Rs. 150,000 for official duty in Islamabad. Actual expenses
incurred by Yawar were Rs. 110,000.
(i) Yawar has rented out his Model Town bungalow to LCL at an annual rent of
Rs. 1,092,000. The rent is inclusive of the salary of a security guard at Rs. 8,000 per
month. However, the fair market rent of the bungalow was estimated to be
Rs. 1,260,000 per annum. LCL has provided the same bungalow to Yawar for his
accommodation. Yawar paid following expenses in respect of the bungalow:
Rs. 12,000 for the repair of boundary wall, Rs. 16,000 against property tax and
Rs. 5,000 to Your Bank Limited in respect of the transfer of rent to Yawar’s account.
(ii) In March 20X6, Yawar gifted his coal mining rights in Baluchistan to his sister
Noreen who came to Pakistan for a period of three months after her stay in Paris for
several years. Yawar inherited these rights from his father in tax year 20X3 when the
fair market value of the rights was estimated at Rs. 13,600,000. His father had
originally bought the rights for Rs. 12,000,000 in tax year 20X1. The fair market value
of the rights had appreciated further by 20% when it was gifted to Noreen.
(iii) Yawar received a notice from the Commissioner of Income Tax requiring him to pay
Rs. 300,000 on account of tax payable by Small (Pvt) Limited (SPL) for tax year
20X5. According to the notice, SPL had gone into liquidation. Yawar holds 35%
shares in SPL. However, Yawar is of the view that he is liable only to the extent of his
holding in SPL.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder:
(a) Compute the taxable income of Yawar for the tax year 20X6. (11)
(b) Discuss the validity of the notice issued to Yawar as stated in note (iii) above and also
comment on the views expressed by Yawar. (05)
(THE END)

The First Schedule
Part I Division II
Part I Division III
(a) 7.5% in the case of dividends declared or distributed by purchaser of a power project
privatized by WAPDA or on shares of a company set up for power generation or on shares of
a company, supplying coal exclusively to power generation project; and
(b) 12.5% in cases other than mentioned in clauses (a) and (c);
(c) 10% in case of dividend received by a person from a mutual fund.
Certified Finance and Accounting Professional Stage Examinations

Advanced Taxation
Q.1 Multi-Tasking Limited (MTL) is a listed company engaged in the business of
manufacturing, export and supply of various products and services. Following information
has been extracted from MTL’s records for the year ended 30 September 2016.
Rupees
Gross sales:
Goods 17,000,000
Services 10,000,000
27,000,000
Cost of goods sold and services rendered (18,400,000)
Gross sales includes:
(i) Sale of beverages of Rs. 9,000,000 to one of the distributors. MTL did not collect
advance tax at the rate of 0.1% at the time of sale to distributors.
(ii) Rs. 1,500,000 in respect of interior decoration services provided to Lulu Enterprises.
Withholding tax deducted from the payment u/s 153 amounted to Rs. 120,000.
MTL earned a net profit of Rs. 400,000 on this sale.
Cost of goods sold and services rendered includes:
(i) Purchase of imported beverages of Rs. 6,900,000 from Bali Enterprises (BE), which is
a permanent establishment in Pakistan of a non-resident manufacturer in Iran. BE
sold 60% of the beverages in the same condition as they were imported whereas 40%
of the beverages were sold after adding special preservatives to suit the local
conditions. MTL made full payment without deduction of withholding tax at the rate
of 4.5% of the gross amount payable to BE.
(ii) A donation of Rs. 350,000 paid to the Citizens Foundation, listed in the Second
Schedule of the Income Tax Ordinance, 2001.
(i) Annual listing fee of Rs. 182,500 paid to Pakistan Stock Exchange Limited.
(ii) Bad debt of Rs. 200,000 written off against a loan provided to one of MTL’s previous
directors for the construction of a dwelling house.
(iii) Loss of Rs. 1,000,000 sustained by MTL on discontinuance of its print media
business in July 2015.
(iv) Computer software of Rs. 2,800,000. The software was acquired on 25 February
2016 with an estimated useful life of 4 years.
(i) Lease rentals of Rs. 900,000 paid to an approved Modaraba company in respect of a
car obtained on finance lease for marketing manager. The car was used 70% for
business and 30% for personal purposes.
(ii) Profit on debt of Rs. 680,000 paid to International Finance Corporation (IFC), a
non-resident, established under the IFC Act, 1956 and mentioned in the Second
Schedule. MTL did not withhold tax from the payment.

(i) Rent of Rs. 1,170,000 received on account of machinery provided on hire to Bhola
Limited. The rent was received after deduction of withholding tax of Rs. 130,000.
MTL did not incur any expenditure on letting out the machinery to Bhola Limited.
(ii) Rs. 2,500,000 in respect of export of web hosting services to a company in Malaysia.
82% of the export proceeds have been received in Pakistan in foreign exchange,
equivalent to MYR 89,100 through normal banking channel.
(i) During the year, MTL purchased computer hardware for Rs. 575,000, professional
books for Rs. 400,000 and furniture and fixtures for Rs. 625,000. These assets
remained in use for 146 days during the year ended 30 September 2016. MTL did not
charge any depreciation on these assets.
(ii) MTL has filed an option to opt out of the final tax regime (FTR).
(iii) Tax paid by MTL u/s 147 amounted to Rs. 1,530,000.
(iv) Assume that accounting depreciation charged during the year, on assets which
existed on 1 October 2015, is the same as their tax depreciation and that no common
expenses were incurred by MTL during the year.
Required:
compute, under the correct head of income, the total income, taxable income and net tax
payable by or refundable to MTL for the tax year 2017. (15)
Ignore WWF, WPPF, Minimum tax, Alternative Corporate Tax and default surcharge.
Q.2 Briefly describe five fundamental principles of ethics for tax practitioners. (05)
Q.3 (a) ‘Every person deriving income from business chargeable to tax, who has been issued
a National Tax Number (NTN), shall display his NTN at a conspicuous place at
every place of his business’.
Under the provisions of the Income Tax Rules, 2002 list the circumstances in which
the above persons are also required to quote their NTN. (04)
(b) In view of the provisions of the Income Tax Ordinance, 2001 describe the
circumstances in which the Commissioner may recharacterise or disregard a
transaction. (03)
(c) With reference to the relevant provisions of the Income Tax Ordinance, 2001 briefly
discuss the tax treatment of transactions in each of the following independent cases:
(i) On 1 June 2016, Wajahat received a loan of Rs. 600,000 from his brother in
cash for the purchase of a new car. Wajahat repaid the loan on 1 August 2016. (02)
(ii) On 31 May 2016 Wahab sold securities of the face value of Rs. 350,000 to his
friend Naeem with the condition to acquire them back on 15 July 2016. The
profit accrued on the securities amounted to Rs. 52,500. On 30 June 2016
Naeem received the profit on securities. On 15 July 2016 Wahab re-acquired
the same securities from Naeem. (03)
(iii) Moiz transferred his warehouse situated in Malir to Arif by way of a revocable
deed. Arif derives annual income of Rs. 800,000 from the warehouse. (02)
(iv) After incurring losses of Rs. 1,000,000 and Rs. 2,500,000 in tax years 2014 and
2015 respectively, the Directors of Gama Limited made a strategic decision and
changed 80% of the underlying ownership of Gama Limited. The new
management discontinued company’s old business and earned a profit before
tax of Rs. 4,000,000 for the year ended 30 June 2016. (04)
Q.4 Arzu Limited (AL) is engaged in multiple businesses in Karachi and is registered with
Inland Revenue Department for sales tax purposes. Following information has been
extracted from AL’s records for the month of November 2016:
(i) Purchase of raw material of Rs. 5,000,000 from persons registered under the Sales
Tax Act, 1990 as adapted in Azad Jammu and Kashmir.
(ii) Purchase of raw materials of Rs. 2,750,000 from un-registered suppliers.
(iii) Import of finished goods worth Rs. 2,500,000 from Berlin. The goods declaration
statement shows that only 60% of the amount of duty and sales tax has been paid to
Custom authorities against such import.
(iv) Purchase of agricultural equipment, covered under Eight Schedule, at Rs. 150,000.
The equipment is chargeable to sales tax at the rate of 7%.
(v) A debit note of Rs. 325,000 was received from one of the suppliers. AL has not yet
issued the corresponding credit note.
(vi) Sale of taxable goods of Rs. 2,300,000 and Rs. 1,350,000 to registered and
un-registered customers respectively.
(vii) A consignment of chemical worth Rs. 1,800,000 was supplied to registered
manufacturers belonging to five major export sectors, as specified in the Sales Tax
Act, 1990.
(viii) Free distribution of 2,000 boxes of biscuits at an annual prize distribution ceremony
of an un-registered school in Hyderabad. The biscuits were manufactured at AL’s
confectionery factory and are sold in the market at Rs. 70 per box. The biscuits are
designated as specified goods under Chapter XIII of the Sales Tax Special Procedures
Rules, 2007.
Following further information has been provided by AL’s internal auditors on completion of
sales tax audit during tax period November 2016:
(i) Unpaid sales tax invoices of Rs. 600,000 received against purchase of taxable goods
have not been claimed by AL in any of its tax returns. These invoices pertain to tax
period June 2016.
(ii) In June 2016 AL inadvertently charged output tax of Rs. 59,000 to one of its
customers as against the actual amount of Rs. 95,000. After detection of error in
November 2016, proper debit and credit notes were raised in this regard.
(iii) In September 2016, AL failed to collect federal excise duty on sale of imported
cosmetics of Rs. 425,000 to Maldar Traders. The tax manager has accepted his
negligence in this regard.
(iv) In October 2016 AL paid courier and shipping charges of Rs. 75,000 to Asan
Agencies, a service provider registered under a Provincial Revenue Board, without
withholding sales tax at the applicable rate of 1/5th of the amount of sales tax.
(v) In October 2016, AL claimed input tax credit of Rs. 85,000 on purchase of taxable
goods from Mahee Enterprises (ME). On 1 November 2016 ME was blacklisted by
the Commissioner due to a tax fraud.
(vi) Withholding sales tax of Rs. 180,000, deducted by a customer was claimed by AL in
October 2016 return. The MIS report of sales tax return however indicates that the
customer has not yet accounted for the withheld amount in his sales tax return.
(vii) In October 2016 imported stationery of Rs. 125,000 was consumed by the son of
AL’s director. AL did not pay any output tax on such consumption.
tax is payable at the rate of 17%, except for items specified in Eight Schedule, whereas
excise duty, if any, is payable at the rate of 16%.
Required:
made thereunder, compute the amount of sales tax payable by or refundable to AL for the
tax period November 2016. Also compute withholding tax, wherever applicable. (19)
Q.5 (a) In the light of the Federal Excise Act, 2005 briefly describe the provisions relating to
the following:
(i) filing of a revised return (02)
(ii) filing of special return in respect of goods and services (04)
(b) Akram Associates (AA) always submits its monthly excise return in form STR-7 on
due date and deposits the amount of duty due at the time of filing of return. On
10 November 2016, due to the death of one of AA’s partners and subsequent closure
of the firm for a period of 20 days, the October 2016 return could not be filed on
time. The amount of duty due for October 2016 amounted to Rs. 600,000. The
management has decided to file its October 2016 return and pay the duty due along
with its November 2016 return on 15 December 2016. AA is also required to pay a
penalty of Rs. 50,000 to the Sindh Revenue Board at KIBOR (KIBOR is 11%).
Required:
Under the provisions of the Federal Excise Act, 2005 compute the amount of duty
payable for the month of October 2016. (05)
Q.6 For the purpose of this question, assume that the date today is 15 August 2017.
Noman is a resident person. He is a sole proprietor and is engaged in the business of
providing embroidery services to various export houses in Punjab. Following information
has been provided by Noman for the purpose of filing his tax return for the year ended
30 June 2017.
(i) On 1 July 2015 he purchased 15,000 shares in Zed Limited (ZL) for Rs. 375,000. On
1 July 2016 ZL granted letter of rights to its shareholders to acquire 2 shares in ZL
for every 3 shares held at Rs. 20 per share. The rights were credited to the respective
shareholders’ account on 1 October 2016 when the market value of each share was
Rs. 22. On 5 November 2016 Noman sold 10,000 shares in ZL for Rs. 230,000. On
the same date he also sold the letter of rights for Rs. 50,000.
(ii) On 15 January 2017 Noman gave 5,000 shares in ZL to his son Obaid by way of a
gift. Obaid was studying in Germany and had come to Pakistan after two years to
visit his parents for a period of one month. The market value of each share at the
time of gift was Rs. 28.
(iii) On 1 June 2017 Noman sold machinery relating to his embroidery business for
Rs. 600,000. The machinery was purchased on 1 May 2016 at a special discounted
price of Rs. 525,000 and was in use for providing stitching services to an export
house in Multan. The book value of the machinery at the time of sale was
Rs. 468,125.
(iv) For the year ended 30 June 2017 Noman received gross sales value of Rs. 2,000,000
from export houses through normal banking channel and paid withholding tax of
Rs. 10,000 on such receipts. He earned a profit before tax of Rs. 300,000 during the
year.
(v) On 15 June 2017 Noman sold a cow for Rs. 150,000. The cow was purchased on
1 January 2015 at a price of Rs. 100,000 for the use of his family.
(vi) On 30 June 2017 Noman received insurance claim of Rs. 830,000 in a single
transaction against theft of two antique paintings. Painting-1 was purchased on
1 July 2016 at a cost of Rs. 445,000 whereas Painting-2 was purchased on
15 July 2016 at a cost of Rs. 403,000. The fair market value of Painting 1 and
Painting 2 at the time of theft was estimated at Rs. 459,000 and 441,000 respectively.
Required:
Under the Income Tax Ordinance, 2001 and Rules made thereunder, compute, under the
relevant head of income, the total income, taxable income and tax payable by or refundable
to Noman for the year ended 30 June 2017. Give brief reasons for your treatment of the
items in (ii), (iii) and (v) above. (19)
Q.7 (a) Under the provisions of the Sales Tax Act, 1990 when an order is treated to be
properly served under the following cases:
(i) resident individual other than in a representative capacity (04)

(ii) association of persons when dissolved (02)
(b) Under the provisions of the Sales Tax Special Procedures Rules, 2007 value addition (03)
tax is levied at import stage on imports of taxable goods. State the circumstances in
which the value addition tax shall not be charged.
(c) Under the provisions of the Provincial Sales Tax on Services Acts, briefly describe
the following:
(i) ‘provision of service’ or ‘providing of service’ (02)
(ii) public relations services (02)
(THE END)
The First Schedule

Part I Division I
Tax Rates for Every Individual and Association of Person Except for Salaried Taxpayer
S. No. Taxable income Rate of tax
1. Upto Rs. 400,000 0%
2. Exceeds Rs. 400,000 but does not exceed Rs. 500,000 7% of the amount exceeding Rs. 400,000
3. Exceeds Rs. 500,000 but does not exceed Rs. 750,000 Rs. 7,000 + 10% of the amount exceeding Rs. 500,000
4. Exceeds Rs. 750,000 but does not exceed Rs. 1,500,000 Rs. 32,000 + 15% of the amount exceeding Rs. 750,000
5. Exceeds Rs. 1,500,000 but does not exceed Rs. 2,500,000 Rs. 144,500 + 20% of the amount exceeding Rs. 1,500,000
8. Above Rs. 6,000,000 Rs. 1,319,500 + 35% of the amount exceeding Rs. 6,000,000
Part I Division II
Part I Division VII
1. Where holding period of a security is less than 12 months. 15%
2. Where holding period of a security is 12 months or more but less than 24 months. 12.5%
3. Where holding period of a security is 24 months or more but the security was acquired
7.5%
on or after 1st July, 2012.
Part III Division II

Payments to non-residents
2. The rate of tax to be deducted from payments referred to in sub-section (2) of section 152 (including
profit on debt) shall be 20% of the gross amount paid.
THE THIRD SCHEDULE

Part I
Depreciation Rates
Part II
Certified Finance and Accounting Professional Stage Examination

Advanced Taxation
Q.1 Bismil Limited (BL) is a listed company engaged in the business of manufacturing and
supply of multiple products across the country. Following information has been extracted
from BL’s records for the year ended 31 December 2016.
Rupees
Sales 160,000,000
Sales include:
(i) An amount of Rs. 15,000,000 received net of withholding tax at the rate of 4% of the
gross value of sales against sale of electric motors to a person registered under the
Sales Tax Act, 1990.
(ii) Sale of a product to an associated company for Rs. 250,000. The fair market value of
the product was Rs. 200,000.

(i) Rs. 900,000 paid to Shams Associates in respect of financial due diligence of a
company which BL is planning to acquire.
(ii) An amount of Rs. 425,000 in respect of write off of an old machine which is no
longer used by BL in its business operations. The accounting and tax written down
values of the machine were the same. The machine is expected to fetch Rs. 5,000 if
sold in the open market.
(iii) A penalty of Rs. 150,000 imposed by the Commissioner for short payment of tax in
the year 2015.
(iv) An amount of Rs. 385,000 incurred on entertainment of CEO’s guests at a hotel in
Karachi.
(v) Rs. 125,000 incurred on account of industrial training of Murad, a Pakistani citizen
working at BL’s competitors in connection with a scheme approved by the Federal
Board of Revenue. Murad is also the nephew of BL’s CEO.

(i) Profit on debt of Rs. 3,230,000 paid to non-resident persons in China. BL had issued
securities in China for the purpose of raising loan to be used for its business in
Pakistan. These securities were approved by the Federal Board of Revenue. BL did
not deduct withholding tax from the payment.

(i) A monetary award of Rs. 1,000,000 granted by the President of Pakistan for best
corporate practices in the year 2016. Besides, an amount of Rs. 300,000 was
conferred by the Governor of Sindh for BL’s contribution in rural development.
(ii) Rs. 500,000 on account of service charges charged and kept by BL out of tax withheld
from suppliers.
(iii) Rs. 120,000 received in respect of inter-corporate dividend from a subsidiary within
the group. BL owns 75% interest in the subsidiary. No withholding tax was deducted
by the subsidiary.
(i) Tax paid by BL u/s 147 amounted to Rs. 5,300,000.
(ii) Assume that tax depreciation on all assets is the same as their accounting
depreciation.
Required:
compute under the correct head of income the total income, taxable income and net tax
payable by or refundable to BL for the tax year 2017. (16)
Note: Your computation should commence with the profit before tax figure of Rs. 25,000 K.
Ignore WWF, WPPF, Minimum tax, Alternative Corporate Tax and default surcharge.
Q.2 (a) Under the provisions of the Income Tax Ordinance, 2001 compute the amount of
deduction to be allowed in computing ‘Income from business’ in each of the
following independent cases. Also give brief reason(s) for treatment of items in (iii)
and (iv) below:
(i) Alpine Pharmaceuticals Limited incurred advertisement and sales promotion
expenses of Rs. 1,300,000 and exceeded its target of annual turnover of
Rs. 20,000,000 by 7%. (02)
(ii) Sigma (Pvt) Limited (SPL) incurred interest expense of Rs. 7.5 million on a debt
of US$ 1.06 million (equivalent to PKR 113 million) obtained during the year
from Big Inc., a company incorporated in USA. SPL is 85% owned by Big Inc.
The debt was obtained to finance a project approved by the Federal
Government and the repayment of the principal was to commence after two
years. At the end of the year, SPL had total assets of Rs. 350 million, total
liabilities of Rs. 190 million and it earned a net profit after taxation of Rs. 120
million during the year. (06)
(iii) Raja Limited purchased items of promotional give-aways from the website of a
company in China for Rs. 300,000. Raja Limited did not deduct withholding tax
from the payment. (02)
(iv) Neo Limited (NL) purchased raw materials of Rs. 700,000 during the year from
Duo Limited (DL). NL paid the amount by way of online transfer of funds from
its business bank account to the bank account of one of DL’s directors without
deducting withholding tax of Rs. 28,000. (03)
(b) What do you understand by ‘Pledge call transaction’? Briefly describe the tax
treatment of a pledge call transaction under the Income Tax Rules, 2002. (05)
(c) In determining the income of a person from a transaction with an associate the
Commissioner shall apply arm’s length standard. Under the provisions of the
Income Tax Rules, 2002 list the methods which the Commissioner may apply for the
purposes of determining an arm’s length result. (02)
Q.3 Under the provisions of the Federal Excise Act, 2005 and Rules made thereunder, explain
the following:
(a) Franchise and Franchiser (05)

(b) Circumstances under which adjustment of excise duty on input goods may be
admissible for determining net liability of duty in respect of any goods manufactured (03)
(c) Conditions under which the Board may grant drawback of duty to a taxpayer (03)
Rahat and Musa are partners in RM Associates (RMA), a firm engaged in the business of
providing consultancy and book keeping services to clients in Pakistan as well as abroad.
Rahat and Musa share profits and losses in the ratio of 4:5 respectively. Following is an
extract from RMA’s profit and loss account for the year ended 30 June 2017:
Rupees
Net revenue 36,500,000
Less:
Salaries (19,780,000)
Rent (1,250,000)
Depreciation/amortization (accounting) (1,680,000)
Software expense (650,000)
Interest expense (135,000)
Other expenses (1,655,000)
Total expenses (25,150,000)
Income before tax for the year 11,350,000
(i) Net revenue includes the following:
Retainership fee of Rs. 19,710,000 from corporate clients. Withholding tax at the
rate of 7% of the gross receipt was deducted by such clients and the amount is
included in other expenses.
An amount of Rs. 6,210,000 received under an agreement from a Doha based
company, Isra Middle East, for providing technical services in Doha. The
amount was brought into Pakistan in foreign exchange in compliance with the
regulations of the State Bank. No tax was deducted from the receipt either in
Doha or in Pakistan by the bank.
Rs. 10,580,000 on account of on-line accounting services provided to various
clients in Iran and Afghanistan. The amount was received in foreign exchange
through normal banking channel. Withholding tax at the rate of 1% of the gross
receipts was deducted by the collecting bank and the amount is included in other
expenses.
(ii) Salaries include Rs. 290,000 and Rs. 355,000 respectively paid to Rahat and Musa
per month.
(iii) The rent was paid in respect of office premises to Lalazar Limited. RMA did not
deduct withholding tax from the payment.
(iv) Software expense represents purchase of a software on 1 January 2017.
(v) Interest expense was in relation to a vehicle obtained on finance lease. Lease rentals
paid during the year amounted to Rs. 800,000. The lease term of the vehicle ended on
1 June 2017, on which date RMA acquired the vehicle at a residual value of
Rs. 950,000. The market value of the vehicle at the date of its transfer to RMA was
estimated at Rs. 1,150,000.
(vi) The tax written down values of RMA’s assets on 1 July 2016 were as follows:
Assets Rupees
Furniture and fixtures 1,700,000
Computers and laptops 840,000
Accounting software (remaining life of 5 years) 5,000,000
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute the taxable income and
net tax liability of RMA for the tax year 2017. (16)
Note: show all relevant exemptions, exclusions and disallowances. Tax rates are given on the last page.
Q.5 Pasdar Limited (PL) is engaged in the business of production, import and trading of variety
of products and is registered with the Inland Revenue Department for sales tax purposes.
Following information has been extracted from PL’s records for the month of May 2017:
Rupees
Purchases:
Raw material:
from cottage industries 1,500,000
Import – finished goods 5,000,000
Supplies:
(i) Raw material purchased from local registered suppliers includes packing material
worth Rs. 850,000 purchased for textile products.
(ii) The imports include tyres of Rs. 800,000 which were used in PL’s delivery vans.
Tyres are designated as specified goods under Chapter XIII of the Sales Tax Special
Procedure Rules, 2007.
(iii) Annexure C of the sales tax return for March 2017 shows that a sales tax invoice of
Rs. 480,000 had not been claimed by the buyer. Upon scrutiny it was disclosed that
goods were actually sold to an un-registered person however due to inadvertence the
invoice was entered in the name of a registered person.
(iv) On 15 May 2017, PL received an invoice of Rs. 3,000,000 from Najib Brothers (NB),
a specialized workshop for industrial machinery in Islamabad. NB provided
overhauling services to PL and charged sales tax at the rate of 5% under the
Islamabad Capital Territory (Tax on Services) Ordinance, 2001.
(v) On 20 May 2017, PL acquired the ownership of a taxable activity of Glaze
Enterprises (GE), as an ongoing concern for Rs. 10,500,000. GE issued a sales tax
invoice in the name of PL and received the entire amount of sale proceeds from PL.
(vi) PL paid Sindh Sales Tax of Rs. 50,000, Punjab Sales Tax of Rs. 65,000 and Federal
Excise Duty of Rs. 45,000 in respect of franchise fees to a non-resident franchisor.
(vii) Taxable supplies to registered persons include the following:
Supply of Electric Irons worth Rs. 500,000 to a distributor in Hyderabad. Electric
Irons are designated as specified goods under Chapter XIII of the Sales Tax
Special Procedure Rules, 2007. The Irons were purchased from a commercial
importer in March 2017.
Supply of goods worth Rs. 2,700,000 to the Local Government. PL had imported
these goods from China in April 2017 at Rs. 2,200,000 and had paid 3% value
addition tax at the time of import.
Rest of the goods were supplied to various dealers in Sindh and Punjab.
(viii) Taxable supplies to un-registered persons include second hand worn clothing of
Rs. 200,000 which was supplied to a retail outlet in Okara. Second hand worn
clothing falls under PCT heading 6309.0000 and is covered under Serial No. 3 Table-
II of SRO 1125(I)/2011 and accordingly chargeable to sales tax at the rate of 5%.
(ix) On 25 May 2017, one of PL’s finished goods warehouse was destroyed by fire and all
the goods stored were burnt to ashes. The goods were insured and PL received
Rs. 2,750,000 from the insurance company in settlement of its claim. PL had claimed
input tax of Rs. 325,000 on these goods in the April 2017 return.
(x) PL distributed gift vouchers worth Rs. 450,000 among its customers. The vouchers
were to be redeemed at any time between July to September 2017.
(xi) As part of a settlement deal with AB Bank Limited, PL agreed to set off its
hypothecated stock of Rs. 750,000 against an overdue loan of Rs. 950,000. The open
market price of the goods was estimated at Rs. 1,100,000.
(xii) PL received a notice from the Deputy Commissioner of Inland Revenue demanding
sales tax on promotional give-aways worth Rs. 235,000 which were distributed in
March 2017. The tax department however accepted PL’s contention that the
non-payment of sales tax was due to misconstruction on part of the company.
(xiii) PL’s Wholesale-cum-Retail Outlet received Rs. 2,350,000 in cash against supply of
lubricants to a registered person. The lubricants were purchased from a manufacturer
in April 2017 who had charged sales tax and extra tax on such supplies.
the rate of 17%.
Required:
made thereunder, compute the amount of sales tax payable by or refundable to PL for the
tax period May 2017. Also compute withholding tax, wherever applicable. (19)
Q.6 ‘Apart from financing government’s operational expenditures, taxation also assists in
achieving non-revenue objectives of social and economic development in a country.’ List
any five non-revenue objectives of taxation. (05)
Q.7 (a) Under the provisions of the Sales Tax Withholding Rules, 2007 state the persons who
may be regarded as withholding agents. (03)
(b) In the light of the provisions of the Sales Tax Act, 1990 and Rules made thereunder,
fill in the following blanks with the appropriate answers:
(i) With regard to refund of input tax, where there is reason to believe that a
person has claimed input tax credit or refund which was not admissible to him,
the proceedings against him shall be completed within ___________. For the
purpose of enquiry or audit or investigation regarding admissibility of the
refund claim, the above period may be extended up to ___________ by an
officer not below the rank of ___________ and the ___________ may, for
reasons to be recorded in writing, extend the aforesaid period which shall in no
case exceed ___________. (2.5)
(ii) In case of transfer of ownership of a taxable activity to a non-registered person,
the possession of taxable goods by the registered person shall be deemed to be
___________. If the tax payable by such registered person remains unpaid, the
amount of unpaid tax shall be ______________ of the business and shall be
payable by the _____________ of the business. (1.5)
(iii) Jami, a registered exporter, purchased taxable goods worth Rs. 500,000 from
Asif Enterprises (AE), an un-registered supplier who is liable to be registered
under Chapter I of the Sales Tax Rules, 2006. Jami shall deduct sales tax of
Rs. ____________ from the payment due to AE under the Sales Tax Special
Procedure (Withholding) Rules, 2007. (01)
(c) Under the provisions of any one of the Provincial Sales Tax on Services Acts,
describe the application of the principle of origin and reverse charge. (05)
(THE END)
The First Schedule

Part I Division I
1. Upto Rs. 400,000 0%
Part I Division II
Part I Division III

(a) 7.5% in the case of dividends declared or distributed by purchaser of a power project privatized by
WAPDA or on shares of a company set up for power generation or on shares of a company,
supplying coal exclusively to power generation project; and
(b) 12.5% in cases other than mentioned in clauses (a) and (c);
(c) 10% in case of dividend received by a person from a mutual fund.
Part III Division II

Payments to non-residents
2. The rate of tax to be deducted from payments referred to in sub-section (2) of section 152 (including
profit on debt) shall be 20% of the gross amount paid.
THE THIRD SCHEDULE

Part I
Depreciation Rates
Part II

Advanced Taxation
Q.1 For the purpose of this question, assume that the date today is 30 September 2018.
Loyal (Pvt) Limited (LPL) is engaged in various businesses across Pakistan. The company
has a paid up capital of Rs. 52 million. Following information has been extracted from
LPL’s records for tax year 2018:
Rupees
Total turnover 54,520,000
Total expenses (47,895,000)
Accounting profit before tax 10,975,000
Total turnover include:
(i) Sale of Rs. 21,750,000 (inclusive of sales tax at the rate of 17%) to one of the
customers in Balakot. A special discount of 30% of the gross value of sales was
offered to the customer in defiance of normal business practices.
(ii) Sale of surgical gloves of Rs. 14,931,000 to a government hospital in China. LPL
realized the entire sale proceed during the year after deduction of 1% withholding tax
by the authorised dealer.
(iii) Rs. 2,000,000 for providing engineering services to Sami enterprises (SE) in
Islamabad. Withholding tax was deducted u/s 153 at the rate of 8%. LPL has not
submitted any undertaking under clause 94 of Part IV of the Second Schedule.
Total expenses include:

(i) Import of packing material of Rs. 900,000 for packing of surgical gloves sent to
China. Tax paid u/s 148 amounted to Rs. 49,500.
(ii) Accounting depreciation of Rs. 2,520,000.

(i) Prize of Rs. 300,000 on prize bond. Tax deducted u/s 156 amounted to Rs. 45,000.
(ii) Dividend of Rs. 25,000 received from a corporate agricultural enterprise from its
agricultural income as specified in Second Schedule to the Income Tax Ordinance,
2001. Withholding tax was not deducted at the time of payment.
(iii) Share of profit of Rs. 3,900,000 from an associate, recognized under equity method of
accounting.
(iv) Income tax refund of Rs. 125,000 related to tax year 2016.
Other information (not included above):

(i) Share of profit of an AOP amounting to Rs. 875,000. LPL holds 40% interest in the
AOP. The gross turnover of the AOP during tax year 2018 amounted to
Rs. 18,600,000
(ii) Total tax depreciation amounts to Rs. 4,800,000.
(iii) Assessed tax loss brought forward from tax year 2017 amounts to Rs. 475,000.
Required:
compute the amount of tax payable by LPL for tax year 2018. State the amount of tax to be
carried forward, if any. (23)
Q.2 (a) Pakiza Limited (PL), an unlisted public company, was engaged in the business of
producing dairy products in Punjab. On 1 January 20X5, PL established a new
factory in Badin where the Federal Government has allowed one-year tax exemption
to all new businesses. PL imported plant and machinery for its new factory at a cost
of Rs. 8,200,000 from Japan. PL received a Provincial grant of Rs. 1,000,000 for
installing the machinery in Badin whereas the actual expenditure on installation
amounted to Rs. 700,000. Transportation cost of Rs. 200,000 was paid for bringing
the machinery to the factory. During installation, one of the parts was damaged
which had to be replaced at a cost of Rs. 45,000. PL also paid a premium of
Rs. 50,000 for insuring the machinery against fire and theft. A cost of Rs. 5,000,000
was incurred towards construction of building and Rs. 1,200,000 for the acquisition of
furniture and fittings. The factory was completed by the end of June 20X5 and
commercial production started on 1 July 20X5.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute tax depreciation
which PL may claim as deduction in computing its taxable income for the year ended
30 June 20X7. (06)
Note: Depreciation rates are given on the last page.
(b) Under the provisions of the Income Tax Ordinance, 2001 who may be appointed by
the Federal Government as a judicial and accountant member of the Appellate
Tribunal? (06)
(c) Under the provisions of the Income Tax Rules, 2002 what would be considered as the
date of acquisition in each of the following cases?
(i) Acquisition of a security on account of a nomination under section 80 of the
Companies Ordinance, 1984 under bequest. (02)
(ii) Borrowed security. (01)
Masood and Ali Hassan established a consultancy firm, MH Associates (MHA), for
providing accounting and taxation services to SMEs in Punjab. They share profits and losses
in the ratio of 60:40 respectively. During the year ended 30 June 2018 MHA earned profit
before tax of Rs. 6,000,000 which included of an exempt income of Rs. 800,000. MHA’s tax
liability for the year amounted to Rs. 1,079,500. However, MHA paid Rs. 1,100,000 as
advance tax against the tax liability.
Following further information is available about Masood for the year ended 30 June 2018:
(i) On 1 May 2016 Masood received 3,000 shares, by way of a gift from his father, in
Lucky Inc., a company registered on Toronto Stock Exchange. On 1 January 2014 his
father had bought these shares at a price of CAD 20 per share (equivalent to
PKR 1,300 per share). The market value of each share at the time of transfer to
Masood was CAD 28 (equivalent to PKR 2,100 per share).
On 15 June 2018 Masood sold 2,500 shares in Lucky Inc. to an investor for CAD 32
per share and paid a brokerage commission of CAD 0.2 per share to the stock broker.
He also paid income tax of CAD 1,500 to the tax authorities in Toronto. The
exchange rate at the time of above transaction was CAD 1 = PKR 90.
(ii) On 10 June 2018 Masood received royalty of Rs. 2,300,000 on publication of his book
‘Slum-Dwellers’ on children living in urban slums. It took him nineteen months to
complete the book. The entire cost of publication was borne by the publisher.
Masood’s average rates of tax for the last two tax years were 17% and 19%
respectively.
(iii) On 20 June 2018 Masood earned gross rent of Rs. 150,000 from a construction
company for using his fork lifter on their site. The company withheld tax of
Rs. 12,000 from the payment. Masood incurred Rs. 15,000 for repair of the fork lifter.
(iv) On 30 June 2018 Masood paid Rs. 50,000 in cash on account of Zakat to an approved
NGO.
Required:
compute the total income, taxable income and tax payable by or refundable to Masood for
tax year 2018. (12)
Q.4 (a) Describe the provisions of the Federal Excise Rules, 2005 related to cancellation of
registration of a person who is not registered for sales tax purposes and has ceased to
provide or render excisable services. (04)
(b) Identify and state the authority who may and the circumstances under which any
goods or class of goods or any services or class of services may be exempted from the
levy of whole or any part of the excise duty under the Federal Excise Act, 2005. (04)
(c) Under the provisions of the Federal Excise Act, 2005 briefly describe the concept of
‘Sales tax mode’. Also describe the relevant provision which specifies the type of
goods and services on which excise duty is liable to be charged in sales tax mode. (04)
Note: List of goods and services and the manner of payment is not required.
Q.5 Quick Fox Limited (QFL) is a multinational company and is registered as a manufacturer,
importer, wholesaler and retailer with the Regional Tax Office of Inland Revenue
Department in Karachi. Following information has been extracted from QFL’s records for
the month of November 2017:
Rupees
Purchases from registered suppliers 3,900,000
Purchases from un-registered suppliers 1,058,000
Advance from customers 117,000
Imports 852,000
(i) Purchases from registered suppliers include the following:
lubricating oil worth Rs. 380,000 purchased from an oil marketing company for
in-house consumption. Lubricating oil is designated as specified goods under
raw material of Rs. 390,000 and Rs. 225,000 purchased from SL on 6 November
2017 and 20 November 2017 respectively. On 15 November 2017 the
Commissioner suspended SL’s registration for claiming fraudulent refunds.
goods covered under Third Schedule, worth Rs. 285,000 purchased from Nayab
Associates (NA). QFL, upon instructions from NA, directly deposited cash
amounting to Rs. 285,000 into its bank account.
(ii) Purchases from un-registered suppliers consist of the following:
packing material of Rs. 358,000 which was purchased from a supplier who was
liable to be registered with sales tax authorities.
edible fruits, covered under Sixth Schedule, of Rs. 700,000.
(iii) Taxable supplies to registered persons include the following:
goods worth Rs. 435,000 supplied to a manufacturer for onward sale to an
exporter holding concessions under DTRE scheme.
tyres worth Rs. 660,000. These tyres were purchased from a local manufacturer,
which was a cottage industry, in October 2017. The tyres are designated as
specified goods under Chapter XIII of the Sales Tax Special Procedure Rules,
2007.
(iv) Taxable supplies to un-registered persons consist of the following:
sale of 150 bicycles, covered under Fifth Schedule, to un-registered dealers in
Multan for Rs. 900,000. The bicycles were purchased in August 2017.
sale of goods worth Rs. 310,000 to end consumers.
(v) Imports comprise of air conditioners worth Rs. 852,000. These were imported by
QFL’s wholesale-cum-retail division for sale through its own outlets. Air conditioners
are designated as specified goods under Chapter XIII of the Sales Tax Special
(vi) Other income includes gain on disposal of a truck of Rs. 105,000. The truck was sold
to an active tax payer for Rs. 1,205,000. No sales tax was recorded on this
transaction.
(i) In August 2017, QFL’s car rental division imported wheel alignment machine for
in-house use. 3% value addition tax of Rs. 18,000 was not paid at import stage.
(ii) In July 2017 QFL sold certain taxable goods worth Rs. 535,000 to an un-registered
wholesaler at a wholesale price of Rs. 50 per pack and collected further tax at the rate
of 2% of the value of supplies. In November 2017, the internal auditor pointed out
that these goods were covered under Third Schedule. The retail price of these goods at
the time of sale was Rs. 65 per pack.
(iii) In May 2017 QFL inadvertently collected sales tax of Rs. 45,000 from a customer as
against the applicable tax of Rs. 54,015. QFL had applied to the Commissioner IR for
the revision of the return however, no reply has so far been received in this regard.
All the above figures are exclusive of sales tax, except where it is implied otherwise. Sales
tax is payable at the rate of 17%.
Required:
compute the amount of sales tax payable by or refundable to QFL and input tax to be
carried forward, if any, for the tax period November 2017. Also compute withholding tax,
wherever applicable. (17)
Note: Show all relevant exemptions, exclusions and disallowances. Ignore default surcharge.
Q.6 (a) Under the provisions of Article 160 of the Constitution of Pakistan, briefly describe
how National Finance Commission is constituted and who may be the member(s) of
such Commission. (03)
(b) It is the duty of the National Finance Commission to make recommendations to the
President with regard to matters relating to finance. List any three such
recommendations. (03)
Q.7 (a) What do you understand by the term ‘Tier-1 retailers’? State the provisions relating to
payment of sales tax by such retailers under the Sales Tax Act, 1990. (06)
(b) Under the provisions of the Sales Tax Rules, 2006 briefly describe the following:
(i) Persons not entitled to represent a taxpayer before the Appellate Tribunal. (02)
(ii) The circumstances in which the Board may cancel the registration of the user
authorized to use the computerized system. (02)
(c) Under the provisions of any of the Provincial Sales Tax on Services Acts, describe:
(i) the activity(ies) which have specifically been excluded from the ambit of
‘Economic activity’. (02)
(ii) the term ‘Person’. (03)
(THE END)
TAX AND DEPRECIATION RATES
1. Upto Rs. 400,000 0%


(b) 15% in cases other than mentioned in clauses (a) and (c);
(c) 12.5% in case of dividend received by a person from a mutual fund if the amount of dividend is
above 2.5 million and 10% if the amount of dividend is less than or equal to 2.5 million.
Minimum tax under section 113

S. No. Person(s) Minimum Tax
4. In all other cases (including LPL). 1.25%
Payments to resident person for right to use machinery and equipment

Rate of collection of tax under section 236Q shall be 10% of the amount of payment.
Depreciation Rates

The rate of initial allowance for applicable eligible depreciable assets is 25%.

Advanced Taxation
Q.1 For the purpose of this question, assume that the date today is 31 December 2018.
Rozgar (Pvt) Limited (RPL) was incorporated in Pakistan with a paid-up capital of
Rs. 55 million. It is a 70% owned subsidiary of Alpha Plc. (a British company controlled and
regulated by the British Government). RPL is engaged in the business of manufacturing
various products. Following information has been extracted from RPL’s records for the year
ended 31 March 2018.
Rupees
Cost of goods sold (184,425,000)
Taxation (4,228,938)
Profit after taxation 18,676,062
(i) Gross sales includes sale of milled limestone and marble of Rs. 85,000,000 to various
oil and gas companies in Europe. 80% of the sale proceeds were realized during the
year after deduction of 1% withholding tax.
(ii) Cost of goods sold includes purchase of raw material of Rs. 3,500,000 from a grower
of agricultural produce. No tax was deducted from payments made to the grower.
RPL received prescribed certificate from the grower under Part IV of the Second
Schedule.
(iii) Administrative and selling expenses include:
Bad debt of Rs. 175,000 being the write off of a loan granted in 2016 to one of
RPL’s shareholders.
Penalty of Rs. 75,000 against non-payment of sales tax in time. The amount was
paid in cash.
Rs. 5,150,000 spent on the construction of a library building for an educational
institution established by the Local Government in Mardan under RPL’s CSR
scheme.
(iv) Financial charges include Rs. 50,000 incurred on securing overdraft facilities for
working capital requirement.
(v) Other income includes:
Rs. 1,800,000 on account of export of IT services, as defined in Part I of the
Second Schedule, to a company in Sri Lanka. 70% of the export proceeds were
brought into Pakistan in foreign exchange through normal banking channels
whereas balance was adjusted against technical assistance received with regard to
RPL’s manufacturing processes. Tax deductible on receipt of technical assistance
at the rate of 15% was paid by RPL and is included in administrative expenses.
The debtor balance relating to the above technical assistance remained
un-adjusted at the end of financial year.
Rs. 2,600,000 in respect of unrealized gain arising on revaluation of foreign
currency debtors.
Dividend-in-specie received on 1 July 2017 in the form of 25,000 listed shares in

Freeze Limited (FL). The dividend income was recorded by RPL at Rs. 35 per
share. Tax of Rs. 131,250 was collected from RPL in respect of dividend-in-
specie.
On 1 March 2018 RPL sold 10,000 shares in FL at a negotiated price of
Rs. 38 per share to a local institutional investor. The market value of these shares
at the time of sale was Rs. 36 per share. The gain on sale amounting to
Rs. 30,000 is included in other income.
Rs. 300,000 earned on trading of borrowed shares. RPL borrowed 15,000 shares
of a listed company from Beta Limited (BL) for four months. The agreed value of
the borrowed shares was Rs. 120 per share on which mark-up for four months
was to be paid by RPL @ 10% per annum. RPL sold such borrowed shares at
Rs. 125 per share and subsequently on the agreed date of return of shares, RPL
re-purchased 15,000 shares at Rs. 105 per share. At the time of settlement, RPL
also paid the mark up on borrowed shares as agreed. The mark-up is included in
financial charges.
(vi) For tax year 2018, RPL declared and paid 10% dividend to its shareholders.
(vii) RPL has filed an option u/s 154 to opt out of the final tax regime (FTR).
(viii) Tax paid by RPL u/s 147 amounted to Rs. 2,860,000.
(ix) Accounting depreciation charged during the year is the same as tax depreciation.
Required:
payable by or refundable to RPL for tax year 2018. (19)
Ignore WWF, WPPF, Minimum tax u/s 113, Alternative Corporate Tax and default
surcharge.
Q.2 (a) Under the provisions of the Income Tax Ordinance, 2001 briefly describe the
following:
(i) when a revised return filed by a person u/s 114 shall be treated as an invalid
return. (04)
(ii) the circumstances in which a taxpayer, filing a revised return, is not required to
pay the penalty. (03)
(b) Under the provisions of the Income Tax Rules, 2002 describe the term ‘MNE group’
in relation to the country-by-country reporting requirement. (04)
(c) Paragon (Pvt) Limited (PPL) owns a piece of agricultural land in Sehwan. On
1 January 2017, PPL rented out the land for poultry farming on commercial basis to
one of its associates, Hen Enterprises, at a monthly rent of Rs. 200,000. However, the
annual letting value of similar land in the area is estimated at Rs. 2,880,000. PPL also
received a non-adjustable deposit of Rs. 800,000 from Hen Enterprises.
Following expenses were incurred by PPL in respect of the land during the year
ended 31 December 2017:
(i) Ground levelling expenses Rs. 50,000.
(ii) Property tax Rs. 150,000.
(iii) Rent collection charges Rs. 12,000.
(iv) Interest accrued on mortgage of land Rs. 75,000.
(v) Insurance premium against the risk of water logging Rs. 30,000.
Required:
Under the provisions of the Income Tax Ordinance, 2001 calculate PPL’s taxable
income for tax year 2018. (06)
Q.3 AB Limited (AB) is an un-listed public company engaged in the business of manufacturing
consumer durables. AB is member of a group of five companies, with HL (Pvt) Limited
(HL) being the holding company. Except AB, all other companies in the group were
incorporated as private limited companies. HL is engaged in the processing of dairy milk in
Punjab and owns 70% shares in AB.
AB’s assessed loss for the year ended 30 September 2017 is Rs. 9,800,000 which is inclusive
of a loss of Rs. 500,000 on account of sale of shares of an un-listed public company and a
loss of Rs. 80,000 incurred on sale of delivery truck. AB also sustained a loss of Rs. 200,000
on sale of a rare manuscript held for decoration purposes. This loss is however not included
in the assessed loss for the year. AB has a brought forward assessed loss of Rs. 2,500,000
from tax year 2017 and intends to surrender its losses in favour of HL.
During the year ended 31 December 2017 HL earned a profit before tax of Rs. 11,000,000
which includes:
(i) royalty of Rs. 950,000 received from a foreign enterprise in consideration for the use
of a formula outside Pakistan, which is covered under 2nd Schedule.
(ii) profit on debt of Rs. 100,000.
(iii) rent of Rs. 600,000 from a land used for agricultural purposes.
(iv) gain on disposal of immoveable property of Rs. 450,000. The immoveable property
was allotted to HL by the Provincial Government in April 2017 for the promotion of
cattle farming in Punjab.
Tax paid by HL u/s 151 and u/s 153 amounted to Rs. 10,000 and Rs. 2,440,000
respectively.
Required:
Under the provisions of the Income Tax Ordinance, 2001:
(a) Compute taxable income under correct head of income and the amount of tax
payable by or refundable to HL for tax year 2018. Also give reason(s) for your
treatment of losses to be surrendered by AB in favour of HL. (08)
(b) What would be your answer in (a) above if HL had 98% shares in AB? Also state the
amount of cash, if any, which HL may be required to transfer to AB with the
approval of the board of directors. (08)
Ignore WWF, WPPF, Minimum tax u/s 113, Alternative Corporate Tax, and default
surcharge.
Q.4 (a) Under the provisions of the Sales Tax Act, 1990 identify the persons who may be
allowed to import goods or a class of goods without payment of the whole or any part
of the tax payable thereon and the authority who may grant such approval(s). (03)
(b) Under the provisions of the Sales Tax Special Procedure (Withholding) Rules, 2007
identify the persons who may be regarded as withholding agents, for the purpose of
deduction and deposit of sales tax. (03)
(c) Under the provisions of the Sales Tax Rules, 2006 for the purpose of selection of
cases for audit on parametric basis, who shall determine the risk parameters to be
used for balloting? State the factors on which audit selection parameters may be
based. (05)
(d) Under the provisions of any one of the Provincial Sales Tax on Services Acts, briefly
describe the following:
(i) when a taxable service shall be considered to have been provided in the tax
period. (02)
(ii) possible actions the Board/Authority is required to take if the suspension of a
person’s registration is not withdrawn within sixty days. (03)
Q.5 Rahmate Ramzan Limited (RRL) is a company registered as manufacturer, importer and
distributor with the Inland Revenue Department for sales tax purposes. Following
information is available from RRL’s records for the month of May 2018:
Rupees
Purchases
From registered suppliers 5,000,000
From un-registered suppliers 2,345,000
Imports 1,850,000
Supplies
raw material worth Rs. 200,000. The material was used as a constituent in the
manufacture of taxable goods destroyed in semi manufactured condition during
a manufacturing process.
electric bulbs and telephone sets worth Rs. 2,800,000. These items are designated
as specified goods under Chapter XIII of the Sales Tax Special Procedure Rules,
2007 and were purchased in cash from Dunhill Stores, which is registered as a
wholesaler-cum-retailer.
(ii) Purchases from un-registered suppliers include goods worth Rs. 1,280,000 covered
under Third Schedule whereas rest of the goods are covered under Sixth Schedule.
(iii) The imports consist of agricultural tractor of Rs. 1,017,500 and other agricultural
equipment of Rs. 832,500 both imported from Holland. The import was against
specific customer order and is covered under the Eight Schedule. Agricultural tractor
is charged to tax at the rate of 5% whereas tax rate applicable to the agricultural
equipment is 7%.
lubricating oil worth Rs. 1,500,000, covered under Chapter XIII of the Sales Tax
Special Procedure Rules, 2007. It was supplied to Ormara Tractors Limited
under a Morabaha arrangement. The oil was imported from Nigeria in March
2018.
supply of 200 fans worth Rs. 700,000 to DB (Pvt) Limited (DB), situated in EPZ.
RRL also supplied electronic components of Rs. 300,000 to DB for further
manufacturing of goods. Both fans and components were acquired from a
cottage industry in April 2018. Fans are designated as specified goods under
supply of an old packing machine to a courier company at Rs. 2,500,000. The
machine was purchased in 2015 at a cost of Rs. 3,200,000. The courier company
is registered with Balochistan Revenue Authority as a courier service provider.
supply of stores worth Rs. 125,000 for consumption aboard a flight proceeding to
Islamabad.
(v) Taxable supplies to un-registered persons include goods worth Rs. 875,000 which
were supplied to an individual, Sarwat Kirmani, whose annual turnover from exempt
sales amounted to Rs. 60,000,000 and his utility bills for the last twelve months
amounted to Rs. 500,000. The rest of the supplies under this category were made to a
cottage industry in Sialkot.
the rate of 17%, except where it is implied otherwise.
Required:
compute the amount of sales tax payable by or refundable to RRL and input tax to be
carried forward, if any, for the tax period May 2018. Also compute withholding tax,
wherever applicable. (16)
Q.6 (a) Under the provisions of the Federal Excise Act, 2005 briefly describe the
circumstances under which a person may be required to pay default surcharge.
Identify the duration of time which may be considered as a period of default and the
rate at which the default surcharge should be paid. (05)
(b) On 1 July 2014 Shahrukh supplied excisable goods to Mubarak Enterprise (ME) in
Export Processing Zone. Shahrukh did not levy excise duty on these goods
considering that these would be used for further manufacturing but ME used these
goods for in-house consumption.
On 1 January 2018 Shahrukh was serviced with a notice from the Office of Inland
Revenue requiring him to show cause for non-payment of duty on goods supplied to
ME.
Required:
Under the provisions of the Federal Excise Act, 2005:
(i) Explain whether Officer Inland Revenue was justified in issuing the show cause
notice to Shahrukh. (03)
(ii) Describe the period within which the Officer Inland Revenue must decide the
above case. (03)
Q.7 Briefly describe the following:
(a) any three pillars of tax administration which help to safeguard the interest of the tax
payers. (03)
(b) the terms ‘Tax evasion’ and ‘Tax avoidance’. (02)
(THE END)
TAX RATES


(b) 15% in cases other than mentioned in clauses (a) and (c);
(c) 12.5% in case of dividend received by a person from a mutual fund if the amount of dividend is
above Rs. 2.5 million and 10% if the amount of dividend is less than or equal to Rs. 2.5 million.
Part I Division VII

2. Where holding period of a security is 12 months or more. 15%
Part I Division VIII

Capital Gains on disposal of Immovable Property
S.No. Period Rate of tax
For immovable property allotted to persons mentioned in sub-section (4) of section 236C
1. Immovable property is held irrespective of the holding period. 0%
For immovable property acquired on or after July 1, 2016, other than those mentioned against S. No. 1.
2. Where holding period of immovable property is up to one year. 10%
3. Where holding period of immovable property is more than or equal to one year but
7.5%
less than two years.

Advanced Taxation
Ali Mir has sought your advice for filing his tax return for the year ended 30 June 2019 and
has provided following information for tax year 2019:
Rupees
Income from salary 1,493,200
Income from business 725,000
Income from property 960,000
Income from other sources 1,050,000
(i) Income from business includes the following:
a consideration of Rs. 120,000 for vacating the possession of a building acquired
on rent in 2015. Ali Mir had paid Rs. 60,000 to the land lord for acquiring the
possession of that building.
deemed income of Rs. 92,000 in respect of a loan received through a bearer
cheque.
a loss of Rs. 430,000 from speculation business.
a gain of Rs. 125,000 on sale of derivative products.
(ii) Income from property includes Rs. 180,000 received in respect of services of a
watchman provided by Ali Mir to his tenant. The salary paid by Ali Mir to the
watchman amounted to Rs. 168,000. Ali Mir also incurred following expenses in
respect of the property: Ground rent Rs. 8,000, Rent collection charges Rs. 3,000 and
Repair expenses Rs. 22,000. These expenses have not been considered in computing
the income from property.
(iii) Income from other sources includes a loss of Rs. 65,000 incurred on sale of
agricultural produce to a foreign NGO operating in rural areas of Sindh.
Other information: (not included in the incomes mentioned above)

(i) Income from foreign speculation business amounted to Rs. 500,000.
(ii) Earned Rs. 175,000 as return on investment in sukuks from a public company.
(iii) Ali Mir also served as a visiting faculty member for four months at a business school
in Karachi. He earned Rs. 380,000 from the school and incurred an expenditure of
Rs. 20,000 for providing the service. Withholding tax deducted by the school
amounted to Rs. 17,800.
(iv) Loss on sale of shares in a listed company brought forward from tax year 2018
(v) Ali Mir paid tuition fees of Rs. 900,000 for his three children.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute under the correct head of
income, the total income and taxable income of Ali Mir for tax year 2019. (15)
Notes: Show all relevant exemptions, exclusions and disallowances.
Computation of income under correct head of income and total income carry marks.
Empress Limited (EL), an un-listed public company resident in Pakistan is engaged in the
business of manufacture and sale of children garments and onyx products both locally and
in international markets. EL has two foreign branches situated in Jordan and Morocco. EL
is 72% owned by Tulip S.A. a company incorporated in Belgium and 20% by a Sweden
based company, Rose Inc. Following information is available from EL’s records for the year
ended 30 June 2019.
Pakistan operation Foreign branches

Local Export Jordan Morocco
-------------------------- Rupees --------------------------
Sales 49,000,000 3,850,000 11,600,000 19,500,000
Profit before tax 2,200,000 1,925,000 3,248,000 5,850,000
Taxes paid during the year (770,000) (38,500) (876,000) (1,872,000)
The profit before tax from local operation has been arrived after considering the following:
(i) Profit on debt of Rs. 5,680,000 incurred on a debt of US$ 1,250,000 (equivalent to
Rs. 162,500,000). The debt was obtained during the year from Tulip S.A. and is
repayable after three years. It was obtained for a project in Sindh and is duly approved
by the Federal Government for the purpose of Second Schedule.
(ii) Profit on debt of Rs. 3,200,000 incurred on a debt of US$ 820,500 (equivalent to
Rs. 106,665,000). The debt was obtained on 1 January 2019 from Rose Inc. for
working capital. The principal repayment would commence from 1 January 2020.
(iii) An amount of Rs. 290,000 written back against excess provision made for bad debts
in tax year 2018.
(iv) Cost of Rs. 325,000 in respect of a ramp built at EL’s customer care department for
providing access to disabled customers.
EL’s equity at 30 June 2019 amounted to Rs. 190,000,000 (2018: Rs. 59,133,500).
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute the taxable income and
net tax payable by or refundable to EL for tax year 2019. Give brief reason(s) for the
treatment of the items which do not appear in your computation. (12)
Note: EL’s tax rate for tax year 2019 is 29%.
Q.3 Briefly describe the five fundamental principles of ethics for tax practitioners. (05)
Q.4 (a) Massive (Pvt) Limited (ML) is engaged in the business of manufacturing and selling
consumer durables. ML’s income year ends on 30 September each year. Due to
unavoidable circumstances, the return of income u/s 114 for tax year 2018 was filed
on 5 December 2018. Following information has been extracted from ML’s return for
tax year 2018:
Rupees
Total income 12,500,000
Donation paid to Al-Shifa Trust under Second Schedule 500,000
Advance tax paid u/s 147 3,200,000
The tax rate applicable to tax year 2018 is 30%.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute the amount of
tax, default surcharge and penalty payable by ML, if any, to the tax authorities. (07)
(b) For the purpose of this part of question, assume that the date today is
31 August 2019.
Ali Murad holds 10,000 shares in Tit Limited (TL). He acquired these shares on
30 June 2016 at Rs. 49.50 per share. On 1 August 2018, consequent to High Court’s
order, TL de-merged and split into two companies: Tit Limited and Bit Limited (BL).
TL’s shareholding was also divided into shares of TL and BL. Consequently, Ali
Murad’s holding in TL was reduced to 6,000 shares in his CDC account and
9,000 new shares in BL were recognized in his account. On the date of de-merger,
the market values of each share of TL and BL were Rs. 20 and Rs. 50 respectively.
On 1 December 2018 Ali Murad sold 2,000 shares in TL at Rs. 30 each and
5,000 shares in BL at Rs. 60 each.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made
thereunder, compute taxable income and tax payable by Ali Murad at the time of
de-merger and upon sale of shares, for tax year 2019. (06)
Note: Tax rates are given on the last page.
(c) Karam Din is working as Director Finance in Cherokee Limited (CL). On

30 June 2016, when CL’s shares were priced at Rs. 30 each in the market, Karam
Din received 12,000 shares in CL under an employee share scheme with a restriction
not to transfer the shares before 1 June 2017. On 1 June 2017 the market value of
CL’s shares was Rs. 40 per share. On 30 April 2018 Karam Din sold all the shares in
CL at Rs. 42 per share.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute under the correct
head of income, the amount to be included in Karam Din’s taxable income for the
tax years 2016, 2017 and 2018. (04)
Q.5 (a) Spring Fields Limited (SFL) is engaged in the business of producing flavoured
aerated waters for five star hotels. SFL buys various flavours from local suppliers.
These flavours are used in the production of aerated waters.
Required:
Under the provisions of the Federal Excise Act, 2005 explain how SFL would
determine the net liability of duty in respect of aerated waters. Specify necessary
conditions, if any, to be fulfilled in this regard. (05)
(b) Under the provisions of the Federal Excise Act, 2005 briefly describe the tax
treatment in each of the following independent cases:
(i) Frenzy Bottles Limited paid excise duty on concentrates used in the
manufacture of aerated beverages. The beverages were exported to U.A.E. (2.5)
(ii) Invincible Limited supplied edible olive oil for consumption on board a Chinese
aircraft proceeding from Karachi to Peshawar. (2.5)
Q.6 Under the provisions of the Income Tax Ordinance, 2001 discuss the tax treatment in each
of the following independent cases for tax year 2019:
(a) In tax year 2018, Shock Limited had exported woollen carpets to its parent company
in Spain and had incurred expenses of Rs. 300,000 in relation to the export. In tax
year 2019, parent company reimbursed 65% of the expenses to Shock Limited. (03)
(b) Ink Limited (IL), a resident company, paid Rs. 460,000 to a non-resident debtor upon
settlement of a disputed claim lodged on account of supply of defective products. IL
also paid Rs. 100,000 to a non-resident lawyer for making the settlement. IL did not
deduct withholding tax while making the above payments. (05)
Q.7 Droplet Limited (DL) is engaged in variety of businesses across Pakistan. Various divisions
of DL are registered with federal and provincial sales tax authorities as manufacturer,
importer, wholesaler-cum-retailer and service provider. Following information has been
extracted from DL’s records for the month of November 2018.
Rupees
Purchases
Imports 2,935,000
Supplies
semi manufactured goods worth Rs. 520,000. These goods are used in the
manufacture of product Zee which is exempt from tax.
packing material worth Rs. 350,000 purchased by DL’s textile division for use in
packing of textile products covered under S.R.O 1125(I)/2011 dated
31 December 2011.
storage batteries worth Rs. 970,000 purchased from a manufacturer for
in-house consumption by DL’s car manufacturing division. These batteries are
designated as specified goods under Chapter XIII of the Sales Tax Special
cooking ranges worth Rs. 240,000 purchased by DL’s wholesale-cum-retail
division directly from a manufacturer. These cooking ranges are designated as
specified goods under Chapter XIII of the Sales Tax Special Procedure Rules,
2007.
goods worth Rs. 210,000 purchased under DTRE scheme.
(ii) Purchases from un-registered suppliers include goods worth Rs. 1,900,000 purchased
from a distributor engaged in supply of taxable goods to manufacturers. Rest of the
purchases were made from a manufacturer in Lahore, whose annual turnover does
not exceed Rs. 3,500,000 and whose annual utility bills remain within
Rs. 280,000.
(iii) The imports consist of compressor scrap of Rs. 1,200,000 and finished sports
footwear of Rs. 1,735,000.
red chillies worth Rs. 435,000. These were sold to super markets in retail packing
under DL’s brand name. Red chillies are covered under Sixth Schedule.
350 kg of locally manufactured sugar worth Rs. 28,000. The sugar was sold to a
local pharmaceutical company for use in production of cough syrup. DL
purchased 500 kg sugar in August 2018 at the rate of Rs. 75 per kg.
cooking ranges worth Rs. 285,000 sold to restaurants through DL’s
wholesale-cum retail outlets.
(v) Taxable supplies to un-registered persons include the following:
foam worth Rs. 1,295,000 supplied to a manufacturer, other than a cottage
industry, for onward processing.
goods worth Rs. 686,800 supplied on four months’ credit to a distributor in
Sialkot. The price is inclusive of mark-up at 3% per annum.
the rest of the goods were supplied to end consumers.
Following further information is also available: (not included in purchases and supplies
mentioned above)
an invoice of Rs. 125,000 was received from a service provider in Sindh against
provision of overhauling services for a printing machine used in DL’s textile division.
Sales tax was collected at the rate of 5% under the Sindh Sales Tax on Services Act,
2011.
further tax of Rs. 162,000 was collected erroneously from a registered distributor in
July 2018. The goods on which further tax was collected were sold by the distributor
to a manufacturer in November 2018.
the rate of 17%, except where specified otherwise.
Required:
compute the amount of sales tax payable by or refundable to DL and input tax to be carried
forward, if any, for the tax period November 2018. Also compute withholding tax, wherever
applicable. (18)
Q.8 (a) Khalil Mirza established a business of selling fruit and vegetable juices on
18 April 2018 at a fruit market in Saddar. He serves both online and walk-in
customers. The fruit juices are usually imported from Iran and New Zealand whereas
vegetable juices are procured locally from Punjab. Khalil Mirza is not registered with
the sales tax authorities but he makes all purchases from registered suppliers.
Due to increase in cost of doing business, Khalil Mirza decided to get himself
registered with the Inland Revenue Department enabling him to reclaim the input tax
on his purchases. He made an application for voluntary registration under the Sales
Tax Act, 1990 on 2 August 2018 and was registered with effect from 10 August 2018.
Following was the position of his unsold stock of fruit and vegetable juices on
2 August 2018:
Date of Sales tax

S.No. Description Stock status
purchase paid (Rs.)
(i) 300 packets of imported fruit juices 1 May 2018 100% verifiable 2,550
(ii) 600 packets of imported fruit juices 10 May 2018 15% unverifiable 5,100
(iii) 500 packets of local vegetable juices 30 June 2018 10% unverifiable 1,700
(iv) 650 packets of local vegetable juices 5 July 2018 100% verifiable 2,210
Required:
Under the provisions of the Sales Tax Act, 1990 compute the amount of input tax, if
any, which Khalil Mirza can claim with his sales tax return for the month of
August 2018. (Show all relevant exclusions and disallowances) (04)
(b) Sluggish Limited (SL) purchased 80 tons of cement, covered under Third Schedule,
from Iron Limited (IL) for one of its projects at a wholesale price of Rs. 10,000 per
ton. The retail price of the cement in the market is Rs. 11,000 per ton. All the above
prices are exclusive of federal excise duty of Rs. 1,500 per ton and sales tax at the rate
of 17%. Due to financial constraints, SL has requested to settle the price by
transferring a fork lifter having a market value of Rs. 800,000 and to pay Rs. 90,000
in final settlement along with the applicable sales tax by way of a cheque drawn in
favour of IL.
Required:
In view of the provisions of the Sales Tax Act, 1990 determine the value of supply
and the amount of sales tax payable by SL under the above circumstances. (06)
(Note: Give reason(s) for the exclusion of any item from your computation)
(c) Karim Bux is engaged in the business of providing courier and logistics services in
Punjab and Sindh. His head office is located in Karachi and is registered with Sind
Revenue Board (SRB) as well as Punjab Revenue Authority (PRA). He pays the sales
tax in the province from where the parcels are sent. Recently he has received a notice
from Punjab Revenue Authority (PRA) asking him to pay tax on invoices raised in
respect of parcels sent from Sindh to Punjab.
Required:
Under the provisions of the Provincial Sales Tax on Services Acts, advise Karim Bux
on the notice issued by PRA. (05)
(THE END)
Part I Division VII

2. Where holding period of a security is 12 months or more but less than 24 months. 12.5%
3. Where holding period of a security is 24 months or more but the security was acquired
7.5%
on or after 1st July, 2013.

Advanced Taxation
Q.1 Sober Limited (SL) is an unlisted public company engaged in the business of import,
manufacturing and supply of multiple products. SL commenced its business operations, with
a paid-up capital of Rs. 51 million. On 1 April 2018, SL signed an agreement with a
renowned multinational company for the distribution of its popular brand of beverages to
various wholesalers and departmental stores across the country.
Following information has been extracted from SL’s records for the year ended
31 March 2019:
Rupees
Sales 156,777,000
Cost of goods sold (105,250,000)
(i) Sales include:
sale of durable goods of Rs. 105,327,000 to local customers across Pakistan. These
goods were manufactured by SL. Withholding tax deducted by customers
amounted to Rs. 4,212,000. Raw material consumed and other manufacturing
costs incurred for the manufacture of durable goods amounted to Rs. 53,200,000
and Rs. 9,700,000 respectively.
sale of beverages of Rs. 32,500,000 to departmental stores in Sindh. These
beverages were purchased at the cost of Rs. 28,150,000. Applicable
advance/withholding taxes were duly collected/deducted at the time of purchase
and sale of beverages. Beverages are covered under fast moving consumer goods.
sale of paint of Rs. 9,594,000 (inclusive of sales tax at the rate of 17%). It was
locally purchased at a wholesale price of Rs. 6,900,000 from a commercial
importer in Lahore. This product was sold to registered retailers, in the same
condition as they were when purchased. The retailers are registered under the
Sales Tax Act, 1990. No withholding tax was collected/deducted, at the time of
purchase and sale of paint.
sale of canned food items of Rs. 7,000,000 to the canteens of large corporate
houses in KPK. Applicable taxes were duly deducted by respective corporate
houses at the time of payment. SL purchased vegetables, live fowls, eggs and fresh
milk, for processing canned food, from a farm in Balochistan. These items were
purchased at Rs. 5,400,000. The other processing costs incurred in this regard
amounted to Rs. 1,900,000. SL made full payment without deduction of
withholding tax.
receipt of Rs. 3,750,000 in respect of remote monitoring of canning process for the
preservation of food for a company in Mexico. The entire amount was received in
USD in Pakistan through normal banking channel. Expenditure incurred on
remote monitoring of the canning process amounted to Rs. 1,200,000 and was
booked as part of administrative expenses. No other expenditure was incurred by
SL in this regard.
(ii) Administrative and selling expenses include:

Rs. 28,985,000 in respect of salaries, wages and other benefits. Of these, cash
payments of Rs. 3,492,000 were paid to daily wage workers, engaged in the
manufacture of durable goods, at the rate of Rs. 450 per day and Rs. 1,725,000
were paid to 5 salesmen in equal proportion who are engaged with the sale of
paint and beverages.
Rs. 2,850,000 paid to Press (Pakistan) Limited for acquiring a right to use latest
food canning technology. Withholding tax was not deducted from the payment.
(iii) Financial charges include profit on debt of Rs. 1,900,000 which was incurred on a loan
obtained for the purchase of specialized machinery for durable goods.
(iv) On 1 February 2019, SL declared 5% dividend as dividend-in-specie. On
15 February 2019, SL credited 30,000 shares in Mubarak Textiles Limited (MTL) as
dividend-in-specie to the respective shareholders’ account. MTL is 63% owned by the
Sindh Government. At the time of declaration of dividend, the market value of each
share of MTL was Rs. 78 whereas at the time of credit to shareholders’ account its
value increased to Rs. 82. On 30 June 2016, SL had acquired 60,000 shares in MTL at
a value of Rs. 75 per share.
(v) In March 2018, SL wrote off a debt relating to sale of durable goods of Rs. 330,000
and filed a suit against the defaulting party for the recovery of the debt. SL was
allowed a deduction of Rs. 220,000 in tax year 2018. In January 2019, the case was
decided by the Court in SL’s favour and an amount of Rs. 130,000 was received in
final settlement.
(vi) Taxes paid by SL u/s 147 amounted to Rs. 860,000.
(vii) Accounting depreciation charged during the year is same as tax depreciation.
Required:
payable by or refundable to SL for tax year 2019. (20)
Note: In your computation, show all figures in thousand.
Ignore WWF, WPPF, Minimum tax u/s 113, Alternative Corporate Tax and default
surcharge, if any.
Q.2 (a) Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, briefly
advise the tax treatment in each of the following independent cases. Also compute the
amount of tax, wherever applicable:
(i) Sigma Limited, a person registered with sales tax authority as a manufacturer,
purchased taxable goods worth Rs. 1,520,000 from an unregistered distributor. (02)
(ii) Clove Limited (CL) while preparing sales tax return for the period of May 2019
discovered that an input tax credit of Rs. 905,000 pertaining to October 2018 has
inadvertently remained unclaimed. CL now wants to claim it in its May 2019
return. (05)
(b) On 1 January 2019, Ginger Limited (GL), a sales tax registered person, supplied
taxable goods worth Rs. 1,287,000 to one of its associates in Multan at a concessional
price of Rs. 965,250. GL inadvertently failed to levy sales tax nor issued sales tax
invoice with regard to the supply. On 1 June 2019, the Assistant Commissioner Inland
Revenue served a notice requiring GL to show cause for the non-payment of amount
specified in the notice. After having an opportunity of being heard, GL finally
deposited the required amount of sales tax with the Inland Revenue Department on
10 June 2019.
Required:
Under the provisions of the Sales Tax Act, 1990:
(i) compute the amount of default which GL may have deposited with the tax
authorities. (05)
(ii) briefly describe the circumstances in which GL would have been absolved from
payment of any default as computed in (i) above. (03)
Q.3 (a) Broad (Pvt.) Limited (BPL) is engaged in the business of providing web designing and
web hosting services to corporate clients in Lahore. BPL has a paid-up capital of
Rs. 30 million and undistributed reserves of Rs. 15 million. Due to constantly
increasing volume of work, BPL had to appoint Alpine Financials (AF), a debt
collection agency, against 2% service charges for the recovery of debts. During tax
year 2019, AF recovered Rs. 9,660,000 which was after deduction of 8% withholding
tax by various clients. AF retained 2% services charges and remitted Rs. 9,466,800 to
BPL. Following information is also available from BPL’s records for tax year 2019:
Rupees
Gross turnover 43,500,000
Taxable income 2,745,000
BPL had furnished an irrevocable undertaking by November 2018, for presenting its
accounts to the Commissioner. BPL has no other source of income.
Required:
In the light of Income Tax Ordinance, 2001 advise BPL as regards the following:
(i) Withholding tax implications (02)
(ii) Tax liability (03)
(iii) Amount of tax to be carried forward, if any. (02)
(b) Day Light Limited (DLL), an investment finance services company, provided
consumer loans to various customers during tax years 2018 and 2019. Following
information is available from DLL’s records for the two tax years:
2019 2018
Rs. in million
Interest earned on consumer loans 58 50
Provision for bad debts 2.1 3.2
Required:
In the light of Income Tax Ordinance, 2001 discuss the tax treatment of provision for
bad debts for tax year 2019. (05)
(c) Under the provisions of Income Tax Ordinance, 2001 and Rules made thereunder,
explain the tax treatment in each of the following independent cases:
(i) Jamal Nasir held 30,000 shares in Galaxy Pharma Limited (GPL) which he had
acquired on 1 May 2016 at Rs. 85 each. GPL subsequently merged into East
Pharma Limited (EPL) through a scheme approved by the High Court. EPL
issued 3 shares for every 5 shares held in GPL. (03)
(ii) On 1 November 2018, Kashif Abbas sold securities having face value of
Rs. 4.5 million to his friend Ahad Iqbal with the condition to acquire them back
on 15 January 2019. On 31 December 2018, Ahad Iqbal received profit of
Rs. 112,500 on these securities. On 15 January 2019, Kashif Abbas re-acquired
the same securities from Ahad Iqbal. (03)
Q.4 Caramel Limited (CL) is engaged in variety of businesses across Pakistan and is registered as
manufacturer, importer and service provider with Federal and Provincial Sales Tax
Authorities. Following information has been extracted from CL’s records for the month of
May 2019:
Rupees
Purchases
Imports 1,387,500
Supplies
Raw material worth Rs. 2,564,000 purchased from a dealer, Moral Associates
(MA) for the manufacture of auto parts and accessories. MA has received a notice
u/s 114(4) of the Income Tax Ordinance, 2001 to file income tax return for the tax
year 2018.
Fork lifter worth Rs. 1,800,000 purchased for moving goods in CL’s warehouse.
(ii) Purchases from un-registered suppliers include purchase of water worth Rs. 1,230,000
from a wholesaler. The water was acquired under the trade name of ‘Healthy Life’ and
is used at CL’s factory. The rest of the purchases were made from a cottage industry
engaged in supply of taxable goods to manufacturers.
(iii) Import consists of 1500 boxes of food packaging material worth Rs. 1,387,500. These
boxes were imported from Germany and are sold in the same condition as imported.

Auto parts and accessories worth Rs. 3,205,000 sold to an original equipment
manufacturer (OEM), Madras Motor Company Limited. Auto parts and
accessories are designated as specified goods under Chapter XIII of the Sales Tax
Special Procedure Rules, 2007.
Rock phosphate worth Rs. 1,952,000 sold to fertilizer manufacturers. It was
imported by CL in March 2019 for Rs. 1,366,000 and is covered under Eight
Schedule.
Parts and components for manufacturing LED bulbs worth Rs. 3,435,000 sold to
manufacturers in Peshawar. These parts and components are covered under Sixth
Schedule and were purchased from a commercial importer in April 2019 for
Rs. 2,460,000.
Fumigation services worth Rs. 1,290,000 provided to landlords in district Badin
for the protection of their crops. The rate of tax applicable on such services under
the Sindh Sales Tax on Services Act, 2011 is 13%.
(v) Taxable supplies to un-registered persons include the following:

Supply of finished fabrics (SRO. 1125(I)/2011) worth Rs. 625,000 to
Neil Associates, a distributor in Sialkot whose total turnover from exempt goods is
Rs. 5,200,000.
Sale of iron bars worth Rs. 238,000. These bars were recovered from the wreckage
of CL’s old factory building. The building was demolished due to its dilapidated
condition.
Sale of second hand and worn footwear of Rs. 175,000 to a dealer in Multan.
Second hand worn footwear are covered under Eight Schedule.
The rest of the sales were made to the retailers who are liable to pay sales tax
through their electricity bill.
Following further information is also available: (not included in purchases and supplies
mentioned above)
Advance payment of Rs. 300,000 was made to Sanai Enterprise, an un-registered
distributor, for the purchase of detergents, covered under Third Schedule.
Life insurance premium of Rs. 200,000 was paid to a Karachi based insurance
company for getting insurance cover for two of CL’s directors.
CL outsourced its share registration and transfer services to a Lahore based company,
Zircon Limited, at a monthly fee of Rs. 700,000. The rate of tax applicable on such
services under the Punjab Sales Tax on Services Act, 2012 is 16%.
All the above figures are exclusive of sales tax, wherever applicable.
Required:
compute the amount of sales tax payable by or refundable to CL and input tax to be carried
forward, if any, for the tax period May 2019. Also compute withholding tax, wherever
applicable. (16)
Q.5 Salman Abbas, ACA is Manager Taxation at a large tax consultancy firm and reports to
Bader Ali, FCA who is one of the partners of the firm.
Salman Abbas is presently engaged in the preparation of the income tax return of
Digital Systems Limited (DSL), an IT company. During the review of the tax workings, he
discovers that DSL has charged certain expenses against which no supporting documents
are available. He brings this matter to the attention of Bader Ali who has responded him that
since this is not an audit engagement, it is not our responsibility to highlight such matters.
Required:
Briefly discuss how Bader Ali may be in breach of the fundamental principles of ICAP’s
Code of Ethics. Also, state the potential threats that Salman Abbas may face in the above
circumstances and how he should respond. (05)
Q.6 Under the provisions of the Federal Excise Act, 2005 briefly describe the tax treatment of
each of the following independent transactions:
(i) Silver Light Limited (SLL) supplied cooking oil worth Rs. 263,000 to Golden Era
Limited in export processing zone for the purpose of packing it into specialized tin
packs. Input tax paid by SLL on the production of cooking oil amounted to
Rs. 145,000. (04)
(ii) Almond Investment Limited (AIL) is registered with Balochistan Revenue Authority
as stockbroker for sales tax purposes. In May 2019, AIL rendered brokerage services
to one of its clients in Quetta and charged a fee of Rs. 284,000. AIL paid provincial
sales tax of Rs. 42,600 on such services. (03)
(iii) Micro Limited (ML) sold 100 boxes of Cuban cigars at US$ 356 per box (equivalent to
Rs. 51,620) on board of a Pakistan International Airlines flight chartered by tourists
from USA. The tourists were traveling from Islamabad to Dubai. Input tax paid by
ML at the time of import of cigars amounted to Rs. 1,423,460. ML repacked these
cigars in special packing at its facility. All payments were received in foreign
exchange. (03)
Vocational Training Foundation (VTF) is a non-profit organization engaged in running a

project for providing women living in rural areas of Balochistan, the skills to achieve
financial self-reliance. Launched in January 2015, the project is being run under partnership
with various institutions. Following information has been extracted from VTF’s records for
the year ended 30 June 2019:
Rupees
Receipts:
donations, voluntary contributions, subscriptions 70,000,000
rent from house property 2,502,000
income from business 5,000,000
Expenses:
administrative and management 12,900,000
project 35,000,000
(i) Rent from house property includes non-adjustable deposit of Rs. 204,000 received
from the tenant.
(ii) Administrative and management expenses include the following in relation to house
property:
Insurance premium of Rs. 150,000 paid to insure the house property against the
risk of damage or destruction.
Ground rent of Rs. 53,000.
Installation of fire alarm amounting to Rs. 140,000.
Salaries of Rs. 60,000 paid to two watchmen at the property.
(iii) Taxes paid by VTF u/s 153 amounted to Rs. 345,000.
(iv) VTF is included in active taxpayers’ list and is in full compliance with all tax
regulations.
Required:
Under the provisions of the Income Tax Ordinance, 2001:
(a) Compute, under the correct head of income, the taxable income and amount of tax
payable by VTF, if any, for tax year 2019. (11)
(b) What would be your answer in (a) above if VTF had received a further donation of
Rs. 16,000,000 from a donner agency requiring them to deposit 30% of the amount
into an endowment fund to be used for granting scholarships to women who intend to
pursue formal education in the field of commerce. (05)
Note: Ignore WWF, WPPF, Alternative Corporate Tax and default surcharge, if any.
(THE END)

Advanced Taxation
Instructions to examinees:
(i) Answer all SEVEN questions.
(ii) Answer in black pen only.
Q.1 You are a tax partner in a local firm of Chartered Accountants. You have been approached
by some of the clients for opinion on the possible tax implication/treatment of certain
matters. Under the provisions of the Income Tax Ordinance, 2001 and Rules made
thereunder, discuss the tax implication/treatment in each of the following independent
cases:
(a) Zodiac Limited (ZL) wrote off a debt amounting to Rs. 600,000 in September 2016
after making all possible efforts for the recovery of the debt. ZL was allowed a
deduction of Rs. 410,000 in tax year 2017. In tax year 2020, the case which was filed in
the Court, for the recovery of the debt was decided in ZL’s favour. Now, ZL is
expecting to recover any of the following two amounts against the debt:
(i) Recovers Rs. 240,000

(ii) Recovers Rs. 160,000 (04)
(b) Firdous held 6,000 shares in Delta Limited (DL) which he had acquired on 1 July 2018
at Rs. 25 each. DL subsequently merged into Bravo Limited (BL) through a scheme
approved by the High Court. BL issued 2 shares for every 4 shares held in DL. (03)
(c) On 31 July 2019 Noble (Pvt) Limited (NPL) received a notice from Officer of Inland
Revenue asking it to deposit withholding tax of Rs. 3,750,000 in respect of a loan of
Rs. 25,000,000 which was provided by NPL to one of its shareholders on
31 December 2018. NPL’s accumulated profits at the time of provision of loan
amounted to Rs. 20,000,000. (03)
(d) Kamran Malik, a non-salaried individual, declared taxable income of Rs. 9,585,000 for
tax year 2019. However, due to unavoidable circumstances he failed to file his return of
income on due date. Upon application, the Commissioner allowed him an extension of
15 days for furnishing his return of income. Kamran Malik did not file the return
within the extended time as he was out of the country for twenty days. Now he intends
to file his return of income on 01 December 2019 and pay the tax liability of
Rs. 2,474,750 on his declared income. (08)
(e) On 01 September 2016 Mega (Pvt) Limited (MPL), engaged in the business of
manufacturing plastic bottles, had obtained a machinery on finance lease. For the year
ended 30 September 2019 MPL charged interest of Rs. 228,000 to the profit and loss
account on account of such finance lease. Total lease rentals paid during the year
amounted to Rs. 475,000. At the end of the lease term which expired on
31 August 2019, the machinery was transferred to MPL at a residual value of
Rs. 764,000. The market value of the machinery on the date of its transfer amounted to
Rs. 868,000. (03)
Q.2 Sahulaat Limited (SL) is engaged in various businesses across Pakistan and is registered as a
manufacturer cum commercial importer and service provider with the Federal and
Provincial Sales Tax Authorities. Besides carrying on various trading businesses, SL is
primarily engaged in the business of manufacturing and supply of household electrical and
gas appliances, covered under third schedule of the Sales Tax Act, 1990. Following data has
been extracted from SL’s records for the month of November 2019:
(i) Raw materials of Rs. 3,650,000 were purchased from an un-registered AOP for the
manufacture of gas appliances.
(ii) Packing materials of Rs. 2,350,000 were purchased from registered distributors for the
packing of electrical appliances. The distributor did not file his return under section 26
by the due date for September 2019 and October 2019.
(iii) 1,700 litres of paint, covered under Third Schedule, were imported from Belgium
without retail packing at Rs. 892,500. SL paid custom duty at the rate of 20% at the
time of import.
800 litres of paint were sold to a dealer at a special discounted price of Rs. 565 per litre
(the discount was duly shown on the invoice); 600 litres were sold to a wholesaler at a
price of Rs. 575 per litre and 300 litres to a company in Export Processing Zone at a
retail price of Rs. 625 per litre.
(iv) 5 kilograms of un-worked silver, covered under Serial No. 61 of the Eight Schedule,
was imported from Dubai at Rs. 486,000. The silver was sold in the same condition as
it was when imported to a local bullion dealer at Rs. 558,000.
(v) Preservatives of Rs. 690,000 were purchased from a cottage industry for onward sale
to the producers of fruit juices.
(vi) Tiles measuring 625 square meters were purchased in June 2019 from a local
manufacturer at Rs. 665,000. Extra tax was charged by the manufacturer at the time
of purchase. These tiles were sold to un-registered contractors at a wholesale price of
Rs. 1,264 per square meter for use in construction projects. The tiles are normally sold
in the retail market at a price of Rs. 1,364 per square meter.
(vii) Accessories and spare parts worth Rs. 500,000 were purchased for delivery vans.
(viii) SL also purchased a fiscal electronic cash register and office equipment from a
corporate supplier at a price of Rs. 735,000 and Rs. 495,000 respectively. These items
were purchased on 30 days’ credit.
(ix) Cooking oil, covered under Serial No. 24 of the Sixth Schedule, was purchased from a
registered manufacturer in October 2019 at Rs. 632,000. Excise duty was collected by
the manufacturer in VAT mode. SL sold the cooking oil to distributors from its retail
outlet at Rs. 758,000.
(x) Electrical appliances worth Rs. 1,200,000 were supplied to a large departmental store
in Islamabad. SL received the payment in four equal instalments with the last
payment received on 31 October 2019.
(xi) SL’s services division provided cold storage facilities worth Rs. 392,000 to various
merchants for storing fruits and vegetables at their storage facility in Lahore.
All the above figures are exclusive of sales tax, wherever applicable.
Required:
compute the amount of sales tax payable by or refundable to SL and the amount of input tax
to be carried forward, if any, for the tax period November 2019. Also compute withholding
tax, wherever applicable. (19)
Q.3 In the light of ICAP’s Code of Ethics, discuss each of the following independent situations
with regard to the breach of the fundamental principles of ethics:
(i) Ali Ahmad, a tax practitioner, failed to include rental income on a tax return he filed
for his client, Zaheer Associates (ZA). The omitted income was from a recently
acquired property. The property was duly disclosed in ZA’s wealth statement. (02)
(ii) Mateen is a sole practicing chartered accountant. During the year, one of his clients,
Taiz Enterprises (TE), opened a new division in Middle East. Mateen has no
experience in international tax and would not be able to give TE the kind of tax advice
needed for the new division. TE is a long-time client and Mateen does not want to
lose it. Mateen decided to remain silent about his lack of knowledge in the area and
would deal the situation on need basis. (03)
Q.4 (a) Muneer Enterprises (ME) is an AOP and is engaged in various businesses in the
province of Sindh. ME is registered under the Federal Excise Act, 2005. Following
information has been extracted for the month of November 2019 from ME’s records.
(i) Received Rs. 875,000 in respect of services provided to Big Cargo Limited
against inland carriage of goods by air.
(ii) Paid Rs. 200,000 for charges on hiring chartered flights for the purpose of inland
carriage of goods by air.
(iii) Sold 26,000 bottles of aerated waters under the brand name of ‘Surchashma’ to
Bayaab Associates at a discounted price of Rs. 95 per bottle. The retail price of
each bottle in the market is Rs. 112.
(iv) Received 2,000 litres of concentrates in syrup form worth Rs. 90,000 from a
local supplier on two months’ credit. Concentrates are used in the manufacture
of aerated waters.
(v) Paid Rs. 80,000 on account of newspaper advertisement for boosting sales of
aerated waters in Hyderabad. No services tax was paid to Sindh Revenue Board
(SRB) in this regard.
(vi) Received Rs. 150,000 in respect of franchise fee from Himalaya Enterprises. ME
granted them the right to sell “Surchashma” in Malir. ME also paid services tax
of Rs. 19,500 on the franchise fee to SRB.
All the above figures are exclusive of excise duty, wherever applicable. Payments
were made/received through banking channels, unless mentioned otherwise.
Required:
In the light of the provisions of the Federal Excise Act, 2005 and Rules made
thereunder, compute the amount of net duty payable by or refundable to ME for
November 2019. (06)
(b) Dexo Corporation (DC), is engaged in the business of manufacture and sale of aerated
waters to shopping centres and cinema houses in Lahore. DC buys fruit juices from a
local supplier which are directly used in the manufacturing process. In
November 2019 DC bought 600 litres of fruit juices at a retail price of Rs. 330 per litre
and exported 10,000 bottles of aerated waters to a customer in Dubai at a wholesale
price of Rs. 590 per bottle. It also sold 1,500 bottles of aerated waters to a shopping
centre at a retail price of Rs. 680 per bottle.
Required:
Under the provisions of the Federal Excise Act, 2005 briefly describe the tax treatment
in respect of the above situation. (05)
You have recently joined Jubilee (Pvt) Limited (JPL), as director taxation. JPL owns 85%
ordinary shares in an unlisted public company Diamond Pharma Limited (DPL). Both the
companies are engaged in the business of manufacturing and supply of pharmaceutical
products.
DPL also owns 100% ordinary shares in Titanium (Pvt) Limited (TPL) for the last many
years. TPL is engaged in the trading business. It supplies empty capsules to various
pharmaceutical companies. The accounting year of all the above companies ends on
30 September each year. The manager taxation is in the process of finalizing income tax
return for tax year 2020 and has provided you the following tax computation along with
supporting notes for your approval:
JPL DPL TPL

Income from business: ------ Rs. in '000 ------
Profit/(loss) before taxation [Note (i)] 6,600 (2,300) 2,050
Add: Inadmissible expenses
Accounting depreciation for the year 1,945 1,085 160
Purchase of goods without withholding the tax [Note (ii)] 1,200 - -
Total business income/(loss) before depreciation 9,745 (1,215) 2,210
Less:
Unabsorbed tax depreciation (350) (585) (125)
Tax depreciation (1,410) (1,010) (155)
7,985 (2,810) 1,930
Less: Brought forward assessed business loss (162) (658) (1,035)
Total business income/(loss) for the year 7,823 (3,468) 895
Less: Brought forward capital loss (625) (195) (220)
Total taxable income before availing group relief 7,198 (3,663) 675
Less: Group Relief Scheme
Loss surrendered by DPL in favour of JPL and TPL (2,988) 3,663 (675)
Taxable income for the year 4,210 - -
Business loss carried forward to next tax year Nil Nil Nil
Unabsorbed depreciation carried forward to next tax year Nil Nil Nil
Capital loss carried forward to next tax year Nil Nil Nil
Computation of net tax liability:
Tax regime NTR NTR NTR
Tax on taxable income [@ 29%] (a) 1,221 - -
Turnover 30,000 9,800 5,500
Minimum tax u/s 113 [@ 1.5% of turnover] (b) 450 147 83
Total tax liability [Higher of (a) or (b)] 1,221 147 83
Less: Tax deduction at source
Advance tax paid u/s 147 and 153 (1,163) (175) (61)
Net tax payable/(refundable) 58 (28) 22
Supporting notes:
(i) The above profit/(loss) for each company has been arrived at after
inclusion/adjustment of the following:
In case of JPL:
Deemed income of Rs. 225,000 in respect of a loan received otherwise than by a
crossed cheque.
Rs. 1,500,000 paid in respect of improving the embodied features of production
software.
Advertisement and sales promotion expenses of Rs. 5,310,000 incurred on
capturing the major market chunk for two of JPL’s new vaccines.
In case of DPL:
A loss of Rs. 600,000 on disposal of shares in a private company. These shares
were acquired by DPL on 30 September 2017.
A loss of Rs. 900,000 on discontinuance of one of its vaccine units in July 2018.
A gain of Rs. 145,000 on sale of machinery to TPL. The cost of machinery was
Rs. 400,000 and its tax written down value at the time of transfer to TPL was
Rs. 255,000.
In case of TPL:
A gain of Rs. 500,000 on disposal of shares in a private company. These shares
were acquired by TPL on 01 August 2016.
(ii) Goods worth Rs. 1,200,000 (inclusive of imported goods of Rs. 750,000) were
purchased from Tetra Enterprises (TE), a permanent establishment in Pakistan of a
non-resident company in Japan. TE sold the imported goods to JPL in the same
condition as they were when imported. No withholding tax was deducted by JPL at
the time of making payment for these goods.
Required:
comment on the above tax computation prepared by the manager taxation for tax
year 2020. Give suggestion(s), wherever required. (20)
Note: Revised computation is not required.
Q.6 Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, briefly advise
the tax treatment in each of the following independent cases and compute the amount of
tax, wherever applicable:
(a) Saltish Associates (SA) is a registered person, engaged in the business of supplying
iodized salt, covered under Serial Number 29 of the Sixth Schedule. SA supplied
300 kg of iodized salt, in retail packing of 5 kg, under the brand name of ‘Best’ to an
un-registered departmental store in Faisalabad at a wholesale price of
Rs. 100 per pack. In October 2019 SA had purchased 500 kg of un-packed salt from a
local supplier, TP Enterprises (TPE), at a price of Rs. 12 per kg. This salt is sold in the
market at a retail price of Rs. 120 per pack. TPE declared the sale of salt to SA in its
return for November 2019. (05)
(b) On 15 October 2019, Taj Saeed, a registered exporter for sales tax purposes, filed an
application for refund of Rs. 186,000 on account of input tax paid on 18 October 2018
on raw material exported to Iran. The refund is expected to be received on
15 December 2019. Taj Saeed is also required to pay a default surcharge of Rs. 25,000
to the income tax department for late filing of his monthly withholding tax statement.
The rate of KIBOR is 11%. (05)
(c) Decor Enterprises (DE) is engaged in the business of manufacturing and supply of
water and soap dispensers to various corporate clients. DE placed 10 electric water
dispensers worth Rs. 60,000 and 10 soap dispensers worth Rs. 20,000 at leading
departmental stores for advertisement purposes. DE also received a security deposit of
Rs. 60,000 against such placement. The Deputy Commissioner Inland Revenue has
issued a show cause notice to DE asking them to pay Rs. 23,800 on account of sales
tax on such dispensers and security deposit. (03)
Q.7 Moiz Bilgrami, a sole proprietor, is engaged in the business of processing and selling honey
and honey based products to homeopathic clinics in Punjab under the name and style of
Al Shifa Trading (AST). On 1 December 2019 Moiz Bilgrami decided to transfer his
proprietary business, including all the assets and liabilities, to a private limited company
Bee Honest (Pvt) Limited (BHPL). Following is the balance sheet of AST immediately
before the disposal of business to BHPL:
Al Shifa Trading (AST)

Balance Sheet as at 30 November 2019
Capital and Liabilities Rupees Assets Rupees
Owner’s Capital 10,080,000 Fixed Assets (WDV) 6,048,000
Accumulated Profit 1,680,000 Patents (WDV) 2,240,000
11,760,000 Stock in Trade 5,152,000
Short Term Loan 650,000 Debtors 3,360,000
Trade Creditors 7,840,000 Cash and Bank Balances 3,450,000
20,250,000 20,250,000
Following information is available relating to the proposed scheme of transfer:

(i) The stock in trade as at 30 November 2019 is estimated to realize Rs. 4,480,000.
(ii) Rs. 1,120,000 recoverable from two large clinics in Multan against sale of honey
products remains outstanding. All possible efforts have been made by AST for the
recovery of debts, to no avail.
(iii) Following are the tax written down values (WDV) and fair market values (FMV) of
AST’s fixed assets and patents as at 30 November 2019:
Cost Tax WDV FMV

------------------ Rupees ------------------
Fixed assets 7,840,000 3,630,000 5,800,000
Patents 5,600,000 2,800,000 2,570,000
(iv) BHPL has a paid-up capital of Rs. 50,000,000 consisting of ordinary shares of Rs. 10
each. Moiz Bilgrami beneficially owns all the issued shares in BHPL. The fair value of
each share of BHPL as at 30 November 2019 was Rs. 20.
Assume all conditions necessary for the avoidance of any gain or loss on the disposal of all
the assets of AST to BHPL have been duly complied with.
Required:
Under the provisions of the Income Tax Ordinance, 2001 calculate the following:
(a) number and value of shares to be received by Moiz Bilgrami from BHPL. (06)
(b) BHPL’s cost of acquisition of assets. (03)
(c) Moiz Bilgrami’s cost in respect of shares received by him as consideration. (02)
(THE END)

Advanced Taxation
Q.1 Pagoda Limited (PL) is primarily engaged in the business of manufacturing and sale of
consumer products. PL also provides toll manufacturing services to sportswear exporters in
Faisalabad. Following information has been extracted from PL’s records for the year ended
30 September 2020:
Rs. in '000
Sales 45,068
Gross profit 23,818
Financial charges (400)
(i) Sales include:
 goods worth Rs. 11,300,000 (net of foreign withholding tax of Rs. 1,832,000)
exported to customers in Thailand and Malaysia.
 toll manufacturing services of Rs. 4,690,000. Tax withheld by exporters
 local sales of Rs. 29,078,000.
(ii) Administrative and selling expenses include:

 online payment of Rs. 450,000 on purchase of professional books relating to
PL’s production processes from the website of a company in USA. No
withholding tax was deducted/collected from the payment.
 salary of Rs. 1,060,000 paid to five newly hired staff members. The appointees
are alumni of the class of 2018 of a well-recognized Federal Government
university. They were hired on 1 June 2020 at a monthly emolument of
Rs. 53,000 each. On 30 September 2020, PL had a total of 20 employees on its
payroll.
(iii) Accounting depreciation charged to cost of sales and administrative and selling
expenses amounted to Rs. 2,050,000 and Rs. 1,543,000 respectively.
Other information:
(i) On 1 September 2020, PL purchased a specialized machinery for Rs. 1,040,000 from
a cottage industry in Lahore. The payment was made through a bearer cheque as per
supplier’s instructions. The accounting depreciation on machinery charged at the rate
of 15% is included in cost of sales.
(ii) Total tax depreciation, including tax depreciation on specialized machinery,
amounted to Rs. 2,925,000.
(iii) Tax paid u/s 147 amounted to Rs. 2,450,000 whereas tax deducted u/s 154 from
export proceeds amounted to Rs. 113,000.
(iv) All the expenses, except cost of sales, are related only to PL’s local sales.
(v) The shareholders’ equity as at 30 September 2020 was Rs. 42,500,000.
Required:
Under the provisions of Income Tax Ordinance, 2001 and Rules made thereunder, compute
taxable income and net tax payable for the tax year 2021. (12)
Note: Ignore WWF, WPPF, Minimum tax u/s 113, Alternative Corporate Tax and default surcharge, if any.
Q.2 Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
discuss the tax implication/treatment in each of the following independent cases:
(a) On 30 November 2020 Jamila, a non-filer, gifted a cash cheque of Rs. 100,000 and a
gold necklace to her daughter Anjum, who was visiting Pakistan on three months’
vacation after a period of five years. Jamila had bought this necklace in 2017 for
Rs. 325,000. Anjum sold the necklace on the same day at a jewellery shop for
Rs. 475,000. (07)
Note: For the purpose of part (b) and (c), assume that the date today is 31 December 2021.
(b) Nasir Brothers (NB) is an AOP engaged in the business of trading consumer goods.
On 1 June 2021 NB acquired a vehicle on lease from an NBFC for Rs. 2.75 million.
However, due to serious illness of NB’s managing partner, the accountant has failed
to file the return of income u/s 114 for tax year 2021 and an updated taxpayer’s
profile for tax year 2020 until now. (08)
(c) Sunflower Limited (SL) is engaged in the business of production and supply of edible
oils. On 1 June 2021 SL sold one of its office buildings to a commercial bank in
Mardan for Rs. 130 million. This property was purchased by SL for Rs. 100 million.
The accounting and tax written down value of the property at the time of disposal
was Rs. 85 million. SL recorded the gain of Rs. 45 million in its audited financial
statements. However, the gain was not offered to tax in the return of income for tax
year 2021. SL has received a notice u/s 122(5A) from the Commissioner asking to
add the gain of Rs. 45 million to SL’s taxable income for tax year 2021. (03)
Q.3 Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, briefly advise
the tax treatment in each of the following independent cases. Also compute the amount of
tax, wherever applicable.
(a) Firdous Limited (FL) is engaged in the manufacturing and sale of plastic toys. FL’s
accountant is in the process of preparing sales tax return for the month of November
2020. While gathering information for the return, he has come across an insurance
claim of Rs. 1,500,000 which was received in full against the raw materials destroyed
by fire. The raw materials were purchased from a registered supplier in
October 2020. FL adjusted the input tax paid on the lost materials in its return for
October 2020. The accountant is perplexed whether FL is required to obtain a
permission to adjust output tax of Rs. 255,000 on the amount of claim received from
the insurance company in its November 2020 return. (05)
(b) Sohrab (Pvt) Limited (SPL), a registered person, is engaged in the business of
manufacture and sale of foam and spring mattresses covered in Third Schedule. In
November 2020 SPL imported 1,600 square meters of high quality packing foam
worth Rs. 2,000,000 from Germany and supplied it to a renowned packaging
industry in Punjab at a special price of Rs. 1,475 per square meter. However, such
foam is usually sold in the local market at a retail price of Rs. 1,525 per square meter. (04)
(c) Masala (Pvt) Limited (MPL) is engaged in the business of production and sale of
spices in retail packing and is registered for sales tax purposes. On 22 November
2020 the regional sales manager requested MPL’s tax department to issue a credit
note to one of MPL’s customers in Sargodha who had purchased 5,000 packets of
spices from MPL on 26 May 2020. The tax department issued the credit note on
24 November 2020. The tax department intends to adjust the amount of MPL’s
output tax in relation to the above credit note in its November 2020 return. (04)
Q.4 Zeenat Limited (ZL) is engaged in multiple businesses across Pakistan. ZL is registered as a
manufacturer, importer and distributor with sales tax authorities in Karachi. Following
information has been extracted from ZL’s records for the month of November 2020.
(i) Vegetable ghee of Rs. 995,000 was purchased from a registered distributor in Multan.
(ii) On 15 November 2020, ZL acquired a machinery from a registered supplier under
hire purchase agreement. Payment was to be made in thirty equal monthly
instalments of Rs. 80,000 starting from December 2020. The fair value of the
machinery was estimated at Rs. 2,000,000.
(iii) On 23 October 2020 ZL entered into a contract with BM Associates (BMA), a
registered supplier, for the purchase of taxable goods worth Rs. 920,000. ZL paid
25% of the price on the date of the contract and agreed to pay the balance in
November 2020. The goods were made available to ZL on the contract date.
However, due to shortage of storage capacity, ZL removed the goods from BMA’s
warehouse on 23 November 2020 and paid the balance to BMA on the same day.
(iv) 2,800 kg of raw tea, covered under Third Schedule, was imported from Kenya in
bulk packing. The value of tea, assessed at import stage by customs authorities,
amounted to Rs. 400 per kg. The value was inclusive of all applicable taxes and
charges, excluding sales tax. ZL was in compliance with all the requirements relating
to import of raw tea.
(v) Consultancy charges of Rs. 480,000 was paid to a non-resident foreign consultant for
conducting market research for the launch of ZL’s new product in overseas market.
(vi) Halal ready-to-cook lamb-meat worth Rs. 1,632,000 was sold in retail packing under
a brand name ‘Taza’ to large departmental stores in Peshawar. ZL also supplied
meat offal worth Rs. 485,000 to some of the famous food chains in Lahore. These
products are covered under Sixth/Eight Schedules.
(vii) Taxable goods worth Rs. 365,000 were sold to a 250 beds teaching hospital, run by a
statutory university in Nawabshah. The goods were purchased in finished condition
for Rs. 256,000 from a registered manufacturer in September 2020.
(viii) 11,400 litres of lubricating oils worth Rs. 1,482,000 were sold in retail packing to a
dealer in Karachi. Sales tax collected on the supply amounted to Rs. 230,000.
(ix) Following products were sold to an unregistered wholesaler at a trade discount of
5%. The discount was duly reflected on the invoice.
 Rice flour worth Rs. 1,675,000 (Gross value). It was sold in retail packing
under a brand name.
 Meslin flour worth Rs. 488,000 (Gross value).
The above products are covered under Sixth/Eight Schedules.
(x) 5,000 toothbrushes were supplied to a creditor in final settlement of his dues of
Rs. 245,000. The toothbrushes are sold in the market at a price of Rs. 52 each. ZL
also supplied 1,800 tubes of toothpaste to an unregistered wholesaler at Rs. 112 per
unit. The toothbrushes and toothpastes were purchased at a cost of Rs. 45 and
Rs. 98 per unit respectively.
(xi) Goods worth Rs. 980,000 were sold to exporters under the Duty and Tax Remission
Rules, 2001. These goods were purchased by ZL in finished condition from an
unregistered supplier for Rs. 710,000.
(xii) Dyes and chemicals worth Rs. 1,320,000 were exported through Afghanistan to
Central Asian Republic countries.
All payments were made through cross cheque/pay order except otherwise indicated. All
the above figures are exclusive of sales tax, wherever applicable.
Required:
compute the amount of sales tax payable by or refundable to ZL and the amount of input
tax to be carried forward, if any, for the tax period November 2020. Also compute
withholding tax, wherever applicable. (19)
Multitasking Limited (ML) is engaged in the business of manufacturing and sale of various
products. ML has several retail outlets within the country and two branches outside
Pakistan situated each in Bahrain and Sharjah.
ML’s Tax Manager is in the process of finalizing return of income for the tax year 2021 and
has presented following information along with supporting notes for management’s
approval:
Note Rs. in '000

Profit before taxation (i) 125,000
Add: inadmissible expense/admissible income

Accounting amortization - Trademark (ii) 1,000
Gain on sale of shares in Prime Limited (iii) 250
31,250
Less: admissible expense

Tax depreciation - normal (iv) (22,000)
Tax amortization - Trademark (ii) (200)
Bad debts actually written off (v) (2,750)
(24,950)
Taxable income for the year 131,300

Tax @ 29% 38,077
Less: Tax deducted/paid:
advance tax paid under section 147 (34,300)
tax deducted on import of second hand equipment (275)
income taxes paid in Bahrain (975)
unadjusted foreign tax credit from tax year 2020 (100)
(35,650)
Net tax payable 2,427
Notes to the Computation:

(i) The profit before taxation has been arrived at after inclusion/adjustment of the
following:
 Profit of Rs. 3,200,000 of Bahrain branch and loss of Rs. 4,400,000 of Sharjah
branch.
 Profit on debt of Rs. 1,800,000 paid on a working capital loan obtained from a
non-resident bank in Netherlands. No withholding tax was deducted by ML
while making payment of interest on loan, considering the bank does not have a
permanent establishment in Pakistan. There is no double tax treaty between
Pakistan and Netherlands.
 Rs. 450,000 paid to a law firm in Netherlands for arranging the above loan
facility and completion of all legal formalities relating to the loan. No
withholding tax was deducted on the ground that both the bank and the law firm
were based outside Pakistan.
 Exchange loss of Rs. 120,000. The loss was incurred in relation to a machinery
which ML acquired on 30 June 2020 from Canada through a foreign currency
loan of CAD 36,000. The loan was repayable in three equal annual instalments
of CAD 12,000 at the end of each year. The first instalment was paid on
30 June 2020 when the exchange rate parity was CAD 1 = PKR 110 While the
second instalment was paid on 30 June 2021 when exchange rate parity was
CAD 1 = PKR 115.
(ii) On 19 April 2021, ML acquired rights for use of trademark from a French company
for a period of five years. The trademark is related to a machinery which ML is
planning to introduce after 31 August 2021 through its major outlets across the
country. For accounting purposes, the cost is to be amortized equally over the period
of five years.
(iii) On 1 June 2021, ML sold 15,625 shares in Prime Limited at a negotiated price of
Rs. 55 per share to a foreign investor. The market value of these shares at the time of
sale was Rs. 58 per share. On 1 March 2020, ML received these shares by way of
dividend-in-specie. Dividend income was recorded at Rs. 609,375 and tax withheld
on such dividend amounted to Rs. 91,406.
(iv) During the year, ML imported a second hand equipment at a cost of Rs. 5,000,000.
No initial depreciation allowance has been claimed as the equipment is second hand
in nature.
(v) It includes write off of an interest free loan of Rs 1,350,000. The loan was provided to
ML’s branch in Sharjah for working capital requirement.
The opening and closing balances of provision for bad debt account were
Rs. 2,530,000 and Rs. 3,625,000 respectively.
Other information:
ML was in dispute with some of its suppliers with regard to the amounts invoiced to it.
Year-wise breakup of the unpaid disputed liabilities is as follows:
Year of supply Rs. in '000

Tax Year 2017 810
Tax Year 2018 950
Tax Year 2019 1,355
Tax Year 2020 1,630
4,745
Required:
comment on the above tax computation prepared by the tax manager for tax year 2021.
Give suggestion(s), wherever required. (22)
Note:  Revised computation is not required.
 Ignore WWF, WPPF, Minimum tax u/s 113, Alternative Corporate Tax and default
surcharge, if any.
Q.6 Majid, a tax partner in Arzo and Company, Chartered Accountants is representing AB
Associates, an audit client of the firm, in a law suit filed by Takeover Company Limited
(TCL) for wrong deduction of withholding tax of Rs. 2,000,000 u/s 153 of the Income Tax
Ordinance, 2001. Majid’s spouse is a director in TCL.
Required:
In the light of ICAP’s Code of Ethics, identify the potential threat(s) and the fundamental
principles of code of ethics which may be breached in the above situation. Also suggest
corresponding safeguard(s) to minimize/mitigate the threat(s). (05)
Q.7 (a) Moon Light Limited (MLL) is engaged in the business of production and supply of
crude vegetable oil. The oil is obtained from rapeseeds grown in southern Punjab.
After washing the oil for removing any impurities and passing it through a process of
adding antioxidants for increasing its shelf-life, the oil is sold to various
dealers/retailers in the market. On 15 November 2020 MLL supplied 1,500 litres of
oil to un-registered dealers in Islamabad for Rs. 324,000.
Required:
Under the provisions of the Federal Excise Act, 2005 advise the tax implication /
treatment of the above to MLL. (03)
(b) Ujala Limited (UL) is engaged in the business of manufacturing and import of
cigarettes and is registered under the Federal Excise Act, 2005. UL sells two different
brands of cigarettes viz. A and B in retail packing. Following information is available
from UL’s records for the month of November 2020:
Brand A: Import of 195,000 packs of cigarettes from Greece. The value assessed by
customs authorities at import stage amounted to Rs. 39,000,000. UL sold
160,000 packs at a wholesale price of Rs. 220 per pack to a large distributor in
Lahore whereas the remaining packs were sold on one-month credit to a
departmental store in Karachi at a retail price of Rs. 250 per pack of 10 cigarettes.
Brand B: Purchase of 3,900 kg of unmanufactured WP tobacco worth Rs. 323,700

from district Swabi. The tobacco was provided to an independent manufacturer,
Parwaz Limited (PL), in Peshawar for the manufacture of brand B cigarettes. PL
manufactured 390,000 packs of cigarettes and invoiced gross conversion charges of
Rs. 7,800,000 to UL. All the packs were sold by UL to various stores at a retail price
of Rs. 38 per pack of 10 cigarettes. UL paid the conversion charges on 2 December
2020.
Required:
payable by or refundable to UL for tax period November 2020. (04)
(c) Mudeer Beverages Limited (MBL) registered under the Federal Excise Act, 2005 is
planning to extend the area of its operations and supply aerated waters to retail
outlets in Hyderabad. MBL currently supplies aerated waters to customers in Sukkur
at a retail price of Rs. 351 per bottle. The price is inclusive of octroi charges of
Rs. 6, transportation cost of Rs. 3 and sales tax at the rate of 17%. For Hyderabad,
MBL has estimated to incur additional transportation cost of Rs. 2, insurance
charges of Rs. 3 and advertisement expense of Rs. 4 per bottle whereas the retailers
are estimated to incur warehousing cost of Rs. 1 and chilling cost of Rs. 2 per bottle.
MBL has also agreed to allow a special discount of Rs. 1.5 per bottle to the retailers
in Hyderabad. The consumer price of aerated waters in Hyderabad is Rs. 364.53.
Required:
payable by MBL on supply of aerated waters to Hyderabad and Sukkur. The rate of
duty on aerated waters is 13%. (04)
(THE END)

Advanced Taxation
Q.1 (a) Marhaba (Pvt.) Limited (MPL), a manufacturing concern, was selected by the
Commissioner Inland Revenue for the verification of its compliance with withholding
tax regime. After completion of the audit, following transactions were identified where
no tax was withheld/collected by MPL:
(i) As part of MPL’s sales promotion scheme, a car was given as a prize to
Mr. Ikram Nabi.
(ii) Following amounts were paid to landlord in respect of office building:
 Rent of Rs. 6 million
 Un-adjustable deposit of Rs. 600,000
Salaries of three security guards of Rs. 900,000. The security guards were

provided by the landlord.
(iii) Goods purchased from an importer.

(iv) Profit on debt was paid, under a loan agreement, to a Pakistani bank.
(v) Pesticides of Rs. 9.12 million were sold to retailers in Multan after a discount of
5%. These pesticides were purchased in January 2021 from a distributor.
Required:
Explain with reasons as to whether or not MPL was required to withhold tax on the
above transactions and identify the amount(s), if any, on which withholding was to be
made. Also explain the consequences in case of MPL’s failure to deduct tax from any
of the above payments. (10)
(b) Turbo (Pvt.) Limited (TPL) has acquired a new factory building for the establishment
of a coal processing plant at district Tharparkar. TPL has engaged a foreign
contractor, Dynamics Limited (DL) at a total contract price of Rs. 180 million for the
design and implementation of production system on the following terms and
conditions:
(i) DL would design the production system and acquire the necessary machinery
for TPL.
(ii) A sub-contractor would be appointed by DL in Pakistan for the implementation
of production system and installation of machinery at TPL’s factory. DL would
send its staff for the supervision of entire process from abroad.
(iii) TPL would pay Rs. 30 million to the sub-contractor on DL’s behalf in Pakistan
and remit the balance of Rs. 150 million to DL outside Pakistan.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and the Rules made
thereunder, discuss the tax implication/treatment in case of both DL and the
sub-contractor. (07)
Badri Versatile Limited (BVL), a listed company, is engaged in the business of

manufacturing and supply of various products.
Presently its tax manager is in the process of finalizing income tax return for tax year 2021
and has provided following tax computation along with supporting notes for your approval:
Income from Business: Note Rupees

Profit before taxation (i) 95,000,000
Add/(Less): Inadmissible expenses/(income)
Raw material purchased from TL (ii) 900,000
Training expenses (iii) 235,000
Inter-corporate dividend received from a subsidiary (iv) (160,000)
Government grant against cost of machinery (v) (25,000,000)
Total business income for the year A 70,975,000
Exempt income:
Inter-corporate dividend received from a subsidiary (iv) 160,000
Government grant against cost of machinery (v) 25,000,000
B 25,160,000
Total income for the year (A+B) 96,135,000
Less: Exempt income

Inter-corporate dividend received from a subsidiary (160,000)
Government grant against cost of machinery (25,000,000)
(25,160,000)
Taxable income for the year under NTR 70,975,000

Tax on taxable income [70,975,000 @ 29%] 20,582,750
Default surcharge @ 18% on the shortfall [20,582,750 – 14,400,000] 1,112,895
Gross tax payable 21,695,645
Less: Tax deduction at source:
Advance tax paid u/s 147 (14,400,000)
Advance tax paid u/s 153 (196,000)
(14,596,000)
Net tax payable 7,099,645
Notes to the computation:

(i) The profit before taxation has been arrived at after inclusion/adjustment of the
following:
 Rs. 14,040,000 received against sale of electric toasters from Mujahid Associates
(MA), a sales tax registered person. This amount was inclusive of sales tax but net
of 4% withholding tax deducted by MA.
 Rs. 800,000 received as a monetary award from the President of Pakistan for best
corporate practices and Rs. 400,000 received from the provincial health minister
in recognition of BVL’s services for Covid patients during the current pandemic.
 Rs. 425,000 on account of service charges deducted and kept by BVL from the tax
withheld from suppliers.
(ii) Rs. 900,000 paid to Trial Limited (TL) for the purchase of raw materials. BVL paid
the amount without withholding tax of Rs. 36,000.
(iii) Rs. 235,000 incurred on account of industrial training of Saulat Baig, a Pakistani
citizen working at Pakistan Council of Scientific and Industrial Research in
connection with a scheme approved by the Federal Board of Revenue.
(iv) Rs. 160,000 received in respect of inter-corporate dividend from a subsidiary within
the group. BVL owns 51% interest in the subsidiary. No withholding tax was deducted
by the subsidiary.
(v) A voluntary grant of Rs. 25,000,000 was provided by the Federal Government to BVL
towards the cost of a new machinery purchased for the manufacture of ventilators for
Covid-19 patients. BVL had acquired the machinery in July 2021 at the cost of
Rs. 65,000,000. Tax depreciation charged during the year on the machinery at the rate
of 15% amounted to Rs. 9,750,000.
Required:
comment on the above tax computation prepared by the tax manager for tax year 2021. Give
suggestion(s), wherever required. (25)
 Ignore WWF, WPPF, Minimum tax u/s 113 and Alternative Corporate Tax, if any.
Compost (Pvt.) Limited (CPL), incorporated under the Companies Act, 2017 is engaged in
the business of providing wastewater treatment solutions to hospitals, industries and
agricultural sites across Pakistan.
CPL is 70% owned by a Belgium based company Belgian Aqua Plc. (BAP) and 15% each by
a Dutch company Dutch Waste LLC. (DWL) and a Pakistani company Tezabi Pani
Limited (TPL).
BAP is 50% owned by DWL whereas TPL is 100% owned by a German company Berlin
Wasser Gmbh (BWG).
On 18 December 2020 CPL received a loan of US$ 4 million from BAP for the installation
of a wastewater treatment plant in rural Sindh. The project was approved by the Federal
Government. The loan carries interest at the rate of 9% per annum. Interest is to be paid
quarterly in arrears by the 8th day of the next quarter.
On 11 February 2021 CPL received another loan of US$ 1.5 million from BWG for the
same nature of project in Balochistan with an interest of 8% per annum. Interest is to be paid
monthly in arrears by the 5th day of each following month.
On 1 April 2021 another loan of US$ 2.9 million was received by CPL from DWL. The loan
was received for the purchase of specialized machinery for wastewater management and
carries interest at the rate of 6% per annum. Interest is to be paid quarterly in arrears by the
10th day of the next quarter. DWL has no permanent establishment in Pakistan.
The above loans are duly registered with the State Bank of Pakistan and the principal
repayment in each case would commence from the year 2022.
Following information is available from CPL’s records:

Rupees
Paid-up capital as at 30-06-2020 145,000,000
Paid-up capital as at 30-06-2021 175,000,000
Retained earnings as at 30-06-2020 95,000,000
Retained earnings as at 30-06-2021 128,000,000
Taxable income as per return of income for tax year 2021 178,000,000
Tax depreciation and amortization included in taxable income 21,000,000
The above taxable income as per return is exclusive of foreign profit on debt claimed as
deduction in respect of above loans.
Required:
Under the provisions of the Income Tax Ordinance, 2001 calculate the amount of foreign
profit on debt which can be claimed as deduction for tax year 2021. (Assume that the dollar
rupee parity during the year ended 30 June 2021 remained constant at USD 1 = PKR 150) (16)
Q.4 Ikhtiar Traders (IT), a sole trader, was engaged in the business of distribution of various
goods for many years. IT was not registered with Inland Revenue Department due to low
turnover. However, in order to diversify and grow its business, IT acquired a factory in
Gwadar Free Zone for the production and supply of vegetable ghee. IT also converted its
business into a limited liability company in the name and style of Ikhtiar (Pvt.) Limited
(IPL) and got registered with the Federal Sales Tax Authority as a manufacturer, importer,
and distributor. The application for registration was made on 24 April 2021 and the
certificate of registration was issued to IPL on 1 May 2021. The production of vegetable
ghee is expected to be commenced from next year.
Following information is available from IPL’s records for the month of May 2021:
Rupees
Unsold stock
Transferred to IPL from IT at the time of conversion 4,525,000
Purchases
From un-registered suppliers 750,000
Imports 2,725,000
Supplies
To registered persons 2,040,000
To un-registered persons 3,615,000
Additional Information:
(i) Verifiable unsold stock transferred by IT to IPL at the time of conversion include the
following:
 Goods purchased from registered persons on different dates:
– On 15 March 2021 purchased industrial sewing machines for Rs. 300,000.
– On 5 April 2021 purchased sewing machines of the household type for
Rs. 250,000.
 Goods purchased from un-registered persons on different dates:
– On 1 April 2021 purchased 45,000 packs of candies at Rs. 35 per pack.
– On 10 April 2021 purchased 800 bags of fertilizers at a discounted price of
Rs. 3,000 per bag.
(ii) Purchases from registered suppliers comprise of the following:

 Cane molasses worth Rs. 310,000 purchased from a supplier whose name was
not appearing in the active taxpayer’s list.
 Storage batteries purchased at a price of Rs. 650,000. These batteries are sold in
the market at a retail price of Rs. 700,000. IPL paid the amount via online
transfer of money into supplier’s business bank account. However, this account
has not yet been declared by the supplier to the Commissioner Inland Revenue.
 Machinery worth Rs. 2,500,000 imported for use at IPL’s new production facility
at Gwadar. All the procedures, limitations and restrictions applicable under the
Customs Act, 1969 relating to import of machinery were duly complied with.
 Hoarding board advertisement worth Rs. 2,000,000 for the promotion of IPL’s
products in Karachi and Lahore. The hoarding board services were provided by a
Karachi based advertising agency which spend 60% of the cost for advertisement
in Karachi and the remaining 40% for advertisement in Lahore.
(iii) Purchases from un-registered suppliers comprise of 50 metric tons of locally produced
coal at Rs. 15,000 per metric ton.
(iv) Imports comprise of the following:
 4,500 packs of vegetable ghee from Malaysia in retail packing at a price of
Rs. 250 per pack. All duties and taxes were paid at the time of import.
 Raw cotton worth Rs. 1,600,000 from China.
(v) Supplies to registered persons comprise of the following:
 3,800 packs of imported vegetable ghee in retail packing at a retail price of
Rs. 300 per pack.
 Industrial sewing machines for Rs. 900,000 to Gwadar Special Economic Zone.
(vi) Supplies to un-registered persons comprise of the following:
 40,000 packs of candies to number of retailers. The candies were supplied in
retail packing at a price of Rs. 40 per pack. Each pack consisted of 25 candies
with a retail price of Rs. 2 per candy.
 650 bags of fertilizers to various distributors across Pakistan at a price of
Rs. 3,100 per bag. The retail price of each bag in the market is Rs. 3,300.
All the above figures are exclusive of federal excise duty (FED) and sales tax, wherever
applicable.
Required:
made thereunder, compute the amount of sales tax payable by or refundable to IPL and the
amount of input tax to be carried forward, if any, for the tax period May 2021. Also
compute withholding tax, wherever applicable. (20)
Q.5 (a) Mukhtar has been running a small meat shop measuring 750 square feet in a small
commercial area for the last three years. The average electricity bill of his shop is
Rs. 40,000 per month. Mukhtar currently purchases a variety of meat cuts from a local
supplier and sells it to end-users.
In order to expand his business, he has decided to acquire another meat shop,
measuring 600 square feet, in a nearby commercial area. His plan is to procure
livestock instead of meat cuts and after processing it into frozen fine cuts, sell it to the
end-users in retail packing under the brand name of ‘MeatIt’ from both of his shops.
Mukhtar is not registered with the sales tax authorities. However, he is paying sales
tax at the rate of 7.5% on his monthly electricity bills. He is of the opinion that since
he is not falling within the ambit of Tier-1 retailers, he is not required to be registered
with the sales tax authorities and can continue to operate and pay sales tax as
un-registered person.
Required:
Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, discuss
whether Mukhtar is justified in his contention. (06)
(b) Baqir Sulman established a small toy manufacturing facility at Mirpurkhas and
obtained sales tax registration in January 2021. However, due to lockdown imposed
by the government and strict Covid restrictions, he could not commence his business
activities as stipulated. As a result, no sales tax returns were filed as he did not carry
on any taxable activity. In May 2021 he received a notice from Inland Revenue
Department requiring him to furnish the return by 15 June 2021.
Required:
Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, advise
whether Baqir Sulman is required to file the sales tax return and what consequences, if
any, he may face in case of non-filing of such return. (03)
Q.6 Ahad is the tax partner in Hammad and Company, Chartered Accountants. Ahad is
presently in the process of preparing the annual tax return of Deewar Limited (DL), a listed
audit client. The tax manager, Kamran Wasi, responsible for DL’s return is on emergency
medical leave and the return has to be submitted within three days from now. DL has been
denied any further extension in date of filing of return by the tax authorities.
Due to excessive workload and shortage of staff, Ahad has requested one of their audit
partners to temporarily assign a team member for the timely preparation and filing of DL’s
income tax return.
The audit partner has assigned Feroze, who has been associated with DL’s audit for the past
two years. However, Feroze has no previous experience in filing of tax returns.
While working on the assignment, Feroze discovered some errors in the preparation of DL’s
previous year’s tax return. These errors were the fault of Kamran Wasi. Ahad has requested
Feroze not to disclose the errors to DL.
Required:
In the light of ICAP’s Code of Ethics, identify the potential threat(s) and the fundamental
principles of code of ethics which may be breached in the above situation. Also suggest
corresponding safeguard(s) to minimize/mitigate the threat(s). (05)
Q.7 Cool Pakistan Limited (CPL) is engaged in the business of manufacture and supply of food
and beverages. CPL is a subsidiary of Cool Blue Inc. (CBI), headquartered in USA. In order
to ensure high standards of quality, CPL’s products are manufactured with the technical
assistance of CBI for which CBI charges a service fee of 3% of products’ gross revenue.
Recently CPL has introduced a new chocolate chip cookie in Pakistan under the brand
name of ‘Choco chip’ following its successful launch in USA by CBI.
CPL and CBI have a formal agreement for the provision of services for the manufacture of
biscuits and cookies according to which CPL is required to pay service charges to CBI on
31 December each year. However, there is no formal agreement for the manufacture of
beverages and Choco chip between the two companies.
Following information has been extracted from CPL’s records for the month of May 2021:
Rupees
Concentrates supplied by CBI for beverages 14,000,000
Sales revenue
Beverages 20,000,000
Biscuits and cookies* 42,000,000
*It includes sales revenue of Rs. 9,000,000 (net of 10% trade discount)
pertaining to ‘Choco chip’.
Required:
Under the provisions of the Federal Excise Act, 2005 and Rules made thereunder:
(a) Explain whether CPL is required to pay federal excise duty on services rendered by
CBI relating to above products. If the answer is in affirmative, then compute the
amount of duty payable by CPL on these services. (05)
(b) Identify the time of payment of duty in case of each of the above products. (03)
(THE END)

Advanced Taxation
Akbar Industries Limited (AIL), a public unlisted company, is primarily engaged in the
business of manufacturing, import, export and sale of home and electronic appliances.
AIL’s Tax Manager is in the process of finalizing income tax return for the tax year 2022 and
has presented following information along with supporting notes for the year ended
30 June 2022:
Income from business: Note Rs. in million

Profit before taxation (i), (ii) 306.0
Add: Inadmissible expenses / admissible income:

Cash dividend (iii) 4.5
Bonus shares (iv) 19.0
Payment to TV channel (v) 9.9
Various payments in respect of foreign
consultant’s visit to Pakistan (vi) 6.8
Payment of commission (vii) 1.4
Less: Admissible expense:
Lease rental (viii) (9.0)
Taxable income for the year under Normal Tax
Regime (NTR) 338.6

(i) Break down of AIL’s sales during the year is as follows:
Rs. in million
Local sales of manufactured goods
(including toll manufacturing services of Rs. 65 million) 940
Local sales of imported goods 90
Exports 436
(ii) Other income includes net amount of royalty of Rs. 62 million received through
normal banking channel from an enterprise in UAE as consideration for use of
scientific knowledge outside Pakistan. The amount is net of 5% withholding tax
deducted by UAE enterprise.
(iii) AIL received cash dividend of Rs. 4.5 million from Salam Textile Limited (STL), in
which AIL has 25% investment. The amount was net of 10% withholding income tax.
AIL’s share of profit from STL of Rs. 8.2 million was recorded under equity method
of accounting and is included in profit before taxation of Rs. 306 million.
(iv) AIL received 200,000 bonus shares issued by Haider Limited (HL), a listed company,
on 30 September 2021. The market price of each share on the date of entitlement of
bonus shares and the date on which bonus shares were credited in AIL’s account was
Rs. 80 and Rs. 95 respectively. On 1 January 2018, AIL had purchased 400,000 shares
of HL at a cost of Rs. 45 per share. On 31 May 2022, AIL sold 450,000 shares of HL
at a price of Rs. 110 per share and recorded a gain of Rs. 36 million which is included
in profit before tax.
(v) Rs. 9.9 million was paid to a TV channel for advertising AIL’s products. Withholding
income tax was deducted at the rate of 1% of the amount payable.
(vi) Following payments were made in respect of foreign consultant’s visit to Pakistan for
12 days with regard to AIL’s ongoing projects:
(a) Consulting fee of USD 30,000 for providing technical services. Exchange rate
parity was USD 1 = PKR 172.
(b) Air ticket of Rs. 675,000.
(c) Hotel accommodation of Rs. 840,000.
(d) Cash payments of Rs. 125,000 to restaurants.
No withholding income tax was deducted while making the above payments.
(vii) Commission of Rs. 1.4 million was paid to AIL’s distributor, Nawab Malik, on sale of
products of Rs. 70 million listed in the Third Schedule of the Sales Tax Act, 1990.
Nawab Malik’s registration was suspended on 1 July 2021 in terms of section 21 of the
(viii) Rs. 9 million represents the payment of the last instalment of a lease rental in respect
of a machine obtained by AIL on finance lease in tax year 2018. The lease term expired
on 31 March 2022 and the machine was transferred to AIL at a residual value of
Rs. 2 million which is included in the payment of last instalment. The market value of
the machine at the time of its transfer to AIL amounted to Rs. 6 million. Interest
expense and depreciation charged by AIL on the machine to profit and loss account
during the year amounted to Rs. 1.1 million and Rs. 5 million respectively.
Required:
Under the provisions of the Income Tax Ordinance, 2001, and Rules made thereunder,
comment on the above computation of taxable income prepared by the tax manager for tax
year 2022. Give suggestion(s), wherever required. (25)
 Ignore discussion on tax liability.
Q.2 Sitara (Pvt) Limited (SPL), a small and medium enterprise, is engaged in the business of
manufacturing and supply of superior grade trousers for children. Following information has
been extracted from SPL’s records for the year ended 30 September 2021:
Rs. in '000
Sales 184,125
Gross profit 55,245
Other income 10,300
(i) Sales include:
 Rs. 6,000,000 received as advance from a trader in Karachi against sale of trousers.
SPL has agreed to supply the trousers in January 2022.
 Rs. 18,000,000 as profit from a business set up by SPL on 1 October 2020 in
Gwadar Free Zone for the manufacture of readymade garments.
(ii) Cost of sales include:

 Rs. 6,600,000 in respect of work-in-progress for the construction of a store within
factory premises.
 Rs. 2,750,000 paid in cash on account of freight charges to a freight forwarding
company in Karachi. SPL did not deduct withholding tax from the payment.
 Rs. 800,000 for used label printing machine imported from Taiwan. The cost
includes sales tax of Rs. 116,000 and income tax of Rs. 48,000 paid to custom
authorities at import stage.

 Rs. 950,000 paid as commission to various distributors. Each payment ranged
between Rs. 15,000 to 25,000 and was settled in cash. Applicable withholding tax
was deducted from each payment.
 Rs. 125,000 incurred in respect of free provision of trousers, as a promotional item,
to garment shops in large shopping malls. However, no evidence of the transaction
is available to SPL.
 Rs. 4,000,000 incurred for the acquisition of a right to use a formula for the
development of a new fabric softener for SPL’s manufacturing process. The right
was obtained on 1 July 2021 from a company in Germany.
(iv) Financial charges include:

 Rs. 520,000 in relation to a finance facility obtained from a scheduled bank for the
construction of a store as mentioned in point (ii) above. SPL did not deduct any
tax from the payment.
(v) Other income includes:

 Rs. 8,800,000 in respect of gain on sale of immovable property consisting of an
office building. SPL purchased the building in 2019 at a cost of Rs. 20,000,000.
The tax written down value of the building at the time of sale was Rs. 16,200,000.
The building was sold to a customer for Rs. 25,000,000.
 Dividend of Rs. 1,500,000 received from a corporate agricultural enterprise. No
withholding tax was deducted by the agricultural enterprise on payment of
dividend.
Other information:
(i) Tax paid by SPL u/s 147 amounted to Rs. 650,000.
(ii) Accounting depreciation charged during the year on assets brought forward from
previous year is the same as tax depreciation.
Required:
(a) compute under the correct head of income, the total income, taxable income and net
tax payable by or refundable to SPL for the tax year 2022. (15)
Note:  Your computation should commence with the profit before tax figure of Rs. 20,290K.
 Ignore WWF, WPPF, Minimum tax u/s 113, Alternative Corporate Tax and
default surcharge, if any.
 Show all relevant exemptions, exclusions and disallowances.
(b) what would be your answer in (a) above if SPL opts to be taxed under FTR. (03)
Q.3 (a) On 30 September 2021 Jawwad, a resident tax payer, in order to reduce the incidence
of tax on sale of his immovable property, transferred the property to his adopted son
Khalid, a permanent resident of China, by way of a gift. Khalid was on vacation to
Pakistan for a period of one month.
Jawwad bought this property in 2019 at a price of Rs. 16.5 million. The value of the
property fixed by the District Officer (Revenue) (DOR) at the time of its transfer to
Khalid was Rs. 20 million whereas the value determined by the Federal Board of
Revenue (FBR) amounted to Rs. 25 million. The open market value of the property on
the date of transfer was Rs. 29 million.
On 15 October 2021 Khalid sold the immovable property to his friend for
Rs. 30 million. There was no change in values assessed by DOR and FBR.
Required:
discuss the tax implication/treatment for Jawwad and Khalid in the above scenario. (10)
(b) Ikram is an investor. On 6 November 2021 he entered into an energy derivative

contract for the purchase of 500 barrels of crude oil. The contract was to be expired on
11 December 2021. Ikram sold the contract before the settlement date and incurred a
net loss of Rs. 1,250,000 on the contract.
Required:
Under the provisions of the Income Tax Ordinance, 2001 briefly discuss the tax
implication/treatment of the above transaction. (04)
Q.4 Tabish Limited (TL), a listed company, is engaged in the business of manufacturing, import
and sale of various fast moving consumer goods. TL is registered as a manufacturer, importer
and distributor with sales tax authorities in Lahore. Following information has been extracted
from TL’s records for the month of November 2021:
Rs. in million
Purchases
Taxable goods from registered suppliers 306
Taxable goods from unregistered suppliers 44
Imports 238
Supplies
Taxable supplies to registered persons 478
Taxable supplies to unregistered persons 84
(i) Purchases from registered suppliers include:

 200,000 litres of milk, purchased in 40-litre container at Rs. 4,400 per container.
The retail price of milk was Rs. 150 per litre.
 60,000 kg of sugar, purchased at a price of Rs. 140 per kg from a distributor as an
industrial raw material. The retail price of sugar was Rs. 160 per kg whereas the
value of sugar fixed by the Federal Board of Revenue (FBR) through notification
was Rs. 120 for November 2021.
(ii) Imports comprise of:

 new machinery of Rs. 34 million from Japan for the production of ice cream. The
machinery is covered under Eighth Schedule.
 raw material of Rs. 178 million for manufacturing of infant nutrition items.
 chocolates of Rs. 26 million in retail packing.
The value of imports are inclusive of custom and federal excise duties but exclusive of
sales tax.
(iii) Transportation charges of Rs. 3 million paid to Dawood Transport Company (DTC)
for delivering goods to the customers in Karachi. DTC’s main office is located in
Lahore.
(iv) Supplies to registered persons include:

 advance of Rs. 17.9 million received from Moon Associates against goods to be
delivered in December 2021.
 140,000 bottles of aerated water at a price of Rs. 160 per bottle. The price of each
bottle in the market (inclusive of federal excise duty and sales tax) is Rs. 260.
 goods worth Rs. 127 million to duty free shops.
 goods worth Rs. 51 million on three months’ credit to Tier-1 retailer. The price is
inclusive of mark-up at the rate of 8% per annum.
 imported chocolates as mentioned in point no. (ii) above to departmental stores
in Lahore for Rs. 30 million. The chocolates were sold in the same condition as
imported.
(v) Supplies to unregistered persons include 50,000 packs of flavoured milk under the
brand name of ‘Tabish flavoured milk’. The packs were supplied in retail packing of
200 ml to distributors at a discounted price of Rs. 60 each. The retail price per pack is
Rs. 90.
(vi) During the current month, it was discovered that output tax on purchase of packing
material for juices of Rs. 2.25 million in October 2021 was paid by the supplier in
November 2021.
All the payments were made through cross cheque / pay order. All the above figures are
exclusive of federal excise duty (FED) and sales tax, unless specified otherwise.
Required:
made thereunder, compute the amount of sales tax payable by or refundable to TL and the
amount of input tax to be carried forward, if any, for the tax period November 2021.
Also compute withholding tax, wherever applicable. (20)
Note:  Show all relevant exemptions, exclusions and disallowances.
 All figures should be rounded off to two decimal places.
Q.5 (a) Zaman Associates (ZA) is registered as a wholesaler-cum retailer and is engaged in the
business of bulk import and supply of shoes and leather products. On 15 July 2021 ZA
received a notice from the Deputy Commissioner Inland Revenue requiring it to
integrate its retail outlets with Board’s Computerized System for real-time reporting of
sales by 31 October 2021. However, ZA failed to comply with the notice till the date
for filing of November 2021 return.
Required:
Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, briefly
advise ZA with regard to the consequences of non-compliance with the notice. (05)
(b) Mosa, a registered person, is engaged in the business of trading branded office and
home furniture through a showroom in Islamabad. His showroom, measuring
3,200 square feet, is located in a hyper mall and is integrated with Board’s
Computerized System for real time reporting of sales. On 15 November 2021 Mosa
sold office furniture worth Rs. 1,500,000 to an Italian diplomat.
Required:
Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, advise
Mosa with regard to the chargeability of sales tax on the above transaction. (05)
Q.6 Specify with reasons, whether the following independent acts may be considered as a tax
evasion or tax avoidance: (05)
(i) In order to reduce his tax liability, Mr. Jaffer, a resident individual, paid a premium of
Rs. 100,000 to the life insurance company on his policy.
(ii) Sakhi Limited (SL) paid 50% of Ahmad’s salary i.e. Rs. 30,000 in cash whereas the
remaining 50% of his salary was credited to his bank account. SL claimed Rs. 60,000
as admissible deduction in its return of income.
(iii) Bahadur Limited is planning to set up a new factory under Export Processing Zone,
Gwadar to get tax incentives.
(iv) Aagaz Limited sold fixed asset to an associated company at its tax written down value
and consequently reported nil gain or loss on disposal of asset in its return of income.
(v) In order to reduce her tax liability, Mrs. Shamim who runs her own business, paid
higher salary to her spouse, keeping in view that lower slab rates are applicable on
salary income as compared to income from business.
Q.7 Roshni Limited (RL) is engaged in the business of manufacturing and supply of tobacco
products in the district of Dir and is registered under the Federal Excise Act, 2005. Following
information is available from RL’s records for the month of November 2021:
(i) Purchase of 2,000 kg of un-manufactured black leaf tobacco worth Rs. 228,000 from
Dera Ghazi Khan. RL manufactured 46,000 packs of chewed smokeless tobacco
commonly known as ‘Naswar’ and sold them to various stores in Khyber Pakhtunkhwa
at a retail price of Rs. 10 per pack.
(ii) Import of 1,000 kg of un-manufactured tobacco from Brazil. The value assessed by the
customs authorities at import stage amounted to Rs. 880,000.
RL used 768 kg of un-manufactured tobacco for the production of 8,000 packs of

tapered shape biris with the help of manually operated machine. Each pack consisted
of 480 biris. RL sold 6,500 packs to dealers at a wholesale price of Rs. 600 per pack
whereas 1,500 packs were supplied as provisions for consumption on board a ship that
was proceeding to Bangladesh at a price of Rs. 650 per pack. These packs are usually
sold in the market at a retail price of Rs. 696 per pack.
The remaining quantity of 232 kg of un-manufactured tobacco was sold to a

manufacturer in District Mardan at Rs. 1,050 per kg.
(iii) Inland carriage charges of Rs. 25,000 were paid to an air cargo company for shipping
the consignment of biris to Karachi Port.
(iv) Advertisement charges for the promotion of biris on a local cable T.V network
amounted to Rs. 30,000. RL agreed to pay the amount to the cable network in the first
week of December 2021.
Required:
Under the provisions of the Federal Excise Act, 2005 compute the amount of duty payable by
or refundable to RL for the tax period November 2021. (08)
(THE END)

Tax Planning and Practices

Q.1 Khalida and Nasreen have been the income tax filers for the last many years. They are
currently considering launching a business to manufacture beauty soaps and detergents with
the capital of Rs. 60 million. Khalida and Nasreen intend to make investment and share the
profits in the ratio of 70:30 respectively.
They are, however, not certain whether the business venture should be in the form of an
association of persons or a limited liability company.
Following is the expected profit or loss statement of their first year operations:
Rs. in million
Sales 163
Cost of sales (85)
Gross profit 78
Operating expenses (37)
Interest expenses (6)
Profit before donations and tax 35
Donations (7)
Profit before tax 28
(i) Operating expenses include:
 salary of Rs. 5 million payable to Nasreen.
 rent of Rs. 3 million payable to Khalida for letting out her property on lease for
office purposes. The fair market value of the rent is estimated at Rs. 4 million.
(ii) Interest expenses represent amount payable to Khalida on a loan utilized for business
under an agreement.
(iii) Donations represent 20% of the profit to a charitable educational institute, included in
the Thirteenth schedule of the Income Tax Ordinance, 2001.
(iv) The remaining profit for the year would be distributed to owners.
You may assume that Khalida and Nasreen have no other source of income except mentioned
above.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, advise
which of the following forms of business would be tax beneficial for the business as well as its
owners:
 Association of persons
 Limited liability company (22)
Note: ‒ Ignore WWF, WPPF and Alternative Corporate Tax, if any.

‒ Show all relevant exemptions, exclusions and disallowances.
Tax Planning and Practices Page 2 of 6
Q.2 Khushi Limited (KL), a public unlisted company, is primarily engaged in the business of
manufacturing and sale of auto parts.
50% of KL’s shares are owned by a UAE company, Hafiz LLC (HL) whereas remaining
50% shares are owned by a local group. Break-up of KL’s equity and long term liabilities as
on 1 January 2021 and 31 December 2021 are as follows:
1 Jan 2021 31 Dec 2021

------Rs. in million ------
Equity:
Share capital (Rs. 10 each) 500 500
Reserves 160 280
Revaluation surplus 40 50
Long term liabilities:
15% bank loan, payable in 2024 200 300
12% loan from HL, payable in 2026 800 1,200
On 1 January 2021, KL acquired 80% shareholdings in Roshni Limited (RL), an unlisted

company. RL is engaged in the business of manufacturing car batteries. KL has no other
subsidiaries.
KL’s finance manager is in the process of finalizing income tax return for the tax year 2022
and has presented the following information alongwith supporting notes for the year ended
31 December 2021.
Income from business Note Rs. in million

Profit before tax (i) 222
Adjustments:
Tax depreciation (ii) (142)
Income from rendering of maintenance services (iii) (16)
Taxable income before setting off losses 150
Less: RL’s brought forward business losses (iv) (90)
Less: RL’s business loss for the year 2021 (iv) (28)
Taxable income 32
Notes to the computations:

(i) Profit before taxation has been arrived at after inclusion/adjustment of the following:
 Expense of Rs. 14 million paid to Qurban Limited on account of rental of building
alongwith plant and machinery. No withholding tax was deducted at the time of
payment.
 Expense of Rs. 5 million paid to Karachi branch of a UAE based consultancy firm,
for carrying out due diligence for acquisition of RL. No withholding tax was
deducted at the time of payment.
 Expense of Rs. 15 million paid to an IT company, for development of computer
software. Although the software was available for use from 1 October 2021, KL’s
management decided to implement the software from 1 January 2022.
 Interest expenses of Rs. 38 million and Rs. 120 million on bank loan and loan from
HL respectively.
 Interest income of Rs. 12 million on investment in Pakistan Investment Bond.
(ii) It includes following depreciation amount:
 Rs. 3 million on delivery vehicle which was purchased on 1 January 2021 at a cost
of Rs. 20 million.
 Rs. 0.78 million being 5th year depreciation on car which was in use of KL’s CEO.
The car was provided to the CEO for official purpose. On 1 December 2021, this
car was sold to the CEO at a book value of Rs. 2 million after the expiry of its useful
life of 5 years. The cost and market value of the car at the time of disposal were
Rs. 10 million and Rs. 6 million respectively.
(iii) These services were rendered to a manufacturer namely Kamran & Co. whose annual
turnover was less than Rs. 40 million in preceding tax years. The finance manager
considers that this income is subject to minimum tax.
(iv) These represent the entire taxable losses of its subsidiary i.e. RL.
Required:
comment on the above computation of taxable income, prepared by the finance manager for
tax year 2022. Also suggest the revised adjustment, if required. (25)
Note:  Ignore discussion on tax liability.

Q.3 Rahat & Co. is the distributor of imported home appliances. It imports the items in bulk
quantity and supplies to retailers on wholesale basis as well as to the general public on retail
basis.
On 1 April 2022, it sold 50 split air conditioners to Sukoon & Co. at a wholesale price of
Rs. 150,000 per unit. The retail price of each unit is Rs. 200,000. Sukoon & Co. paid the billed
amount on 15 April 2022. The air conditioners are covered under the Third Schedule of the
All the above figures are exclusive of sales tax.
Required:
Under the provisions of Income Tax Ordinance, 2001 and Rules made thereunder:
(a) discuss the withholding tax implication of the above transaction on both Rahat & Co.
and Sukoon & Co. Assume that both entities have an annual turnover of more than
Rs. 100 million. (06)
(b) what are the consequences in case of failure to collect/deduct the withholding tax, if
any, computed in part (a). (02)
Q.4 Rahman was a tax manager in a firm namely Salman Iqbal and Company, Chartered
Accountants (the firm). He was responsible for filing monthly sales tax returns of various
clients including Jamshed Limited (JL) and was reporting to Salman, the tax partner in the
firm.
In May 2020, Rahman resigned from the firm and joined Kashif Limited, a competitor of JL,
as the Head of Taxation. Salman handed over Rahman’s work to Nawaz, who was a newly
inducted chartered accountant in his team. Nawaz had no prior experience of working in the
tax department.
While filing the sales tax return for the month of May 2022, Nawaz approached Salman for
some assistance. However, due to an extremely busy work schedule, Salman requested
Rahman to provide assistance to Nawaz and instructed Nawaz to share his working papers
with Rahman and submit the sales tax return after Rahman’s approval.
After reviewing the file, Rahman made some adjustments in sales tax working and finalized
the sales tax return for the month of May 2022. Nawaz does not agree with the adjustment
and believes that they are not in accordance with the sales tax laws.
Required:
Briefly discuss if Salman may be in breach of the fundamental principles of ICAP’s Code of
Ethics. Also state the potential threats that Nawaz may face in the above circumstances and
how he should respond. (06)
Q.5 Medicon Pakistan Limited (MPL) is engaged in the business of manufacturing and supply of
pharmaceutical products and medical equipment with its principal place of business in
Karachi. It is registered as an importer, manufacturer and distributer with the Sales Tax
Authorities. Following information has been extracted from MPL’s records for the month of
May 2022:
Rs. in million
Purchases
from registered suppliers 1,080
from un-registered suppliers 180
Imports 650
Supplies
to registered persons 1,210
to unregistered persons 120
All medicines and drugs purchased and supplied, unless specified otherwise, by MPL are
registered under the Drugs Act, 1976.
 raw material worth Rs. 400 million comprising of pharmaceutical active
ingredients of Rs. 300 million and artificial flavourings of Rs. 100 million.
 plastic bottles for packaging worth Rs. 160 million from a local supplier. During
the month it was discovered that the supplier has only deposited 80% of the sales
tax on these purchases with the government treasury.
 sugar syrup from an associated company at a concessional price of Rs. 192 million.
The open market price of this syrup was Rs. 200 million.
 transportation charges of Rs. 40 million paid to a Karachi based transport
company for delivering products to retailers. 70% of these charges pertained to
Karachi and the remaining to Lahore.
 Rs. 20 million paid in advance to Karachi based trainers for conducting doctors’
training programme in Karachi in July 2022.
 air tickets of Rs. 8 million, purchased from a travel agent in Karachi. These tickets
were purchased for a team of 20 doctors to attend training sessions in London.
50% of the amount was paid during the current month whereas remaining
50% would be paid in next month.
 furniture of Rs. 80 million for MPL’s office.
 Dextrose and Saline infusion giving sets (listed under Sixth Schedule of the Sales
Tax Act, 1990) worth Rs. 110 million.
 over the counter medicines worth Rs. 70 million from a local manufacturer.
(ii) Purchases from unregistered suppliers consist of taxable supplies only.

(iii) Imports include:
 glucose testing equipment (listed under Sixth Schedule of the Sales Tax Act, 1990)
worth Rs. 150 million.
 protein bars worth Rs. 500 million. Protein bars are not registered under the
Drug Act, 1976.

 medicines worth Rs. 700 million supplied to various pharmacies in Karachi and
Lahore.
 imported protein bars of Rs. 300 million supplied to retailers at a trade discount of
5%. The discount is in conformity with the normal business practice and also
reflected on the tax invoice.
 imported protein bars of Rs. 110 million supplied to online medical stores at a
trade discount of 15% which is reflected on the tax invoice. The additional
discount was given to promote online sales.
 hospital scrubs worth Rs. 100 million supplied to a hospital owned and managed
by the Federal Government.
(v) Supplies to unregistered persons comprise of over the counter medicines sold to various
pharmacies.
(vi) During the month, MPL paid royalty of Rs. 40 million to a non-resident company for
using its intellectual property in the manufacture of medicines.
Required:
made thereunder, compute the amount of sales tax payable by or refundable to MPL and the
amount of input tax to be carried forward, if any, for the tax period May 2022. Also compute
withholding tax, wherever applicable. (20)
Note:  Show all relevant exemptions, exclusions and disallowances.
 All figures should be rounded off to two decimal places.
Q.6 (a) Juicy Drinks (JD) is a shop located in Karachi which is famous for its peach flavoured
drinks. JD purchases peach syrup, in one litre packaging, from a registered supplier in
Swat (located in PATA) for use in peach flavoured drinks. The retail price per litre fixed
for sale of this syrup in Swat and Karachi is Rs. 700 and Rs. 750 respectively.
During the period, JD purchased 200 litres of peach syrup from Swat.
Required:
Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, comment
on the chargeability of sales tax and withholding of sales tax on purchase of 200 litres
of peach syrup from Swat. (03)
(b) Zain Fruit and Nuts (ZFN) is involved in the business of manufacturing dried fruit and
fruit jam and is registered with the sales tax authorities. It recently started a factory in
Baluchistan within the limits of Border Sustenance Markets.
During the month of May 2022, ZFN imported apricots and kiwi fruit from Iran.
Apricots were fully consumed in the manufacture of apricot jam however 60% of the
kiwi fruit was used in the manufacture of dried kiwi slices and the remaining was sold
to a fruit jam manufacturer in Islamabad.
Apricot jam was sold to a retailer in Peshawar as well as a retailer within the limits of
Border Sustenance Markets.
Required:
Under the provision of the Sales Tax Act, 1990 and Rules made thereunder, discuss the
implications of sales tax on the above transactions. (04)
(c) Faiz Limited (FL) and Sehat Limited (SL) are associated companies registered with the
sales tax authorities. FL and SL share the rented office space under an agreement. SL
makes the rent payment and later charges FL for its share of the cost.
SL also purchases packaging material from FL and adjusts the cost of purchase against
FL’s share of rent. Since no actual payment is made, FL neither issues a tax invoice nor
charges sales tax on it.
On 31 May 2022, FL received a notice from Officer Inland Revenue under the Sales
Tax Act, 1990 for the recovery of sales tax on supply of packaging material to SL during
the period from May 2015 to May 2022.
Required:
In the light of the Sales Tax Act, 1990, discuss how FL should respond to the show
cause notice issued by the Officer Inland Revenue. Also discuss the penalties which
may be imposed on FL for the non-compliance with the provisions of law. (04)
Q.7 Aftab Limited (AL) is engaged in the business of import and distribution of mobile phones in
Pakistan. Mobile phones are imported in Completely Built Unit (CBU) condition and are
sold to various retailers across the country.
AL is planning to set up an assembly plant in Karachi for the assembly of three categories of
mobile phones. AL will import mobile phones under these categories in Semi Knocked Down
(SKD) condition and assemble them locally for sale to retailers. Below are the details of the
assessed values of these mobile phones in both CBU and SKD condition together with their
demand.
Demand of Per unit C&F value of mobile phones in

Category
mobile phones CBU condition SKD condition
A 4,000 units USD 45 USD 35
B 1,100 units USD 450 USD 375
C 350 units USD 750 USD 660
The applicable exchange rate of 1 USD to PKR is Rs. 195.
Required:
In the light of the provisions of the Income Tax Ordinance, 2001 and Sales Tax Act, 1990
discuss the tax implications at import stage of purchasing mobile phones in CBU condition
as well as SKD condition. (08)
(THE END)


Q.1 (a) Shahjahan (Private) Limited (SPL) is engaged in the business of manufacturing, import,
supply and repairing services of LED television (TV) sets. Following information has
been extracted from SPL’s records for the year ended 30 September 2022:
Rs. in million
Revenue – net of sales tax 800
Cost of sales (580)
Gross profit 220
Operating expenses (200)
Other income 60
Profit before taxation 80
Revenue includes:
(i) exports of Rs. 300 million.
(ii) income from repairing of LED panels of Rs. 60 million. Withholding tax u/s 153
was deducted at the rate of 3% from only Rs. 50 million.
(iii) sale of 100 units of high-end TV sets for Rs. 400,000 per unit. These TV sets were
imported at Rs. 300,000 per unit. Advance tax of Rs. 1.65 million was paid at the
time of import. Due to the strict measures taken by the government for
discouraging imports, SPL could not deliver the order in time and consequently
paid a penalty of Rs. 6 million to the customer as per the terms of the contract.
The amount of penalty is included in the operating expenses.
All sales are made to sales tax registered distributors except a sale of Rs. 156 million
(inclusive of sales tax @ 17% and further tax @ 3%) to Kabir Limited, an un-registered
distributer.
Cost of sales include:

(i) parts of Rs. 12 million from which no withholding tax was deducted. SPL made
total purchases of Rs. 280 million during the year.

(i) bonus dividend of Rs. 16 million. SPL received 500,000 bonus shares of a listed
company, Alamgir Limited. The market price of each share on the date of
entitlement of bonus and the date on which bonus shares were credited to SPL’s
account were Rs. 32 and Rs. 36 respectively.
(ii) share of profit of Rs. 24 million from an associate, Jahangir Limited (JL) booked
under equity method of accounting. SPL has 30% shareholding in JL. The
turnover of JL during the year amounted to Rs. 460 million.
(iii) share of profit from an AOP amounting to Rs. 20 million. SPL holds 60% interest
in the AOP. The turnover of the AOP during the year amounted to
Rs. 240 million.
Minimum tax u/s 113 brought forward from tax year 2022 amounted to Rs. 20 million.
Required:
compute the total income, taxable income and net tax payable by or refundable to SPL
for the tax year 2023. (18)
Note:  Ignore WWF and WPPF.
(b) SPL’s quarter wise forecasted turnover (including its share in AOP’s turnover excluding
exports) for the tax year 2024 is as follows:
Withholding tax
Turnover
Quarter deducted at source
---------- Rs. in million ----------
1st 100 2
2nd 200 4
3rd 300 3
4th 400 1
1,000 10
Assume that:
 tax computed u/s 113 (minimum tax) would be the tax liability of SPL for the
tax year 2024.
 SPL’s actual turnover for the tax year 2024 would be Rs. 1,300 million as against
the estimate of Rs. 1,000 million.
Required:
Compute the quarterly advance tax to be paid by SPL for the tax year 2024. Also discuss
the consequences if SPL fails to pay the required amount of advance tax. (05)
Q.2 For the purpose of this question, assume that the date today is 31 October 2023.
Iltutamish Cosmetics (Private) Limited (ICPL) is primarily engaged in the business of
manufacturing and sales of various cosmetics products. ICPL was incorporated on
1 January 2017 and commenced commercial production from 15 June 2018. ICPL employs
100 persons who are registered in the tax year 2023 with the Employees Old Age Benefits
Institution.
ICPL’s finance department is in the process of finalizing income tax return for the
tax year 2023 and has prepared the following computation alongwith the supporting notes for
the year ended 30 June 2023:
Note Rs. in million

Income from business
Profit before tax 470.00
Adjustments:
Less: Unrealized gain on investment properties (i) (60.00)
Add: Purchases of imported make-up sets (ii) 26.00
Add: Loss from toll manufacturing services (iii) 2.00
Less: Interest income from a bank (FTR income) (iv) (4.25)
Less: Cash dividend (FTR income) (v) (22.00)
Taxable income 411.75
Tax liability:
Tax @ 29% 119.41
Tax on cash dividend (22×15%) 3.30
122.71

(i) It represents net appreciation in the fair market value (FMV) of ICPL’s investment
properties. The details are given below:
FMV as on 30 June Increase /
Name of the
2022 2023 (decrease)
property
------------- Rs. in million -------------
Building A 150 250 100
Building B 330 290 (40)
Building A was used as ICPL’s head office till 30 June 2022. However, on 1 July 2022,
ICPL purchased a new building i.e. Building C at a cost of Rs. 500 million and shifted
its head office to Building C.
ICPL intended to rent out Building A but it could not be materialized and Building A
remained vacant during the tax year 2023 i.e. from 1 July 2022 to 30 June 2023. The
FMV of the annual rent of Building A is Rs. 8 million.
ICPL owns Building B since 1 March 2021 and it has been given on rent. The annual
rent accrued and received during the tax year 2023 was Rs. 10 million which is included
in profit before tax. In the tax year 2023, ICPL incurred Rs. 1 million on repairs of
Building B.
(ii) These purchases were made from Mogul Limited (ML), an importer. No withholding
tax was deducted at the time of payment to ML. These make up sets were sold by ML
in the same condition as they were when imported.
(iii) Toll manufacturing services were provided to Haseen Limited, a local manufacturer of
skin and hair care products. These services were considered to be subject to tax under
minimum tax regime.
(iv) The amount was credited to ICPL’s bank account after deduction of withholding tax at
the rate of 15%.
(v) Cash dividend from Pakistan based company, Aalamshah Technology Limited (ATL)
was received without deduction of tax at source.
ICPL acquired 100% shareholdings in ATL on 1 July 2022. ATL is engaged in the
business of exporting computer software to its clients in various countries. ATL is
registered with and duly certified by Pakistan Software Export Board. Extract from
ATL’s income statement for the year ended 30 June 2023 is as follows:
Rs. in million
Revenue 320
Expenses 400
Net loss (80)
Required:
comment on each element of the above computation of taxable income and tax liability
including adjustments alongwith the notes, prepared by the finance department for the tax
year 2023. Give suggestion(s), wherever necessary. (22)
 Ignore discussion on deducting advance/withholding tax from tax liability.
 Ignore super tax.
 Ignore group relief u/s 59B.
Q.3 (a) For the purpose of this part of the question, assume that the date today is 30 June 2023.
Following information pertains to three different banks for the year ended
31 December 2022:
Maldar Shandar Jandar
Bank Bank Bank
--------- Rs. in billion ---------
Extracted from audited financial statements:
 Total income (mark-up and non mark-up) 78 110 150
 Income attributable to investment in
federal government securities 26 20 10
 Advances 216 352 550
 Deposits 600 800 1,000
Taxable income as worked out by the
respective bank’s tax department 18 22 30
Required:
Compute the tax liability of all the three banks for the tax year 2023. (06)
(b) For the purpose of this part of the question, assume that the date today is
30 September 2023.
Uzma is a resident individual and only legal representative of her husband Shariq, who
died on 30 April 2023. Shariq had the following business/assets at the time of his death:
(i) SH Sportswear (SHS) in partnership with his elder brother Tariq. Both of them
were sharing equally in the profit or loss of the business. The fair value of the
business is estimated to be Rs. 22,000,000.
(ii) A double storey bungalow purchased in 2016 for Rs. 1,600,000. In July 2022,
Shariq by way of a revocable transfer provided this vacant bungalow to his
younger brother, Hamza, for one year. Hamza moved to this bungalow in the
same month and leased out the ground floor at a monthly rent of Rs. 150,000 to
Bader. After Shariq’s death, Hamza vacated the bungalow. However, the ground
floor of the bungalow was continued to be rented out. The fair value of this
bungalow is Rs. 12,500,000.
(iii) A shop located in Karachi which was purchased in 2015 for Rs. 600,000. On
1 July 2022, the shop was transferred to Uzma for no consideration. This shop
has been leased out on a monthly rent of Rs. 200,000 since July 2022. The fair
value of this shop is Rs. 11,500,000.
(iv) Cash and cash equivalents amounting to Rs. 2,800,000.
According to Shariq’s will, his 17 year old minor daughter, Sara inherited the bungalow
and his share in SHS whereas his wife inherited the shop and cash and cash equivalents.
After Shariq’s death, Sara started a home-based bakery business and earned income of
Rs. 800,000 during the tax year.
Below are the details of cash credited in Uzma and Shariq’s respective bank accounts
during the tax year 2023:
Uzma Shariq
--------- Rupees ---------
Gift received on birthday from cousins 250,000 -
Salary from SHS till April 2023 - 1,200,000
Share of profit from SHS, transferred on 30 June 2023 4,000,000* -
Rental income from shop 2,400,000 -
*Profit was evenly earned over the 12 months period and the income tax payable by SHS for the
tax year 2023 was duly paid.
Required:
Compute the income tax payable by Uzma and Shariq for the tax year 2023. Also
discuss how the tax liability of Shariq will be settled. (09)
Q.4 Shershah Textiles Limited (STL) is registered under the Sales Tax Act, 1990. STL is engaged
in the business of manufacturing, import, export and supply of garments. STL also sells
garments to the end-consumers from its factory outlet which is integrated with the Board’s
computerized system for real time reporting of sales.
Following information has been extracted from STL’s records for the month of
November 2022:
Rs. in million
Purchases
From registered suppliers 725
From un-registered suppliers 30
Imports 395
Supplies
To registered persons 950
To un-registered persons 140
Exports 518
 raw cotton worth Rs. 600 million from a local cotton producer.
 fabric dyes worth Rs. 80 million in bulk packaging. The retail price of these dyes is
Rs. 84 million.
 a fabric cutting machine. The machine was acquired under a hire purchase
agreement against a 20% down payment of Rs. 45 million. The remaining balance
is to be paid in 36 equal monthly instalments of Rs. 5 million. The fair market value
of the machine is Rs. 200 million.
(ii) Purchases from un-registered suppliers include:
 hand embroidered shawls worth Rs. 16 million from a manufacturer in Swat.
 corrugated cartons worth Rs. 14 million from a manufacturer in Karachi.
(iii) Imports include:
 organic cotton yarn worth Rs. 350 million from China.
 packaging material worth Rs. 45 million from one of STL’s USA based customers.
The material was imported for packing an export order placed by the same
customer. The customs duty was charged at the rate of zero percent under the
Customs Act, 1969.
 garments worth Rs. 800 million to distributors across the country.
 yarn worth Rs. 150 million to a manufacturer in the export processing zone.
(v) Supplies to un-registered persons consist of children’s garments worth Rs. 140 million.
The supplies were made from STL’s factory outlet. STL has maintained 4% value
addition on supplies made from the outlet during the last six months.
(vi) Exports include:
 garments worth Rs. 500 million to USA.
 hand embroidered shawls worth Rs. 18 million to UAE in the same condition as
they were when purchased.
Further information (not included above):
(i) Tiles worth Rs. 5 million were purchased for use in the renovation of the head office.
The retail price of the tiles is Rs. 5.5 million.
(ii) Solar panels at a cost of Rs. 12 million were installed at STL’s factory by a service
provider registered with the Sindh Revenue Board.
(iii) Air freight charges of Rs. 0.8 million were paid to a shipping company in Karachi for
urgent shipment of an order to Peshawar.
(iv) Electricity charges of Rs. 18.05 million at a 5% subsidised rate were paid to K-Electric.
All the above figures are exclusive of sales tax and federal excise duty (FED), wherever
applicable.
Required:
made thereunder, compute the amount of sales tax payable by or refundable to STL and the
amount of input tax to be carried forward, if any, for the tax period November 2022. Also
compute withholding tax, wherever applicable. (17)
Q.5 (a) Akbar Jewellers (AJ) is engaged in the business of purchase and sale of articles of gold
and silver jewellery. AJ owns a shop measuring 400 square feet in Saddar, Karachi. AJ
is not registered with the sales tax authorities. However, it pays the retail sales tax with
the monthly electricity bill.
In October 2022, AJ received its electricity bill for the month of September in which it
was observed that the bill is exclusive of the amount of retail sales tax.
Required:
Under the provisions of the Sales Tax Act, 1990 and the Rules made thereunder, advise
the tax treatment of the above to AJ and the related consequences, if any. (04)
(b) Nawab Jewellers (NJ), a registered Tier-1 retailer, is owned by Nawab Siraj. NJ is
engaged in the business of purchase and sale of articles of gold and silver jewellery. In
November 2022, NJ made the following transactions:
(i) Purchased Italian gold jewellery worth Rs. 50 million from a registered importer.
Nawab Siraj gifted jewellery worth Rs. 6 million to his daughter and sold the
remaining jewellery for Rs. 48 million.
(ii) Purchased hand-made gold jewellery worth Rs. 16 million from a local registered
manufacturer and sold some of it to the customers for Rs. 15 million.
(iii) Sold a gold jewellery set of 8 tolas, imported from Dubai, to a customer in
exchange of 10 tolas of gold in unworked condition. The price of gold per tola on
the date of exchange was Rs. 128,000.
All the above figures are exclusive of sales tax, if any.
Required:
Discuss the sales tax treatment of the above transactions made by NJ. (04)
Q.6 (a) For the purpose of this part of the question, assume that the date today is 5 June 2022.
Aryan Limited (AL) is involved in the manufacture and supply of taxable goods (other
than zero rated).
On 31 August 2021, AL received an order from the Commissioner Inland Revenue

under which input tax paid on purchase of wires and cables used in the machinery,
claimed in the return of April 2021, was made inadmissible. As a result of this order, AL
stopped claiming the input tax on such purchases in the subsequent months.
AL defended this matter till Appellate Tribunal which finally decided the case in AL’s
favour through an order dated 28 May 2022. The order was served to the Commissioner
Inland Revenue on 29 May 2022. On 4 June 2022, the Commissioner made an
application for reference against the order of the Appellate Tribunal.
Required:
Under the Sales Tax Act, 1990 and the Rules made thereunder, advise the course of
action that AL should follow, after the Appellate Tribunal’s order for claiming input tax
on previous and future purchases of wires and cables. (05)
(b) Chengez Cement Limited (CCL), a registered manufacturer, is engaged in the business
of supplying cement to various contractors in Lahore.
On 15 July 2022, CCL supplied 15,000 kg of cement for Rs. 330,000 to Tabraiz, in bulk
packaging. The retail price of the cement on this date was Rs. 24 per kg. CCL
inadvertently failed to levy sales tax and consequently did not issue the sales tax invoice
with regard to this supply.
On 5 December 2022, CCL received a notice from the Commissioner Inland Revenue
to show cause for non-payment of sales tax against the supply of cement to Tabraiz.
CCL wants to deposit the required amount of sales tax on 11 December 2022.
Required:
Under the provisions of the Sales Tax Act, 1990, compute the amount of sales tax
payable by CCL. (05)
Q.7 Akbar & Co., Chartered Accountants (the firm) is the statutory auditor of Baber Limited (BL)
since 2020. In July 2022, BL got listed on the Pakistan Stock Exchange.
For the year ended 30 September 2021, the firm also provided services to BL for the
computation of current and deferred tax liabilities for the purpose of preparing the entries. In
October 2022, BL has contacted the firm’s partner for preparing calculations of the current
and deferred tax liabilities for the year ended 30 September 2022.
Required:
Advise whether the firm was in compliance with the ICAP’s Code of Ethics by accepting the
tax related services for the year ended 30 September 2021. Also advise whether the firm should
accept the tax related services for the year ended 30 September 2022. (05)
(THE END)


Q.1 Cloud (Private) Limited (CPL) was incorporated on 1 January 2022. 55% shares of CPL are
owned by UAE based company namely Temperature LLC (TL).
Under a technical license agreement with a European Company, namely Rainbow Ltd (RL),
CPL made an investment of Rs. 100 million to setup a plant for manufacturing agricultural
drones that aid in crop monitoring and optimisation. On 1 May 2022, CPL was awarded the
status of greenfield industrial undertaking when it began its commercial production.
The following information has been extracted from CPL’s records for the year ended
31 December 2022:
Particulars Rs. in million
Balance sheet
Share capital 60
Non-current liabilities 190
Current liabilities 50
Equity and liabilities 300
Non-current assets 180
Current assets 120
Total assets 300
Profit or loss statement

Sales 220
Other income 20
Expenses (including finance costs of Rs. 22 million) (197)
Net profit before tax 43
(i) Sales include exports of Rs. 55 million, which includes an advance receipt of
USD 20,000 equivalent to Rs. 5 million against an export order delivered in
February 2023.
(ii) Other income is comprised of:
 a government grant of Rs. 10 million, received to promote awareness among
farmers about the usage of agricultural drones. The grant was intended to cover
the actual expenses incurred in this regard. During the year, Rs. 3 million was
spent for this purpose.
 rent and non-adjustable security deposit amounting to Rs. 4 million and
Rs. 6 million, respectively, received for providing office space. No material
expense was incurred against this income.
(iii) Expenses include:
 amortization of Rs. 5 million regarding the payment of Rs. 15 million made to a
foreign consultant for conducting a feasibility study of the business. This expense
is being amortized over a period of three years.
 royalty of Rs. 20 million payable under the technical license agreement. Due to the
government’s restrictions on the outflow of US dollars, only Rs. 8 million could be
remitted to RL by the end of the year.
 advertisement expense of Rs. 8 million.
 traveling expense of Rs. 1.3 million, paid to an authorised travel agent for
purchasing air ticket for CEO to attend an international conference in the
United Kingdom. No withholding tax was deducted at the time of payment.
 depreciation of Rs. 36 million. Tax depreciation other than plant is Rs. 14 million.
(iv) Finance costs include the interest expense of Rs. 15 million paid to TL. On 1 July 2022,
CPL borrowed Rs. 150 million from TL to meet its working capital requirement. The
principal is repayable in 2025.
Required:
compute the total income, taxable income, and tax liability of CPL for the tax year 2023,
considering all available options for computing its tax liability. (20)
Note:  Ignore WPPF and WWF.
 Show all relevant exclusions, deductions and exemptions.
Q.2 (a) The following information pertains to four different not-for-profit companies registered
with the Securities and Exchange Commission of Pakistan under the
Companies Act, 2017, for the year ended 31 December 2022:
A B C D
Year of commencement of business 2018 2021 2018 2017
Income: -------------- Rs. in million --------------

Donations and subscriptions 48.2 97.9 197.6 297.3
Dividend 2.0 4.0 6.0 8.0
Profit on debt from a scheduled bank 12.0 14.0 16.0 18.0
Total 62.2 115.9 219.6 323.3
Expenses in respect of:

Administration and management 12.0 20.0 40.0 42.0
On-going projects as per their charter 32.2 71.9 131.6 215.3
Total 44.2 91.9 171.6 257.3
None of the above companies have receivables or payables at year-end.
All four companies have consistently filed their income tax returns, deducted or
collected the necessary taxes, and ensured their timely payment. They have also been
diligent in filing withholding tax statements and obtaining approval from the
Commissioner. Additionally, these companies have fulfilled their obligations by
submitting the statement of voluntary contributions and donations received.
Required:
Under the provisions of the Income Tax Ordinance, 2001, calculate the tax liability of
each of the above four companies for the tax year 2023. (13)
(Ignore minimum tax and alternative corporate tax)
(b) Lighting Resource (Private) Limited (LRPL), owned by Falak Holding Limited (FHL),
a Pakistan based group, is engaged in the business of commercial imports of generator
sets from Germany. These imported generators are then sold to power generation
companies, including their installation and commissioning services.
Considering the income tax exemption available in United Arab Emirates (UAE), FHL
is evaluating the option to incorporate a separate company in UAE. The new company
would import generators from Germany and export them from the UAE directly to the
power generation companies in Pakistan. However, LRPL will remain responsible for
the installation and commissioning of those generators.
Required:
Under the provisions of the Income Tax Ordinance, 2001, advise whether introduction
of changes in the existing corporate structure would be beneficial for FHL. (05)
(Ignore tax treaty)
Q.3 Feels-Like (Private) Limited (FLPL) is engaged in the business of manufacturing and
supplying foam mattresses.
FLPL’s finance department is currently in the process of finalizing the income tax return for
the tax year 2023 and has prepared the following computation, along with the supporting
notes for the year ended 31 December 2022:
Note Rs. in million

Income from business:
Sales 1,252
Other income 150
Expenses (840)
Profit before tax 562
Adjustments:
Deemed income on loan provided to CEO (i) 5
Inadmissible expenses (ii) 40
Accounting gain on sale of showroom (iii) (110)
Interest income on government debt securities (being FTR income) (30)
Loss on sale of government debt securities (iv) (18)
Gain on sale of unlisted shares (v) 28
Tax depreciation (77)
Income from business before adjustment of b/f losses 451
Less: Brought forward business loss – Tax Year 2016 (29)
– Tax Year 2020 (224)
50% of unabsorbed tax depreciation (186 × 50%) (93)
105
Capital Gain:
Gain on sale of showroom (158 – 120) (iii) 38
Loss on sale of government debt securities (iv) (18)
Gain on sale of unlisted shares (28 × 75%) (v) 21
41
Total income 146
Less: Capital gain – Separate block of income (41)
Taxable income 105
Notes to the income tax computation:
(i) In January 2022, an interest-free loan of Rs. 50 million was provided to FLPL’s CEO.
Interest income at benchmark rate of 10% is offered for tax purposes as FLPL’s deemed
income. The CEO owns 5% of FLPL shares.
(ii) These expenses are attributable to sales made to Breeze Enterprise (BE), an unregistered
dealer. During the year, sales of mattresses totalling Rs. 106 million (exclusive of sales
tax) were made to BE, which sells mattresses to end users at a margin of 20%.
(iii) On 31 December 2022, FLPL sold one of its showrooms for Rs. 158 million. This
showroom was purchased on 1 April 2016 at a cost of Rs. 120 million.
(iv) On 15 August 2022, FLPL sold government securities at a loss of Rs. 18 million. These
securities were purchased on 31 October 2018.
(v) Only 75% of the gain amount is offered for tax purposes, taking into account the holding
period of unlisted securities being more than a year.
Required:
comment on each element of the above computation of total and taxable income, including
adjustments, along with the accompanying notes, prepared by the finance department for the
tax year 2023. Give suggestion(s), wherever necessary. (22)
Note:  Ignore discussion on tax liability.
 Ignore discussion on withholding tax requirements.
Q.4 Pleasant Healthcare Limited (PHL) is engaged in the business of manufacturing and
supplying pharmaceutical and nutritional products. It is registered as an importer,
manufacturer, and distributer with the Sales Tax Authorities.
The following information has been extracted from PHL’s records for the month of May 2023:
(i) Import of Active Pharmaceutical Ingredients (APIs) worth Rs. 150 million for the
manufacture of medicines. 80% of the related medicines produced are sold locally, and
the remaining 20% are exported to Bangladesh.
(ii) Import of multi-vitamins (not registered under the Drugs Act, 1976) worth
Rs. 30 million used as food supplements from an international brand. PHL sells these
multi-vitamins in the same condition as imported.
(iii) Purchase of artificial flavours worth Rs. 20 million from the local market for use in
various medicines of PHL.
All medicines and drugs purchased and supplied, unless specified otherwise, by PHL are
registered under the Drugs Act, 1976.
Required:
Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, discuss the
chargeability of sales tax on the above transactions. (Calculations are not required) (07)
Q.5 Storm Limited (SL) is engaged in the business of manufacturing and supplying cigarettes and
e-liquid for electronic cigarette kits. SL is registered under the Federal Excise Act, 2005. The
following information is available from SL’s records for the month of May 2023:
(i) Purchase of 5,000 kg of un-manufactured tobacco worth Rs. 8,000,000. SL paid 80%
of this amount, while the remaining is payable on 20 June 2023.
(ii) Payment of inland carriage charges of Rs. 30,000 to an air cargo company for shipping
the consignment of un-manufactured tobacco from the purchase location to SL’s
manufacturing facility.
(iii) Sale of 9,500 packs of cigarettes to dealers at a wholesale price of Rs. 8,000 per pack.
(iv) Export of 2,500 packs of cigarettes to Indonesia via sea at a price of Rs. 9,000 per pack.
(v) Payment of Rs. 10,000 for marine insurance in respect of cigarettes exported to
Indonesia.
(vi) Sale of 1,000 kg of un-manufactured tobacco to another cigarette manufacturer located
in Export Processing Zone, Karachi, at Rs. 2,000 per kg.
(vii) Import of bulk shipment of 200kg of e-liquid. The value assessed by the customs
authorities at the import stage amounted to Rs. 3,000,000.
(viii) Sale of the entire imported 200 kg of e-liquid after processing and packaging in small
bottles at Rs. 7,000,000.
For the purpose of (iii) and (iv), each pack contains 400 cigarettes, and its retail price is
Rs. 9,800.
Required:
Under the provisions of the Federal Excise Act, 2005, compute the amount of duty payable
by or refundable to SL for the month of May 2023. (08)
Q.6 Heatwave Pakistan Limited (HPL) is engaged in the business of manufacturing and supplying
automotive vehicles and their parts. It is registered as an importer, manufacturer and
distributer with the Sales Tax Authorities. The following information has been extracted from
HPL’s records for the month of May 2023:
Rs. in million
Purchases
From registered suppliers 218.0
From unregistered suppliers 40.0
Imports 1,365.5
Supplies
To registered persons 1,150.0
To unregistered persons 125.0
Exports 45.0
(i) Purchases from registered suppliers include 2,500 car batteries in retail packaging for
Rs. 8,000 each. The retail price of these batteries is Rs. 10,000 each.
(ii) Purchases from unregistered suppliers comprise various auto parts.
(iii) Imports are comprised of:
 plant and machinery worth Rs. 500 million for setting up a new assembly facility
of electric vehicles duly certified and determined by the Engineering Development
Board.
 40 electric cars with 50 KWH battery in CBU condition for Rs. 6.20 million each.
 25 heavy motorbikes in CBU condition for Rs. 0.70 million each.
 various auto parts for the manufacturing of motor vehicles for Rs. 600 million.
(iv) Supplies to registered persons are comprised of:
 32 imported electric cars at a price of Rs. 7.50 million each.
 200 locally manufactured cars for Rs. 4.50 million each.
 motorcycle parts for Rs. 10 million to distributors whose names are not appearing
in the active taxpayers list.
(v) Supplies to unregistered persons (individuals) are comprised of:
 1,000 motorcycles sold for Rs. 0.11 million each.
 20 heavy motorbikes sold for Rs. 0.75 million each.
(vi) Exports comprise of 300 motorcycles to Sri Lanka, priced at Rs. 0.15 million each.
Further information (not included above):

(i) Electricity charges of Rs. 16 million were paid. The bill showed the subsidies of
Rs. 4 million and a late payment surcharge of Rs. 1 million.
(ii) A payment of Rs. 12 million was made for software maintenance to a software house,
registered under the Islamabad Capital Territory (Tax on Services) Ordinance, 2001.
(iii) The input tax carried forward from previous tax period is Rs. 14 million, which
includes Rs. 5 million in respect of auto parts that were taxable but became exempted
through a notification issued by the Federal Board of Revenue in the current tax period.
(iv) 10 ambulance vehicles manufactured by HPL were sold to a charitable hospital with
100 beds, for Rs. 9 million each.
All the payments were made through cross cheque/pay order. All the above figures are
exclusive of sales tax, unless specified otherwise.
Required:
In the light of the provisions of the Sales Tax Act, 1990 and Rules made thereunder, compute
the amount of sales tax payable by or refundable to HPL and the amount of input tax to be
carried forward, if any, for the tax period May 2023. Also compute withholding tax, wherever
applicable. Note: Show all relevant exemptions, exclusions and disallowances. (20)
Q.7 Hina Abbasi (HA) is a tax partner in a firm of Chartered Accountants. Blazing (Private)
Limited has approached her and disclosed their involvement in the tax evasion in the past.
However, they express their willingness to rectify their situation and become compliant. They
seek HA’s assistance in filing accurate tax returns going forward, while keeping their previous
illegal activities hidden from the tax authorities.
Required:
In the light of ICAP’s Code of Ethics, identify and evaluate the fundamental principles of
code of ethics that may be breached in the above situation. (05)
(THE END)

Chartered Accountants 3 hours and 30 minutes – 100 marks
of Pakistan
CRN:
Name:
INSTRUCTIONS
Please carefully read the following instructions:
1. You are required to access your answer working area by using your Student ID and
Password as mentioned on your Admit Card.
2. The overall duration of the exam is 3 hours and 30 minutes, which includes the
15-minute reading time and an extra 15 minutes of time that has been allocated due to
the introduction of computer-based examinations, for the Winter 2023 examinations
only.
3. All questions are compulsory.
4. Questions can be attempted in any sequence.
5. There is no specific time allocated for individual questions.
6. An auto-save function runs every minute. Further, your answers are saved automatically
when you navigate between questions or click on the > (NEXT) or < (BACK) symbols.
7. Each question provides an answer area with a Rich Text Format (RTF) editor for writing
your answers. Additionally, below the RTF editor, a spreadsheet is provided to facilitate
examinees in doing rough calculations or other workings. However, please note that
any work performed in the spreadsheet will not be considered for marking. To ensure
your work is considered, you must copy and paste it from the spreadsheet to the RTF
editor.
8. Work done in the spreadsheet of one question can also be copied into the RTF editor of
the same or another question.
9. You may use Microsoft Office applications such as MS Word or MS Excel for rough
working. However, please remember that any work performed in these applications
cannot be copied into the examination software, and vice versa. Furthermore, any such
work will not be uploaded with your exam for marking.
10. You may use pen and paper for rough work, but please note that pen and paper work
should only be done on the last two pages of the question paper that are specifically
allocated for this purpose. Remember that any rough work done on these pages will not
be uploaded with your exam for marking.
11. In accordance with the open book policy of this paper, you are allowed to use only digital
copies of the permissible books. Keeping a hard copy of any book or notes is not
permissible and will be considered a violation of the use of unfair means policy, leading
to disciplinary action.
12. An external calculator can be used, provided it is included in the list of permissible
calculators issued by ICAP.
13. During the exam, access to any website other than Assessment Master and the digital
copies of permissible books is strictly prohibited. Engaging in such activities will be
considered a violation of the use of unfair means policy, leading to disciplinary action.
Q.1 Haq Halal Limited (HHL), an unlisted public company, is engaged in the manufacturing of
various information technology (IT) products and provision of IT services. It is registered with
and duly certified by the Pakistan Software Export Board.
The following information has been extracted from HHL’s records for the year ended
30 September 2023:
Rs. in million
Sales (net of sales tax) 260.0
Cost of sales (182.0)
Gross profit 78.0
Administrative and selling expenses (44.6)
Financial charges (10.0)
Other income 5.0
Profit before taxation 28.4
(i) Sales are comprised of:
 a sum of Rs. 12.6 million (net of discount) received for the supply of IT products
to charitable schools, run by an approved non-profit organization in the province
of Balochistan. A special discount of 30% was granted to the schools on their
purchases.
 an amount equivalent to Rs. 15 million invoiced for the provision of IT-enabled
services to Kemal Associates located in Turkey. The entire amount was realized
during the year after the deduction of applicable withholding tax.
 domestic sales of various IT products amounting to Rs. 232.4 million.
(ii) Cost of sales include depreciation of Rs. 11 million.
(iii) Other income is comprised of:
 a prize worth Rs. 1.2 million (net of withholding tax of Rs. 0.3 million) provided
by one of HHL's suppliers as part of a sales promotion campaign.
 gain of Rs. 1.0 million from the sale of shares in Micro Limited (ML) and
Chip Limited (CL).
HHL had 150,000 shares in a listed company, Micro Limited. These shares were
acquired on 30 April 2021 for Rs. 52 per share. On 1 June 2023, consequent to
SECP’s order, Micro Limited de-merged and split into two listed companies
i.e. Micro Limited (ML) and Chip Limited (CL). Consequently, HHL’s holding
in ML was reduced to 90,000 shares in its CDC account and 110,000 new shares
in CL were recognized in its account. On the date of the de-merger, the market
values of each share of ML and CL were Rs. 25 and Rs. 55 respectively.
On 30 September 2023, HHL sold 30,000 shares in ML for Rs. 35 each and
70,000 shares in CL for Rs. 65 each.
 the sale proceeds of Rs. 2.8 million generated from the sale of 85,000 shares in a
listed company, Karobari Limited at a negotiated price. HHL had purchased these
shares in June 2020 for Rs. 25 per share. On 15 August 2023 , HHL sold these
shares to an institutional investor through the over-the-counter (OTC) market. The
market value of these shares at the time of sale was Rs. 35 each.
Other information: (not included above)

(i) On 30 September 2023, HHL received a share of Rs. 6.0 million in income from the
AOP. The AOP's total gross turnover amounted to Rs. 125 million, and HHL holds a
32% interest in the AOP.
(ii) Tax depreciation amounts to Rs. 30.4 million.
(iii) HHL has not submitted the withholding tax statement for the tax year 2024 with the
FBR.
Required:
compute under the correct head of income, the total income, taxable income and tax liability
of HHL for the tax year 2024. (22)
Notes:  Ignore WWF, WPPF and default surcharge, if any.
Q.2 Augment (Private) Limited (APL), a manufacturing company, has investments in the
following companies:
Name of investee Investee’s business % of shareholdings Date of acquisition

Boundary (Private) Manufacturing
90% 1 October 2021
Limited (BPL) company
Compound (Private)
Trading company 80% 1 October 2022
Limited (CPL)
The following information has been extracted from the tax records of APL and its investee
companies for the year ended 30 September 2023:
APL BPL CPL

Income from business -------- Rs. in million --------
Taxable business income 240 (150) 50
Less: Brought forward losses related to tax year 2022 - (280) -
240 (430) 50
Capital gains
Gain/(loss) on sale of shares of a listed company 120 (200) -
Income from other sources

Profit on debt 60 80 -
Required:
In accordance with the provisions of the Income Tax Ordinance, 2001 and Rules made
thereunder, explain the amount of abovementioned losses of BPL that can be claimed by any
of the group companies in the tax year 2024. (06)
Notes:  Show all necessary computations.
 Discussion on associated conditions to be met in future is not required .
Q.3 Consider each of the following independent situations in the light of Income Tax Ordinance,
2001 and Rules made thereunder.
(a) Apna Ghar Limited (AGL), a non-banking finance company, is engaged in the housing
finance. AGL has been operating in major cities across Pakistan since 1 July 2020.
Below are the details of consumer loans and related income since its incorporation,
extracted from its financial statements:
Tax year
2021 2022 2023
------- Rs. in million ------
Interest income from consumer loans 42.00 144.00 220.00
Receivables - consumer loans 280.00 540.00 680.00
Bad debts expense in respect of doubtful
receivables - consumer loans 1.05 4.70 6.10
Required:
Calculate the allowable bad debt expense for the tax years 2021, 2022, and 2023, along
with the carried forward amounts, if any, in these tax years. (04)
(b) Murad has been a shareholder in Joyland (Pvt) Limited (JPL) since its incorporation.
JPL specializes in producing plastic toys. On 1 November 2023, due to severe financial
distress, JPL was forced into liquidation, with an unpaid tax liability of Rs. 15 million
for the tax year 2023. Subsequently, the Commissioner of Income Tax issued a notice
to Murad, requiring him to settle JPL’s outstanding tax dues for the tax year 2023.
Required:
Evaluate the validity of the Income Tax Commissioner’s notice to Murad and examine
Murad’s position in this scenario. (04)
Q.4 Glow Cosmetic (Pakistan) Limited (GCPL), a listed company, is engaged in the
manufacturing and sale of cosmetic products. It operates as a subsidiary of a UK based
company.
GCPL’s tax manager is in the process of finalizing the tax return for the tax year 2024 and has
presented the following information along with supporting notes for the year ended
30 September 2023 for management’s approval:
Profit before taxation (i) 59.00
Add/(Less): Inadmissible expenses/(income)
Dividend income (being FTR income) (ii) (10.00)
Lease rental income of new unit (iii) (18.00)
Brokerage fees (iii) 0.82
Loss on discontinuance of business segment (iv) 15.00
Accounting depreciation (v) 34.90
Tax depreciation (v) (40.76)
40.96
Income from property:
Gross lease rentals (iii) 18.00
Less: 1/5th for repair (3.60)
Brokerage fees (restricted to 4% of the gross rent) (0.72)
13.68
Income from other sources:
Expenses reimbursed by the parent company (vi) 3.00
Taxable income for the year 57.64

(i) Profit before taxation includes insurance compensation of Rs. 8.4 million received from
Loyal Insurance Limited. The compensation was received against the loss of one of
GCPL’s warehouses in Sukkur. The warehouse was completely gutted down due to a
fire ignited by a short circuit. This warehouse was constructed in July 2021 at a cost of
Rs. 12 million. At the time of the fire, the warehouse had fair market value of
Rs. 11.5 million whereas its accounting and tax written down values were
Rs. 9.6 million and Rs. 8.1 million, respectively.
(ii) During the year, GCPL received dividend income equivalent to Rs. 8.5 million from a
UAE based entity, after the deduction of tax at source @ 15% in the UAE.
On 1 October 2022, GCPL made an investment of Rs. 63 million by acquiring a
42% shareholding in recently incorporated unlisted trading company, Shine LLC (SL),
based in UAE.
During the year ended 30 September 2023, SL earned solely income from property in
the UAE, amounting to AED 500,000, on which SL is not liable to pay income tax in
UAE.
GCPL carries this investment in SL at cost in its books of accounts.
Rate of PKR / AED on 30 September 2023 was Rs. 80.
(iii) In November 2022, GCPL completed the construction of a factory building, at a cost of
Rs. 98 million to enhance the manufacturing of skin care products. Further, GCPL
purchased and installed used plant and machinery within the new facility, for
Rs. 38 million. The machinery was in the same condition as when it was originally
imported from Germany by a commercial importer. No withholding tax was deducted
by GCPL when making payment to the importer.
Due to some unavoidable reasons, the new factory did not commence manufacturing
as planned. On 1 January 2023, GCPL leased the factory to Jalal Associates at a
monthly rent of Rs. 2 million and paid brokerage fees of Rs. 0.820 million to a real estate
broker for letting out the new unit on rent.
(iv) During the year, GCPL sustained a loss of Rs. 15 million on its business segment
relating to anti-aging products, which was discontinued in July 2022.
(v) Both accounting and tax depreciation are inclusive of depreciation charged on the newly
constructed factory building and used plant and machinery installed therein.
(vi) It represents 70% of the total expenditure incurred by GCPL in the tax year 2023 in
relation to the export of skin care products to its parent company.
Required:
comment on each element of the above computation of the taxable income, including
adjustments, along with the accompanying notes prepared by the tax manager for the tax year
2024. Give suggestion(s), wherever necessary. (24)
Notes:  Revised computation of taxable income is not required.
 Ignore the discussion on tax liability.
 Ignore tax treaty.
Q.5 (a) On 1 January 2023, Ahmed issued purchase order to Care Enterprises (CE), a registered
person, for purchase of CCTV cameras worth Rs. 300,000 (exclusive of sales tax) for his
shop. He made an advance payment of 20% against an advance payment receipt on the
same date. The remaining 80% was paid on 25 February 2023, when the cameras were
delivered to Ahmed. On 5 March 2023, CE’s staff installed the cameras in Ahmed’s
shop.
On 14 February 2023, the government announced an increase in the rate of sales tax
from 17% to 18%.
Required:
Explain the amount of sales tax charged by CE to Ahmed. (Show all necessary
computations) (04)
(b) Bari (Pvt) Limited (BPL) is a registered business involved in the import, export and
supply of garments. On 1 July 2021, BPL imported 1,000 pieces of ready-made garments
from Taiwan for equivalent to Rs. 2 million and paid applicable sales tax thereon.
Originally intended for sale in Punjab, these garments remained unsold due to
unforeseen circumstances that led to a business shutdown.
In August 2023, BPL resumed its operations. On 20 November 2023, BPL exported
these garments to a customer in Morocco for equivalent to Rs. 3 million.
Required:
Under the provisions of the Sales Tax Act, 1990, discuss the sales tax implications in
the above scenario. (Show all necessary computations) (05)
Q.6 Zang Electronics (ZE), a subsidiary of a Chinese company Ming Electronics (ME), is engaged
in the business of manufacturing and supply of household electronic appliances with its
principal place of business in Lahore. It is registered as an importer, manufacturer, and
distributor with the Sales Tax Authorities. The following information has been extracted from
ZE’s records for the month of November 2023:
Rs. in million
Purchases
From unregistered suppliers 1.2
Imports 185.0
Supplies
To registered suppliers 104.5
To unregistered suppliers 64.0
(i) Purchases from registered suppliers comprised of the following:
 Tempered glass worth Rs. 15 million from a local manufacturer, Shining Glass
(SG). On 2 December 2023, SG was blacklisted by the sales tax authorities due to
the issuance of fake invoices.
 Packaging material worth Rs. 24 million from a local manufacturer.
 Furniture worth Rs. 3 million for use in ZE’s head office.
(ii) Purchases from unregistered persons comprised of utility and food items purchased for
ZE’s head office.
(iii) Imports comprised of the following:
 Imports of deep freezers, touch screens to be installed in smart fridges and ovens,
and solar panels. The details are as follows:
Deep Touch Solar
Total
freezers screens panels
-------- Rs. in million --------
Costs 50.5 26.0 20.5 97.0
Value assessed by the custom authorities 51.0 25.0 21.0 97.0
Retail price 62.0 30.0 25.0 117.0
 Plastic at a cost of Rs. 88 million from Ming Trading (MT), another Chinese
subsidiary of ME. MT operates as the central purchasing unit for ME and all its
subsidiaries, enabling it to secure 12% discount on market value due to its large
purchasing volume. MT supplies these plastic to ME’s subsidiaries without adding
any extra charges. Surplus plastic that exceeds the requirement of these
subsidiaries is then sold at market value.
The value of imports is inclusive of custom and federal excise duties but exclusive of
sales tax.
(iv) Supplies to registered persons comprised of the following:
 Microwave ovens of Rs. 90 million. The retail price of these ovens was
Rs. 100 million. During the month, 5% of these ovens were returned by the
customers due to mechanical faults. ZE replaced these faulty units with new ones
at no additional charge, honouring their one-year warranty.
 Commercial ovens of Rs. 14.5 million, specifically purchased to fulfill an order
from a restaurant owner. The retail price of these ovens was Rs. 16 million.
(v) Supplies to unregistered persons consisted of the following:
 Sales of solar panels amounting to Rs. 22.5 million (net of discount) made through
an online marketplace. In celebration of 10-year anniversary, these items were
offered at a discount of 10%.
 Microwave ovens returned from customers were sold to a scrap dealer for
Rs. 1.5 million.
 Sales of deep freezers of Rs. 40 million to a retailer, PQR Electronics (PQRE).
Retail price of these deep freezers was Rs. 45 million. PQRE used to pay its sales
tax through its electricity bill till September 2023. In October 2023, PQRE
relocated its outlet from DHA, Lahore to an air-conditioned mall in Gulberg,
Lahore.
(vi) ZE donated smart refrigerators costing Rs. 18 million to a hospital run by a non-profit
organization. The retail price of these refrigerators was Rs. 20 million.
(vii) During the month, ZE paid a royalty of Rs. 15 million to ME.
(viii) During the month, ZE purchased 20 economy plus air tickets to Saudi Arabia costing
Rs. 5 million from a travel agent, registered in Lahore. These tickets were for employees
eligible to perform Umrah, as per the company’s policy, with the expenses borne by
ZE. The travel agent charged a fee of Rs. 0.2 million for his services.
Required:
(a) In the light of the provisions of the Sales Tax Act, 1990, Federal Excise Act, 2005 and
Rules made thereunder, compute the amount of sales tax payable by or refundable to
ZE and the amount of input tax to be carried forward, if any, for the tax period
November 2023. Also compute withholding tax, wherever applicable. (Show all relevant
exemptions, exclusions and disallowances) (22)
(b) State the reason(s) for your treatment in part (a) above in respect of replacement of
faulty microwave units, royalty payment, purchase of air tickets and travel agent fee as
discussed in point nos. (iv), (vii) and (viii). (03)
Q.7 Razia Sultana, ACA, is a senior financial analyst in a firm of Chartered Accountants. She
reports to Dawood Khan, FCA, a senior partner in the firm.
Currently, Razia Sultana is conducting a comprehensive financial analysis for Mubarak

Limited (ML), a listed company. During her analysis, she uncovers evidence of potential
financial and tax misconduct within ML. These irregularities could significantly impact ML’s
financial statements and tax filings. She decides to bring this issue to the attention of Dawood
Khan. In response, Dawood Khan states that their firm’s responsibility is limited to financial
analysis, not investigating potential financial or tax issues. Therefore, he believes they should
not concern themselves with these irregularities.
Required:
Briefly discuss how Dawood Khan may be in breach of the fundamental principles of the
ICAP's Code of Ethics. Also, identify the potential threats that Razia Sultana may face in the
above circumstances and how she should respond. (06)
(THE END)

Chartered Accountants 3 hours and 30 minutes – 100 marks
of Pakistan
CRN:
Name:
INSTRUCTIONS
Please carefully read the following instructions:
1. You are required to access your answer working area by using your Student ID and
Password as mentioned on your Admit Card.
2. The overall duration of the exam is 3 hours and 30 minutes, which includes the
15-minute reading time and an extra 15 minutes of time that has been allocated due to
the introduction of computer-based examinations, for the Winter 2023 examinations
only.
3. All questions are compulsory.
4. Questions can be attempted in any sequence.
5. There is no specific time allocated for individual questions.
6. An auto-save function runs every minute. Further, your answers are saved automatically
when you navigate between questions or click on the > (NEXT) or < (BACK) symbols.
7. Each question provides an answer area with a Rich Text Format (RTF) editor for writing
your answers. Additionally, below the RTF editor, a spreadsheet is provided to facilitate
examinees in doing rough calculations or other workings. However, please note that
any work performed in the spreadsheet will not be considered for marking. To ensure
your work is considered, you must copy and paste it from the spreadsheet to the RTF
editor.
8. Work done in the spreadsheet of one question can also be copied into the RTF editor of
the same or another question.
9. You may use Microsoft Office applications such as MS Word or MS Excel for rough
working. However, please remember that any work performed in these applications
cannot be copied into the examination software, and vice versa. Furthermore, any such
work will not be uploaded with your exam for marking.
10. You may use pen and paper for rough work, but please note that pen and paper work
should only be done on the last two pages of the question paper that are specifically
allocated for this purpose. Remember that any rough work done on these pages will not
be uploaded with your exam for marking.
11. In accordance with the open book policy of this paper, you are allowed to use only digital
copies of the permissible books. Keeping a hard copy of any book or notes is not
permissible and will be considered a violation of the use of unfair means policy, leading
to disciplinary action.
12. An external calculator can be used, provided it is included in the list of permissible
calculators issued by ICAP.
13. During the exam, access to any website other than Assessment Master and the digital
copies of permissible books is strictly prohibited. Engaging in such activities will be
considered a violation of the use of unfair means policy, leading to disciplinary action.
Q.1 Iman Limited (IL), a listed company, is engaged in the production and trading of various
leather goods. IL operates five retail outlets located in Karachi and is registered with the sales
tax authorities as a Tier-1 retailer. The following information has been extracted from IL’s
records for the year ended 30 September 2023:
Rs. in million
Sales – (net of sales tax) 272
Cost of sales (193)
Gross profit 79
Administrative and selling expenses (49)
Other income 10
Profit before taxation 40
(i) Sales include a sum of Rs. 8.91 million (net of withholding tax) received from the sale
of leather jackets to Baramad Enterprises, which is registered under the Duty and Tax
Remission for Export Rules, 2001. IL manufactured these jackets at a cost of
Rs. 6.3 million. No other expenditure was incurred by IL on these jackets.
(ii) Cost of sales include accounting depreciation of Rs. 12 million. Tax depreciation for
the year amounted to Rs. 15.3 million.
 Rs. 0.5 million in respect of technical books purchased to enhance IL’s production
processes.
 Rs. 0.6 million for the purchase of point-of-sale machines, which were installed in
all outlets on 1 October 2022, to integrate with the FBR’s computerized system for
real-time reporting of sales.
 a bad debt of Rs. 4 million, with the opening and closing balances of the provisions
for bad debts account standing at Rs. 7.7 million and Rs. 6.6 million, respectively.
 Rs. 18 million in relation to an advertising campaign, launched on 20 July 2023.
IL expects to receive its benefits over the years.
(iv) Other income comprises of:
 dividend-in-specie received on 1 December 2022 in the form of 35,000 shares in a
listed company, Munafa Limited (ML). The dividend income was recorded by IL
at Rs. 45 per share. A tax of Rs. 0.236 million was collected from IL in respect of
this dividend-in-specie. On 1 May 2023, IL sold 15,000 shares in ML at
Rs. 48 each. The gain of Rs. 0.045 million from this sale is also included in other
income.
 share of profit of Rs. 8.38 million from an associate, Tijarat Limited (TL), recorded
under equity method of accounting. IL holds 1 million shares representing
20% shareholding in TL.
During the year, TL paid dividend of Rs. 5 per share to its shareholders. The
turnover of TL during the year amounted to Rs. 380 million.
(v) Following are the details of losses brought forward from previous years:
Rs. in million
Loss from business relating to the tax year 2021 4
Unabsorbed tax depreciation 22
Capital losses on sale of listed securities relating to:
 tax year 2020 1
 tax year 2021 2
Required:
compute under the correct head of income, the total income, taxable income and tax liability
of IL for the tax year 2024. (21)
Note:  Ignore WWF and WPPF.
Q.2 Green Bike (Private) Limited (GBPL) is considering to start the business of manufacturing
motorcycles. It has a plan to sell the motorcycles to dealers, who will then subsequently sell
them to end-customers at retail price. During a recent board meeting, the following extracts
have been presented to the board:
Details of total projected sales for the first year:

Dealer Registered under Sales Tax Act, 1990 and Projected sales
name appearing in Active tax payers’ list (Rs. in million)
A No 600
B Yes 435
C No 625
D No 90
1,750
Other information:
Projected deductible expenses for the first year (Rs. in million) 1,590
Dealer price per motorcycle (Rs.) 175,000
In addition, the dealer would be entitled to a commission of Rs. 5,000 per motorcycle.
During the meeting, the finance director raised a concern that since most of the dealers are
unregistered under the Sales Tax Act, 1990, there could be certain disallowance of expenses
and addition to income for GBPL under the Income Tax Ordinance, 2001, due to making
sales through them.
Required:
(a) Comment on the concern raised by the finance director in the light of Income Tax
Ordinance, 2001. Support your comments with all possible computations. (11)
(b) Explain whether there are any implications for GBPL in respect of supplies to
unregistered dealers in the light of Sales Tax Act, 1990. (04)
Q.3 Karam Limited (KL) is a trading company which follows a normal tax year. The following
information has been extracted from the records of KL:
Up to Tax year 2024

30 November 2023 (Estimate)
---------- Rs. in million ----------
Sales 450 1,050
Cost of sales (280) (630)
Gross profit 170 420
Administrative and selling expenses (100) (210)
Finance cost (30) (60)
Net profit before tax 40 150
Inadmissible expenses 16 35
Withholding tax deductions:

 Under section 153(1)(a) 5 11
 Under section 152 2 5
 Under section 147 (Note) 4 4
Note: This represents the tax liability paid for the quarter ended 30 September 2023, which
was computed on the basis of tax assessed on the prior year’s turnover at 2%.
Assume that the turnover for the month of December 2023 amounts to Rs. 95 million.
Required:
In the light of the provisions of Income Tax Ordinance, 2001, compute the advance tax
liability of KL for the quarter ending 31 December 2023. (Ignore minimum tax and super tax) (07)
Q.4 Muslim Sports Limited (MSL), an unlisted company, is engaged in the business of
manufacturing and selling sports items. It was incorporated on 1 October 2022 with share
capital of Rs. 102 million. It operates as a subsidiary of Baka Corporation, a Filipino
company, which holds a 52% shareholding in MSL.
MSL recently appointed a tax manager who has submitted the following initial draft of MSL’s
tax computation for the year ended 30 September 2023, along with accompanying notes, for
management’s approval:

Sales (including exports of Rs. 40 million) 234.00
Expenses (i) (181.87)
Other income 15.00
Profit before taxation 67.13
Add/(Less): Inadmissible expenses / (income)
Other income being subject to tax under separate block of income (ii) (15.00)
Interest expense paid to Baka Corporation (iii) 8.10
Warehouse rent (iv) 5.40
Taxable income for the year 65.63
Tax liability:
Normal tax regime @ 29% 19.03
Separate block of income @ 5% 0.75
Total tax liability 19.78
Notes to the tax computation:

(i) MSL incurred an exchange loss of Rs. 1.2 million in relation to machinery acquired on
1 November 2022, from the USA through a short-term foreign currency loan of
USD 36,000. The loan was repaid on 30 April 2023.
(ii) A gain of Rs. 15 million was realized from the sale of an office building to a Rental
REIT Scheme at Rs. 115 million on 1 May 2023. MSL had acquired this building in
November 2022 for Rs. 100 million.
(iii) A mark-up of Rs. 8.1 million incurred on a loan denominated in USD equivalent to
Rs. 180 million, obtained on 1 April 2023, from Baka Corporation. The repayment of
the principal is scheduled to commence in March 2025.
(iv) This represents the annual rent payable in arrears to the landlord for a warehouse
obtained in Hyderabad. The rent is due on 1 October 2023. MSL has not paid any
withholding tax on this amount.
Required:
(a) discuss the tax regimes available to MSL for determining its tax liability. (09)
(b) comment on each note to the tax computation, prepared by the tax manager for the tax
year 2024. Assume that MSL plans to file its return under the normal tax regime. (12)
Note:  Revised computation of taxable income and tax liability is not required.
 Ignore WWF and WPPF.
Q.5 Moin Limited (ML) is an audit and tax client of Hashim & Co., Chartered Accountants (the
firm). The ML’s amended assessment proceedings for the tax year 2021 are ongoing, and the
firm has filed an appeal with the Appellate Tribunal (ATR). ML has offered a fee of
Rs. 1 million for this engagement, along with an additional bonus of 25% if the matter is
resolved in ML’s favour.
Required:
In light of the ICAP’s Code of Ethics, discuss the potential threats that the firm may face in
the above situation and how these threats should be responded to. (Your answer should be
limited to the threats faced by the tax department and the tax partner) (06)
Q.6 (a) Rabia operates a business of selling homemade spices through Easy Foods (EF), an
online food delivery platform, which is registered with the sales tax authorities and has
its head office in Faisalabad. She receives orders from EF’s online platform, which are
collected by EF’s riders and delivered to the customer. To support her business, she has
hired two employees. Below is an extract from Rabia’s business records for the year
ended 30 November 2023:
Rupees
Sales 4,500,000
Commission to EF (20%) (900,000)
Profit 1,680,000
Rabia is considering expanding her business to sell her products in Australia, with the
help of her cousin, Fatema, who lives there.
Required:
In the light of the provisions of Sales Tax Act, 1990 and Rules made thereunder, discuss
whether Rabia’s business is required to be registered with the sales tax authorities. (04)
(b) Aqua Enterprise (AE) is a registered person under the Sales Tax Act, 1990, and is
engaged in the business of manufacturing and supplying electric coolers. AE has
received two notices from the sales tax authorities regarding the following transactions:
(i) On 1 August 2023, AE supplied taxable goods worth Rs. 2.8 million to one of its
associates at a concessional price of Rs. 2.1 million. However, AE inadvertently
failed to levy sales tax or issue a sales tax invoice for the supply. On
10 December 2023, the Assistant Commissioner Inland Revenue served a notice
requiring AE to show cause for the non-payment of the amount specified in the
notice.
AE intends to make the payment on 20 December 2023 and seeks clarification on

the exact amount owed to the sales tax authorities.
Required:
Under the Sales Tax Act, 1990, compute the amount of sales tax payable by AE. (05)
(ii) AE placed five electric coolers worth Rs. 200,000 at a leading departmental store
for advertisement purposes and received a security deposit of Rs. 100,000. On
9 December 2023, AE received a notice from the Deputy Commissioner Inland
Revenue, demanding payment of Rs. 54,000 for sales tax on the electric coolers
and security deposit.
Required:
Under the Sales Tax Act, 1990, advise on the legality of the notice issued by the
Deputy Commissioner Inland Revenue. (03)
Q.7 Craft Cove (CC) is engaged in the business of manufacturing and supplying furniture. It also
operates two retail outlets in Lahore, and is registered with the Sales Tax Authorities as an
importer, manufacturer and retailer. Both the retail outlets of CC are integrated with the
Board’s computerized system, enabling real-time reporting of sales. The following
information has been extracted from CC’s records for the month of November 2023:
Rs. in million
Purchases
Imports 40.0
Supplies
To registered persons 104.5
To unregistered persons 80.0
Exports of manufactured furniture to USA 52.0
(i) Purchases from registered suppliers comprise the following:
 Hardwood worth Rs. 80 million.
 Bulk packaging for wood polish at Rs. 38 million (net of a 10% trade discount and
a 5% cash discount). The retail price of the polish is Rs. 50 million.
 Milling machine under a hire purchase agreement, signed during the month. The
fair market value of the machine on the date of the agreement was Rs. 85 million,
and CC is to make payments in 20 equal monthly instalments of Rs. 5 million. The
machine will be delivered to CC in December 2023.
 Artificial leather worth Rs. 38 million for use as tapestry for sofa sets, sourced from
a local manufacturer cum retailer. The retailer is integrated with the Board’s
computerized system for real-time reporting of sales and maintains a 10% value
addition on its sales.
 Hand carved wooden doors worth Rs. 20 million from a local carpenter located in
FATA.
(ii) Imports comprise the following:
 Specialized foam worth Rs. 28 million for use in executive chairs for office use.
The retail price of this type of foam is Rs. 30 million.
 Ready to assemble (RTA) furniture worth Rs. 12 million.
(iii) Supplies to registered persons comprise the following:
 Household furniture worth Rs. 78 million to an interior design firm. 60% of the
furniture was delivered during the month, and the remaining will be delivered after
two months.
 Furniture worth Rs. 1.5 million as donation to a welfare organization.
 Office furniture worth Rs. 25 million to Shehzor Limited, which was blacklisted
during the last month.
(iv) Supplies to unregistered persons comprise furniture worth Rs. 80 million sold to end
consumers through CC’s retail outlets.
(v) An amount of Rs. 4.5 million was paid to a digital marketing agency in Singapore for
advertisement services.
exclusive of sales tax, unless specified otherwise.
Required:
In light of the provisions of the Sales Tax Act, 1990 and the Rules made thereunder, compute
the amount of sales tax payable by or refundable to CC and the amount of input tax to be
carried forward, if any, for the tax period November 2023. (Show all relevant exemptions,
exclusions and disallowances) (18)
(THE END)

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2024

TAX PLANNING AND PRACTICES

T P This volume contains;

suggested answers of past ICAP examinations.

commenting or printing of these answers is strictly prohibited.

PROFESSIONAL EXAMINATIONS SUMMER 2001

June 09, 2001

ADVANCED TAXATION (M ARKS 100)

The company follows the “financing method” in accounting for

i) rent received and receivable, 12,800

ii) Accounting depreciation:

iii) excess perquisites as per working. In computing the excess perquisites

iv) donation to approved institution, 100

v) return and exchange gain on foreign currency deposits accounts

vi) tax depreciation as per schedule:

viii) other income includes dividend from an associated company, 150

ix) finance charges includes Rs.1000 thousand which represents exchange

Q. 6 Discuss under the provisions of the Sales Tax Act 1990:

a) when further tax of 1.5% is not required to be charged; (03)

b) “enlistment tax” (03)

ii) Excisable goods (02)

iii) Wholesale dealer (02)

1. Bungalow under self-occupation Rs. 863,000

2. Advance against agreement for purchase of a plot generated

3. Shop having cost of let out on monthly rent of Rs. 10,000

4. Car for personal use(acquired in May 1999) 350,000

5. House furniture and electrical appliances 80,000

6. His saving account shows a balance on which

7. Advance from House Building Finance Corporation for self

8. Encashment of private foreign currency account 100,000

PROFESSIONAL EXAMINATIONS WINTER 2001

December 05, 2001

ADVANCED TAXATION (M ARKS 100)

Q.3 Can assessment once finalized be re-opened or modified? Discuss. (12)

Q.4 Mr A established a manufacturing concern in 1995. He commenced commercial operation in

Land 500,000 500,000 1,000,000

Profit from operations 4,950,000

In addition the following additional information is available:

i. This is the fourth year of operation of the modaraba.

Leasing Operations Rupees

viii. Tax depreciation on

ix. Tax loss on disposal of

x. Unabsorbed depreciation from leasing operation

a) Compute the amount of modaraba company’s management fee. (02)

b) Compute the amount of statutory reserve and the minimum distributable

Professional Examinations Summer 2002

June 05, 2002

ADVANCED TAXATION (MARKS 100)

Q.5 When is a company and an individual treated as “resident”? (04)

- Provision for Superannuation Fund 50,000

- Lease rental on an operating lease paid to an approved

- Lease rental on Financial lease for equipment 1,000,000

- Finance charges on lease 400,000

- Loan for working capital requirement received from a

- Provision for Contingencies 2,000,000

- Accrued bills of suppliers for goods received 4,000,000

- Invoice received for Repairs and Maintenance services

- Recoveries against Bad debts written off but disallowed

- Liabilities for purchase of goods remaining unpaid since