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MIDTERM EXAMINATION

Spring 2019

FIN623- Taxation Management (Session – 2)

Question No: 1 ( Marks: 1 ) – Please choose one

Which of the following is opposite to the literal meanings of Tax? Burden

Strain

Load

Relieve (Page no 1)

REFRENCE:

General Understanding of Tax:

.. Literal meanings—— Burden, Strain

.. The long journey would be too much of a tax on my father’s strength.

.. I found they were taxing my patience by asking irrelevant questions.

.. Such a long rough journey would be very taxing for old man.

Question No: 2 ( Marks: 1 ) – Please choose one

Which of the following is the main source of revenue generation of the state?

Taxes & Tariffs (Confirmed from vedio lecture)

Internal Borrowing External Borrowing

Penalties & Fines

Question No: 3 ( Marks: 1 ) – Please choose one

           is paid to the government on goods and services and can be reclaimed by retailers.

Income Tax

Value Added Tax

Capital Value Tax Wealth Tax REFERENCE:

Question No: 4 ( Marks: 1 ) – Please choose one Which of the following is not an employment tax? Social Security Tax

Federal Excise Tax

Federal unemployment compensation tax

State unemployment compensation tax

. REFERENCE:

Question No: 5 ( Marks: 1 ) – Please choose one

How many Schedules are contained in the Income Tax Ordinance 2001? Three Schedule

Fifth Schedule

Seven Schedules (Page no 5) Nine Schedules REFERENCE:

Basic Features of Income Tax Ordinance 2001 Scheme of the Ordinance is given below:

There are thirteen chapters Chapters are divided into:

Parts & Divisions

There are 240 Sections

This ordinance comprises of seven Schedules Schedules are integral part of the Ordinance.

Question No: 6 ( Marks: 1 ) – Please choose one

Under which of the following sections of Income Tax Ordinance 2001 vested the powers to CBR in order to formulate the IT rule 2002?

Section 206

Section 213

Section 237    (Page no 5) Section 238 REFERENCE:

IT rules 2002

These were promulgated by CBR on 1st July 2002 in exercise of powers granted under section 237 of theOrdinance.

Question No: 7 ( Marks: 1 ) – Please choose one

Which one of the following is the Internal aid and help in the interpretation of

Punctuation marks     (Page no 7)

CBR’s   circulars Definitions in other statutes Departmental manuals REFERENCE:

(Page no 7)

Question No: 8 ( Marks: 1 ) – Please choose one Section 2(13) of Income Tax Ordinance 2001 defined:

“Commissioner” means a person appointed as a Commissioner of Income Tax powers, and functions of the Commissioner;

In which criteria the above definition falls? Exclusive definition

Inclusive definition

Both Exclusive and Inclusive definitions Statutory definition

REFERENCE:

Examples of exclusive definitions are given below:

Sec. 2(2) Appellate Tribunal means the Appellate Tribunal established under section 130. 2(5A) “assessment year” means assessment year as defined in the repealed Ordinance; 2(6) “association of persons” means an association of persons as defined in section 80 2(13) “Commissioner” means a person appointed as a Commissioner of Income Tax under section

208, and includes a taxation officer vested with all or any of the powers, and functions of the

Commissioner;

Question No: 9 ( Marks: 1 ) – Please choose one

Under which of the following conditions a tax payer can adopt a special tax year?

Whenever he decides so

After seeking approval from Tax Office

After seeking approval from Commissioner of income tax     (Page no 11)

After seeking approval from High Court

Question No: 10 ( Marks: 1 ) – Please choose one

Mr. A & B Joint Owners of a Building, Which of the following is the legal status under the provisions of Section 80 of the Ordinance?

Company

Association of Persons Hindu Undivided Family REFERENCE:

(Page no 15)

Example no XV

Question No: 11 ( Marks: 1 ) – Please choose one

Which of the following is the legal status of Mr. Z, a Director in Private Company under section 80 of the Income tax ordinance 2001?

Individual Company Firm

Hindu Undivided Family

REFERENCE:

(Page no 15) Example no X11

Question No: 12 ( Marks: 1 ) – Please choose one

Which of the following is NOT an example of deemed income? Golden hand shake

All of the given options

Loan through cross cheque Gifts through proper transaction REFERENCE:

Handouts (Page no 17)

Question No: 13 ( Marks: 1 ) – Please choose one

If the land situated in Pakistan and used for agriculture purposes then which of the following factor make distinction between agriculture and non-Agriculture Income?

Nationality of Pakistan Quantity of the product Time period

Human effort   (Page no 19)

REFERENCE:

Following Incomes are held to be “Non-Agricultural Income”

🕙Income from spontaneous forest

🕙Income from sale of fruits and flowers growing on land naturally, spontaneously, and without the

intervention of human agency

Question No: 14 ( Marks: 1 ) – Please choose one

Suppose a merchant acquired Profit from the purchase of standing crops and resale of it after harvesting.

The profit of the merchant will be treated in which of the following way?

Agriculture Income

Income from Business (No reference )

Income from Property Capital Gain

Question No: 15 ( Marks: 1 ) – Please choose one

Mr. Ali being citizen of Pakistan of 60 years old, if his total taxable income is Rs.400,000. His tax liability will be reduced by                                         under Part 3 of second schedule.

10%

25%

50%

75%

REFERENCE:

Reduction in Tax Liability under Second Schedule Part 3

• Any amount received as flying allowance by pilots etc. and junior commissioned officers or other ranks shall be taxed @2.5% as separate block.
• Senior citizen-age 60 years &above where taxable income not exceeding Rs. 400,000/-

tax liability reduced by 50%.

Question No: 16 ( Marks: 1 ) – Please choose one

M/s ABC & Co. has been incorporated under Pakistan Companies Ordinance 1984. However it’s most of the branched and control and management of affairs wholly situated out of Pakistan? What will be the residential status of M/s ABC & Co.?

Resident Company

Non-Resident Company Resident Individual Resident AOP

Question No: 17 ( Marks: 1 ) – Please choose one

Which part of income is charged to tax of resident person under the income tax ordinance 2001?

Pakistani source of income

Foreign source of income

Both Pakistan and foreign source of income     (Page no 28)

None of the given option

REFERENCE

Scope of Total Income of a Resident Person Section 11 (5) Resident Person Changeable to tax on:

• The income of a resident person under a head of income shall be computed by taking into account amounts that are Pakistan-source income and amounts that are foreign- source income

Question No: 18 ( Marks: 1 ) – Please choose one

Which part of income is charged to tax of non-resident person under the income

tax ordinance 2001?

Pakistani source of income      (Page no 28)

Foreign source of income

Both Pakistan and foreign source of income None of the given option

REFERENCE:

Non-resident person charged only on Pakistan Source Income Sec.11 (6) Question No: 19 ( Marks: 1 ) – Please choose one

                        means a fixed place of business through which the business of

an enterprise is wholly or partly carried on. Permanent establishment (Page no 29) Small Business Units SBU

Venture

REFERENCE:

Permanent Establishment—Defined Sec. 2(41)

Permanent establishment in relation to a person, means a fixed place of business through which the business of the person is wholly or partly carried on

Question No: 20 ( Marks: 1 ) – Please choose one

Which of the following come under the ambit of Royalty under section 2 (54)? Right to use any patent

Copy right of a literary

Right to use any industrial or scientific equipment All of the given options                       (Page no 30) REFERENCE:

Royalty Defined Sec. 2 (54)

Royalty means any amount paid or payable however described or computed, whether periodical or lump sum, as a consideration for:

1. The use of, or right to use any patent, invention, design or model, secret formula or process, trade mark or other like property or right;
2. The use of, or right to use any copy right of a literary, artistic or scientific work,

including films or video tapes for use in connection with television or tapes in connection with radio broadcasting, but shall not include consideration for the sale, distribution or exhibition of cinematograph films.

• The receipt of, or right to receive, any visual images or sounds or both, transmitted by satellite, cable, optic fiber or similar technology in connection with television, radio or internet broadcasting;
• The supply of any technical, industrial, commercial or scientific knowledge, experience or skill;
• The use of or right to use any industrial, commercial or scientific equipment;
• The supply of any assistance that is ancillary and subsidiary to, and is furnished as a means of enabling the application or enjoyment of, any such property or right as mentioned in sub-clause (a) through (e)

• The disposal of any property or right referred to in (sub-clause) (a) through (e).

Question No: 21 ( Marks: 1 ) – Please choose one

What is the relation between the Non-resident and permanent establishment as per section 105?

• Both have same legal entity

►   Both are separate legal entity      (Page no 31)

• Both are dependent on each other

• None of the given options

REFERENCE:

Taxation of a permanent establishment in Pakistan of a non-resident person Sec. 105:

(1) The following principles shall apply in determining the income of a permanent

establishment in

Pakistan of a non-resident person chargeable to tax under the head “Income from Business”,

namely:

• The profit of the permanent establishment shall be computed on the basis that it is a distinct

and separate person engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the non-resident person of which it is a

permanent establishment

Question No: 22 ( Marks: 1 ) – Please choose one

Salary by members of AOP is not treated as Salary but treated as appropriation of profit and charged under the head:

Income from Salary Income from Property

Income from Business     (Page no 36)

Income from Other Sources

REFERENCE:

Significant Points:

Salary from more than one source during a tax year is taxable income.

• Salary may be from former employer, present employer or prospective employer.
• Salary may be from former employer, present employer or prospective employer.

• No deductions are allowed under the head “Income from Salary”
• In case of Tax Free Salary by the employer, the amount of tax paid by employer shall be added

back to employee’s salary. It tantamount to Tax on Tax

• Voluntary Payments Taxable
• Tax year of a salaried Person shall be Normal Tax year

• In case of Tax Free Salary by the employer, the amount of tax paid by employer shall be added

back to employee’s salary. It tantamount to Tax on Tax

• Voluntary Payments Taxable
• Tax year of a salaried Person shall be Normal Tax year
• Tax on salary income for Tax year 2009 (1st July 2008 to 30th July 2009) shall be computed

according to amendments as made by Finance Act, 2008.

• Salary by members of AOP is not treated as Salary but treated as appropriation of profit and

charged under the head “Income from Business

Question No: 23 ( Marks: 1 ) – Please choose one

In which of the following heads of Income No deductions are allowed:

Salary Income     (Page no 36)

Income from Property Income from Business Capital Gains

REFERENCE:

Significant Points:

Salary from more than one source during a tax year is taxable income.

• Salary may be from former employer, present employer or prospective employer.
• Salary may be from former employer, present employer or prospective employer.
• No deductions are allowed under the head “Income from Salary”
• In case of Tax Free Salary by the employer, the amount of tax paid by employer shall be added

back to employee’s salary. It tantamount to Tax on Tax

• Voluntary Payments Taxable
• Tax year of a salaried Person shall be Normal Tax year
• In case of Tax Free Salary by the employer, the amount of tax paid by employer shall be added

back to employee’s salary. It tantamount to Tax on Tax

• Voluntary Payments Taxable
• Tax year of a salaried Person shall be Normal Tax year
• Tax on salary income for Tax year 2009 (1st July 2008 to 30th July 2009) shall be

computed

according to amendments as made by Finance Act, 2008.

• Salary by members of AOP is not treated as Salary but treated as appropriation of profit and

charged under the head “Income from Business

Question No: 24 ( Marks: 1 ) – Please choose one

Mr Ali is an employee of ABC Co. the company has provided a driver and a gardener to Mr. Ali. What will be the treatment of their salaries as per Income Tax Ordinance 2001?

The salaried paid to them added in the salary of MR. Ali The salaried paid to them subtracted in the salary of MR. Ali Have no relation with salary of Mr. Ali

The Salaried paid are exempted from Tax

REFERENCE:

PAGE NO 39 SALARY AND ITS COMPUTATION.

Question No: 25 ( Marks: 1 ) – Please choose one

A directorship or any other office involved in the management of a company under section 2(22) of Income Tax Ordinance, 2001 is termed as: Employment (Page no 36)

Employer

Employee Business premises

REFERENCE:

Employment Sec. 2(22) Employment includes:

•A directorship or any other office involved in the management of a company;

•A position entitling the holder to fixed or ascertainable remuneration; or

•Holding or acting in any public office.

Question No: 26 ( Marks: 1 ) – Please choose one

Mr. A non-resident of Pakistan received interest on Australian Bonds Rs. 100,000 (half amount received in Pakistan). What is the treatment of this amount for calculating his gross total income?

Rs. 100,000 added in his total income

Rs. 100,000 subtracted from his total income Rs. 50,000 added in his total income Exempt from tax

Question No: 27 ( Marks: 1 ) – Please choose one

Mr. X employed in Pakistan remittance from USA received Rs. 10,000 in Pakistan from past profits. Which of the following is right for the above scenario?

Mr. X being resident of Pakistan Rs. 10,000 will be added in Gross total

income

Mr. X being resident of Pakistan Rs. 10,000 will be Subtracted in Gross total income

Mr. X being non-resident of Pakistan Rs. 10,000 will be added in Gross

total income

Remittance is not income hence it is not included

Question No: 28 ( Marks: 1 ) – Please choose one

Mr. X resident of Pakistan remittance from UK received Rs. 20,000 in Pakistan from past profits. Which of the following is right for the above scenario?

Mr. X being resident of Pakistan Rs. 20,000 will be added in Gross total income

Mr. X being resident of Pakistan Rs. 20,000 will be Subtracted in Gross

total income

Mr. X being non-resident of Pakistan Rs. 20,000 will be added in Gross total income

Remittance is not income hence it is not included REFERENCE:

Page no 33 handouts

Question No: 29 ( Marks: 1 ) – Please choose one

Mr. Kishan Kumar during his yearly tour in Pakistan spends 155 working days, 26 off-working days 1 strike day and 1 Public Holiday in a tax year 2008-09? What will be the status of the individual?

Resident Individual Non Resident Individual Resident Person Resident HUF REFERENCE:

Resident Individual (Section 82)

• An individual shall be a resident individual for a tax year if the individual-
• is present in Pakistan for a period of, or periods amounting in aggregate to, one hundred and eighty-three days or more in the tax year; or
• Is an employee or official of the Federal Government or a Provincial Government posted abroad in the tax year?

Question No: 30 ( Marks: 1 ) – Please choose one

Mr. Zeeshan during his yearly tour in Pakistan spends 180 working days and in a tax year 2008-09? What will be the status of individual?

Resident Individual

Non-Resident Individual

Resident Person

Resident HUF

REFERENCE:

Resident Individual (Section 82)

• An individual shall be a resident individual for a tax year if the individual-

• is present in Pakistan for a period of, or periods amounting in aggregate to, one hundred and eighty-three days or more in the tax year; or
• Is an employee or official of the Federal Government or a Provincial Government

posted abroad in the tax year?

PAPER NUMBER 2

MIDTERM EXAMINATION

Spring 2019

FIN623- Taxation Management (Session – 4)

Question No: 1 ( Marks: 1 )   – Please choose one

Which one of the following is main difference between the tax and fee?

►   Entitlement of Counter benefit     (Page no 1)

• Imposing authority
• Mode of payment
• Applied Rates

Question No: 2 ( Marks: 1 )   – Please choose one

Which of the following is the main objective of Fiscal Policy?

• Economic Development

• Price stability

• Removal of deficit in Balance of Payments

►   All of the given options          (Page no 2) REFERENCE:

What is Fiscal Policy?

Fiscal policy is a discipline that deals with arrangements which are adopted by government to

collect the revenue and make the expenditures so that social and economic stability could

be attained / maintained.

□  Objectives of Fiscal Policy

• Economic Development
• Raising level of employment (Achieving full employment level)
• Influencing consumption patterns
• Price stability
• Redistribution of income

• Removal of deficit in Balance of Payments

Question No: 3 ( Marks: 1 )   – Please choose one

How many Sections are included in the Income Tax Ordinance 2001?

• 340 sections
• 440 sections
• 140 sections

►   240 sections         (Page no 5) REFERENCE:

Scheme of the Ordinance is given below:

• There are thirteen chapters

Chapters are divided into:

Parts &

Divisions

There are 240 Sections

Question No: 4 ( Marks: 1 )   – Please choose one

Law making is the prime responsibility of which of the following authorities?

►   Parliament

• Supreme Court
• High Court
• City Court

REFERENCE:

Question No: 5 ( Marks: 1 )   – Please choose one

Superior judiciary includes which of the following authorities?

• City Court
• Supreme Court
• High Court

►   Both supreme and High court REFERENCE:

and-haryana-april-2011

Question No: 6 ( Marks: 1 )   – Please choose one

Which one of the following is the Internal aid and help in the interpretation of law?

►   Punctuation marks      (Page no 7)

• CBR’s circulars
• Definitions in other statutes
• Departmental manuals

Question No: 7 ( Marks: 1 )   – Please choose one

Which of the following is the example of inclusive definitions?

• Appellate Tribunal 2(2)

►   Business 2(9)

• Association of Person 2(6)

• Debt 2(15)

REFERENCE:

Page no 8

Question No: 8 ( Marks: 1 )   – Please choose one

The            year is a period of twelve months arbitrarily chosen for tax purposes.

• Economic

►   Fiscal

• Economy
• Monetary

REFERENCE:

Question No: 9   ( Marks: 1 ) – Please choose one

Which of the following is the Special Accounting Year of Sugar Companies?

• 1^st July to 30^th June

►   1^st October to 30^th September      (Page no 11)

• 1^st September to 31^st August
• 1^st January to 31^st December

Question No: 10 ( Marks: 1 )   – Please choose one

Which one of the following is the example of tax payer?

• Salaried Person

• LESCO

►   All of the given options

• WAPDA

Question No: 11 ( Marks: 1 )   – Please choose one

Certain incomes those are excluded from tax are called as:

• Perquisites

►   Exemptions           (Page no 17)

• Allowances
• Deductions

REFERENCE:

• Deemed Income at Par with real income
• Cash Basis Vs Accrual Basis
• Illegal Income
• Lump Sum Receipts

• Tax-free income
• Income can not be taxed twice, if not expressly
• Mentioned otherwise
• Charge on Person
• Certain Incomes excluded from Taxable Income (exemptions)
• Lump Sum Receipts
• Tax-free income

• Income can not be taxed twice, if not expressly
• Mentioned otherwise
• Certain Incomes excluded from Taxable Income (exemptions)

Question No: 12 ( Marks: 1 )   – Please choose one

Sources of Income are classified into           heads of income.

• 3
• 4

►   5

• 6

REFERENCE:

Under the Ordinance income is classified into the following five heads:

Salary, Income from property, Income from business, Capital gains and Income from other sources.

Question No: 13 ( Marks: 1 )   – Please choose one

Which of the following incomes are treated as agriculture income?

• Spontaneous forests
• Agro based industry
• Interest received by a farmer on lending

►   Income from land in Pakistan used for agriculture        (Page no 19) REFERENCE:

(b)Any income derived by a person from land situated in Pakistan from –

• Agriculture;
• the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by such person to render the produce raised or received by the person fit to be taken to market; or
• the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by such person, in respect of which no process has been performed other than a process of the nature described in sub-clause (ii); or

Question No: 14 ( Marks: 1 )   – Please choose one

Which of the following is similar to the concept of club of Incomes?

• Unification only two heads of Income

►   Association of two or more heads of Income

• Splitting up of only two heads of Income
• Division of two or more than two heads of income

Question No: 15 ( Marks: 1 )   – Please choose one

What is the tax treatment of the salary of an employee of foreign government but citizen of Pakistan?

►   Exempt form tax

• Wholly Taxable
• Partly Taxable

• No Tax treatment given in IT Ordinance 2001

REFERENCE:

Section 43 Foreign Government Officials

Salary of an employee of foreign government exempt provided

Question No: 16 ( Marks: 1 )   – Please choose one

Income of Federal Government exempt from tax under which of the following section of IT Ordinance 2001?

• Section 41
• Section 43
• Section 47

►   Section 49              (Page no 23) REFERENCE:

Section 49 Federal & Provincial Govt. and Local Authority Income

• Income of Federal Government exempt from tax
• Income of Provincial Government or a Local Authority in Pakistan shall be exempt under all heads of

income other than income from Business, derived outside its jurisdictional area, which

shall be taxable.

• Federal Government, a Provincial Government or a Local Authority shall not be liable to any collection or deduction of advance tax.

Question No: 17 ( Marks: 1 )   – Please choose one

Any Fund for Promotion of Science and Technology in Pakistan is                    under Part I of the second schedule of IT Ordinance 2001.

• Wholly Taxable

►   Wholly Exempt          (Page no 23)

• Partly Exempt
• None of the given options

REFERENCE:

Exemptions and tax Concessions in Second Schedule Section 53

Income is exempt from income tax derived from voluntary contributions, to charitable or religious

institutions. The exemption is conditional to:

1. must be solely applied for the purposes of the objects of the institution
2. No benefit for private religious trust which do not ensure for public benefit.

□  Certain receipts of charitable institution [Clause (60), Part I of the Second

Schedule]

□  Donation to certain institution [Clause (61), Part I of the Second Schedule] Question No: 18 ( Marks: 1 ) – Please choose one

Rate charged under presumptive tax regime to non resident shipping firm 8% on its gross

receipt is quite low as compare to other business. This is an example of which type of tax concession?

• Reduction in total taxable income

►   None of the given options

• Reduction in tax liability
• Reduction in tax rate

Question No: 19 ( Marks: 1 )   – Please choose one

Which of the following days shall be counted as whole day for the computation of residential status of an individual?

• A public holiday
• A day of sick leave
• Any strike day

►   All of the given options     (Page no 27) REFERENCE:

Residential Status and Taxation Rules Governing Resident Individual:

• A day of leave including sick leave
• A day that individual’s activity is stopped because of strike etc
• A holiday spent in Pakistan

Question No: 20 ( Marks: 1 )   – Please choose one

Which part of income is charged to tax of resident person under the income tax ordinance 2001?

• Pakistani source of income

• Foreign source of income

►   Both Pakistan and foreign source of income      (Page no 28)

• None of the given option

REFERENCE:

Scope of Total Income of a Resident Person Section 11 (5) Resident Person Changeable to tax on:

• The income of a resident person under a head of income shall be computed by taking

into account

amounts that are Pakistan-source income and amounts that are foreign-source income

• Pakistan Source Income & Foreign Source Income Sec.11 (5) whereas, non-resident person

charged only on Pakistan Source Income Sec.11 (6)

Question No: 21 ( Marks: 1 )   – Please choose one

What will be the tax treatment of foreign source salary received by a resident person?

• Wholly taxable
• Partly Taxable
• Wholly exempt

►   Wholly exempt only if resident paid foreign tax on his salary (Page no 31) REFERENCE:

Taxation of Foreign-Source Income of Residents:

Foreign Source Salary of Resident Individuals Sec. 102

• Any foreign-source salary received by a resident individual shall be exempt from tax if the individual

has paid foreign income tax in respect of the salary.

• A resident individual shall be treated as having paid foreign income tax in respect of foreign-source

salary if tax has been withheld from the salary by the individual’s employer and paid to

the revenue

authority of the foreign country in which the employment was exercised.

• Foreign losses Sec.104: Deductible expenditures incurred by a person in deriving foreignsource

income chargeable to tax under a head of income shall be deductible only against that

income.

Question No: 22 ( Marks: 1 )   – Please choose one

Mr. Khan resident of Pakistan received salary from UK? His salary will be included in which of the following?

• Pakistan source income

►   Foreign source income

• Both Pakistan and foreign source income

• None of the given options

Question No: 23 ( Marks: 1 )   – Please choose one

The salary received from the UK Government by Mr. Amir resident of Pakistan. Which section of the income tax ordinance explains his tax treatment of such salary?

• Section 110
• Section 101

►   Section 102

• Section 50

REFERENCE:

Page no 31

Question No: 24 ( Marks: 1 )   – Please choose one

What is the relation between the Non-resident and permanent establishment as per section 105?

• Both have same legal entity

►   Both are separate legal entity            (Page no 31)

• Both are dependent on each other
• None of the given options

REFERENCE:

Taxation of a permanent establishment in Pakistan of a non-resident person Sec. 105:

• The following principles shall apply in determining the income of a permanent establishment in

Pakistan of a non-resident person chargeable to tax under the head “Income from Business”,

namely:

• The profit of the permanent establishment shall be computed on the basis that it is a distinct

and separate person engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the non-resident person of which it is a permanent establishment

Question No: 25 ( Marks: 1 )   – Please choose one

Which of the following section of Income Tax Ordinance 2001 deals with Income from Salary and its treatment?

• Section 11

►   Section 12

• Section 13
• Section 14

REFERENCE:

Salary as defined in Section 12(2)

Question No: 26 ( Marks: 1 )   – Please choose one

Salary by members of AOP is not treated as Salary but treated as appropriation of profit and charged under the head:

• Income from Salary

• Income from Property

►   Income from Business

• Income from Other Sources

REFERENCE:

Page no 36

Question No: 27 ( Marks: 1 )   – Please choose one

Mr. X resident of Pakistan remittance from UK received Rs. 20,000 in Pakistan from past profits. Which of the following is right for the above scenario?

►   Mr. X being resident of Pakistan Rs. 20,000 will be added in Gross total income

• Mr. X being resident of Pakistan Rs. 20,000 will be Subtracted in Gross total income
• Mr. X being non-resident of Pakistan Rs. 20,000 will be added in Gross total income

• None of the given options

REFERENCE:

Scope of Total Income of a Resident Person Section 11 (5) Resident Person Changeable to tax on:

• The income of a resident person under a head of income shall be computed by taking into account

amounts that are Pakistan-source income and amounts that are foreign-source income

• Pakistan Source Income & Foreign Source Income Sec.11 (5) whereas, non-resident person

charged only on Pakistan Source Income Sec.11 (6)

Question No: 28 ( Marks: 1 )   – Please choose one

A firm ABC maintaining its account in cash basis, at June 27, 2008 it incurred expenses for Rs. 10,000 but actual payments made at 01 August 2008. It would be charge to tax into the tax year:

• 2006
• 2007
• 2008

►   2009

Question No: 29 ( Marks: 3 )

What is the difference between remittance and receipt of income? Which one is chargeable to taxable?

Difference between remittance and receipt of income

Receipt of income is the money that you receive and you might have to return it on a later stage. Further the receipt can be on sale of goods, or business receipts out of which the profit shall be your income. If salaried, the salary is your income for the purpose of tax calculations.

While a remittance is a transfer of money by a foreign worker to his or her home country. See “Remittance Man” below for the historical use of the word, which is the opposite of the modern use.

Question No: 30 ( Marks: 3 )

Section 102 deals with Salary received from Foreign-Source by resident individual. What is the tax treatment of such salary?

Answer:

Foreign-Source Salary Income [102]

A foreign source salary income of a resident individual will be exempt from tax, if he has

paid foreign income tax in respect of such income. Payment of foreign tax means that the employer has deducted the tax at source and deposited the same to the revenue authorities of the country in which employment was exercised.

Question No: 31 ( Marks: 5 )

Profit on debt earned by a non-resident person is exempt from tax under clause (77) of Part I of the second schedule. Is this exemption only available to “Individuals” as reference has been made to persons being citizens of Pakistan or otherwise? Provide the details of this clause.

Answer:

No this exemption is also available Approved loans, Foreign currency accounts held in the Pakistani account, profit on rupee help with a scheduled bank in Pakistan, profit from the private frogin currency accounts held in the authorized banks.

Question No: 32 ( Marks: 5 )

Mr. Irfan resident of Pakistan received salary from UK. He has also paid tax on his salary from UK as per the tax laws prevailing there. What will be the tax treatment of his salary as a Pakistani resident? Which section of the income tax ordinance deals this scenario?

Answer:

Foreign-Source Salary Income [102]

Mr. Irfan’s salary from UK would be exempted from tax, because he has paid tax on his salary from UK.

Under Foreign-Source Salary Income [section102] foreign source salary income of a resident individual will be exempt from tax, if he has paid foreign income tax in respect of such income. Payment of foreign tax means that the employer has deducted the tax at source and deposited the same to the revenue authorities of the country in which employment was exercised.

PAPER NUMBER 3

MIDTERM EXAMINATION

Spring 2009

FIN623- Taxation Management (Session – 2)

Question No: 1 ( Marks: 1 ) – Please choose one Which of the following is the general definition of tax? Compulsory contribution of wealth by persons

Optional contribution of wealth by persons Compulsory contribution of wealth by state Optional contribution of wealth by state Ref:

General Definition of Tax:

General compulsory contributions of wealth levied upon persons by the state, to meet the expenses incurred in providing common benefits upon the residents.

Question No: 2 ( Marks: 1 ) – Please choose one

Which of the following is the main objective of Fiscal Policy? Economic Development

Price stability

Removal of deficit in Balance of Payments

All of the given options Ref:

Objectives of Fiscal Policy

Economic Development

Raising level of employment (Achieving full employment level Influencing consumption patterns

Price stability Redistribution of income

Removal of deficit in Balance of Payments

Question No: 3 ( Marks: 1 ) – Please choose one

Government Expenditure is one of the instruments of which of the following policy?

Monetary policy Fiscal policy Trade Policy Economic Policy Ref:

Instruments of Fiscal Policy Government Expenditures Taxes

Deficit Financing Subsidies

Transfer Payments—like Unemployment Allowances etc.

Question No: 4 ( Marks: 1 ) – Please choose one

Taxation management is a strategy where by a person manages its business in such a way so as to maximize the utilization of which of the following?

Tax holidays

Exemption, Rebates & Concession

Tax credits

All of the given options Ref:

Taxation management is a strategy where by a person manages its business and other

transactions/ activities in such a way so as to make maximum use of tax holidays, exemption, concession, rebates, tax credits, deductible allowances available under law and as a result is able to derive the benefit of minimizing his tax liability.

Question No: 5 ( Marks: 1 ) – Please choose one

Which of the following was the First law on Income Tax promulgated in Pakistan?

1st July, 1979

1st July, 1969

1st July, 1949

1st July, 2002

Ref:

First law on Income Tax was promulgated in Pakistan from 1st July, 1979.

Question No: 6 ( Marks: 1 ) – Please choose one

Superior judiciary includes which of the following authorities? City Court

Supreme Court High Court

Both supreme and High court

Question No: 7 ( Marks: 1 ) – Please choose one Section 2(15) of Income Tax Ordinance 2001 defined:

“debt” means any amount owing, including accounts payable and the amounts owing under promissory notes, bills of exchange, debentures, securities, bonds or other financial instruments;

In which criteria the above definition falls?

Exclusive definition

Inclusive definition

Both Exclusive and Inclusive definitions Statutory definition

Ref:

Exclusive or Exhaustive Definition:

• It excludes ordinary dictionary meanings of the word. Exclusive definitions start with the expression’ mean’ or ‘means’.

Question No: 8 ( Marks: 1 ) – Please choose one Section 2(6) of Income Tax Ordinance 2001 defined:

“association of persons” means an association of persons as defined in section 80. In which criteria the above definition falls?

Exclusive definition

Inclusive definition

Both Exclusive and Inclusive definitions Statutory definition

Ref:

Exclusive or Exhaustive Definition:

• It excludes ordinary dictionary meanings of the word. Exclusive definitions start with the expression‘mean’ or ‘means’.

Question No: 9 ( Marks: 1 ) – Please choose one

Under which of the following conditions a tax payer can adopt a special tax year? Whenever he decides so

After seeking approval from Tax Office

After seeking approval from Commissioner of income tax

After seeking approval from High Court

Ref:

•A tax payer can adopt a special Tax year after seeking approval from Commissioner of Income Tax (CIT)

Question No: 10 ( Marks: 1 ) – Please choose one Which one of the following is the example of tax payer? Salaried Person

LESCO

All of the given options

WAPDA

Question No: 11 ( Marks: 1 ) – Please choose one

Which of the following is the legal status of the Virtual University under the provisions of section 80 of the ordinance?

Individual Company Banking Company

Hindu Undivided Family

Ref:

1. ABC University, Karachi
   1. A (i) Company

Question No: 12 ( Marks: 1 ) – Please choose one

In case of lump sum receipt of income like Golden hand shake the tax payer pays tax in which of the following way?

Average of last 3 years tax rate

Option to choose current or average of last 3 years tax rate

Current tax rate Previous year tax rate Ref:

Tax payer can opt to seek approval from CIT to charge lump sum payments received in a tax year at average tax rate of last three years

Question No: 13 ( Marks: 1 ) – Please choose one

Certain incomes those are excluded from tax are called as: Perquisites

Exemptions Allowances Deductions

Question No: 14 ( Marks: 1 ) – Please choose one

Which of the following incomes are treated as agriculture income? Spontaneous forests

Agro based industry

Interest received by a farmer on lending

Question No: 15 ( Marks: 1 ) – Please choose one

What is the tax treatment of the salary of an employee of foreign government but citizen of Pakistan?

Exempt form tax Wholly Taxable Partly Taxable

No Tax treatment given in IT Ordinance 2001

REFERENCE:

Section 43 Foreign Government Officials

Salary of an employee of foreign government exempt provided: a.Employee citizen of foreign country and not a citizen of Pakistan.

b.Services performed are similar to services performed by employees of the Federal

Government in foreign countries and

c.Foreign government also grants similar exemptions to employees of Federal Government.

Question No: 16 ( Marks: 1 ) – Please choose one

Income of Federal Government exempt from tax under which of the following section of IT Ordinance 2001?

Section 41

Section 43

Section 47

Section 49 Ref:

Section 49 Federal & Provincial Govt. and Local Authority Income

• Income of Federal Government exempt from tax

Question No: 17 ( Marks: 1 ) – Please choose one

An Individual will be termed as Short Term Resident under section 50 of the IT Ordinance 2001 on which of the following condition?

His period of stay in Pakistan equal to 183 days

The employee of Foreign Government The citizen of Pakistan

His period of stay in Pakistan not exceeding 3 years Ref:

Section 50 Foreign-Source Income of Short-Term Resident Individuals

1. Subject to sub-section-2, the foreign-source income of an individual shall be exempt: a.Who is a resident individual solely by reason of the individual’s employment; and b.Who is present in Pakistan for a period or periods not exceeding three years,

Question No: 18 ( Marks: 1 ) – Please choose one

M/s ABC & Co. has been incorporated under Pakistan Companies Ordinance 1984. However it’s most of the branched and control and management of affairs wholly situated out of Pakistan? What will be the residential status of M/s ABC & Co.?

Resident Company

Non-Resident Company Resident Individual Resident AOP

REF:

If Control and Management of affairs of a company lies in Pakistan, it is Resident Company, even if not incorporated in Pakistan, as if control and management is here in Pak then its resident and if not then non resident.

Question No: 19 ( Marks: 1 ) – Please choose one

Mr. Imran is an employee of Provincial Government of Punjab posted in UK for two years? What will be the residential status of Mr. Imran?

Resident Individual

Non-Resident Individual Resident HUF

Resident AOP

REF:

page 25 handouts

Question No: 20 ( Marks: 1 ) – Please choose one

Which of the following days shall be counted as whole day for the computation of

residential status of an individual? A public holiday

A day of sick leave

Any strike day

All of the given options Ref:

Page 25

Question No: 21 ( Marks: 1 ) – Please choose one

Which part of income is charged to tax of resident person under the income tax ordinance 2001?

Pakistani source of income

Foreign source of income

Both Pakistan and foreign source of income

None of the given option

REF:

The income of a resident person under a head of income shall be

computed by taking into account amounts that are Pakistan-source income and amounts that are foreign-source income. http://www.fbr.gov.pk/newdt/ITordinance/ITOrdinance2009/ITaxOrdinance2001ut15- 08-2009.pdf

Question No: 22 ( Marks: 1 ) – Please choose one

Which of the following does Not come under the ambit of permanent establishment (PE)?

Branch office Factory or workshop

Premises for soliciting orders Liaison or relationship office Ref:

Page 9

Question No: 23 ( Marks: 1 ) – Please choose one

Mr. Ali resident of Pakistan received salary form UK? What will be the tax treatment of his salary in Pakistan?

Wholly taxable

Partly Taxable Wholly exempt

Wholly exempt only if resident paid foreign tax on his salary                                         

Question No: 24 ( Marks: 1 ) – Please choose one

The salary received from the UK Government by Mr. Amir resident of Pakistan.

Which section of the income tax ordinance explains his tax treatment of such salary?

Section 110

Section 101 Section 102 Section 50 Ref:

Page 30

Question No: 25 ( Marks: 1 ) – Please choose one

Which of the following section of Income Tax Ordinance 2001 deals with Income from Salary and its treatment?

Section 11 Section 12 Section 13

Section 14

REF:

Page 37

Question No: 26 ( Marks: 1 ) – Please choose one

Mr. A resident of Pakistan received interest on Australian Bonds Rs. 100,000 (half amount received in Pakistan). What is the treatment of this amount for calculating his gross total income?

Rs. 100,000 added in his total income

Rs. 100,000 subtracted from his total income Rs. 50,000 added in his total income

Exempt from tax

REF: page 35

Question No: 27 ( Marks: 1 ) – Please choose one

Mr. X being non-resident of Pakistan Rs. 70,000 will be added in Gross total income

Mr. X non-resident of Pakistan earned income from property situated in Dubai Rs. 70,000 but received in Pakistan. Which one of the following option is right for this particlar scenario?

Mr. X being non-resident of Pakistan Rs. 70,000 will be subtracted in Gross total income

Mr. X being non-resident of Pakistan Rs. 70,000 will be claimed as admissible deduction

Mr. X being non-resident of Pakistan Rs. 70,000 will be exempted

REF:

Question No: 28 ( Marks: 1 ) – Please choose one

Mr. X employed in Pakistan received share of profit Rs. 60,000 in India from a business situated in Dubai but controlled through PE in Pakistan. Which of the following is right for the above scenario?

Mr. X being resident of Pakistan Rs. 60,000 will be subtracted in Gross

total income

Mr. X being non-resident of Pakistan Rs. 60,000 will be added in Gross total income

Mr. X being non-resident of Pakistan Rs. 60,000 will be subtracted in Gross total income

REF: PAGE 33 handouts

Question No: 29 ( Marks: 1 ) – Please choose one

Mr. X employed in Pakistan remittance from USA received Rs. 10,000 in Pakistan from past profits. Which of the following is right for the above scenario?

Mr. X being resident of Pakistan Rs. 10,000 will be added in Gross total income

Mr. X being resident of Pakistan Rs. 10,000 will be Subtracted in Gross total income

Mr. X being non-resident of Pakistan Rs. 10,000 will be added in Gross total income

Remittance is not income hence it is not included                                                                                                                     REF: page 33 handouts

Question No: 30 ( Marks: 1 ) – Please choose one

Mr. X resident of Pakistan remittance from UK received Rs. 20,000 in Pakistan from past profits. Which of the following is right for the above scenario?

Mr. X being resident of Pakistan Rs. 20,000 will be added in Gross total income

Mr. X being resident of Pakistan Rs. 20,000 will be Subtracted in Gross total income

Mr. X being non-resident of Pakistan Rs. 20,000 will be added in Gross total income

None of the given options

PAPER NUMBER 4

MIDTERM EXAMINATION

Spring 2009

FIN623- Taxation Management (Session – 2)

Question No: 1 ( Marks: 1 ) – Please choose one

Taxes are important instrument of which one of the following policy? Monetary policy

Fiscal policy Trade Policy Economic Policy REF:

Some Important Instruments of Fiscal Policy:

Taxation: Taxation is always a very important source of revenue for both developed and developing countries. Tax comes under tow heading – Tax on individual (direct tax) and tax on commodity (indirect tax or commodity tax). Direct tax includes income tax, corporate tax, taxes on property and wealth. Indirect tax is tax on the consumptions. It includes sales tax, excise duty and custom duties. http://financialconcept.edublogs.org/2010/04/12/instruments-of-fiscal-policy-from- managerial-economics/

Question No: 2 ( Marks: 1 ) – Please choose one

Removal of deficit in Balance of Payments is one of the objectives of which of the following policy?

Monetary policy

Fiscal policy Trade Policy Economic Policy REF:

.. Objectives of Fiscal Policy

.. Removal of deficit in Balance of Payments Question No: 3 ( Marks: 1 ) – Please choose one

Persons deriving more income leads to enjoy less benefits from the state, should be taxed at the lower rates.   In the canons of taxation, which one of the following statements best describe the benefits principle?

Persons deriving more income leads to enjoy less benefits from the state,

should be taxed at the higher rates.

Persons deriving less income leads to enjoy more benefits from the state, should be taxed at the lower rates.

All persons deriving more or less income should be taxed at the same rates.

REF:

Benefit principle

This principle suggests that taxes should be levied according to the benefits derived by the person from the state. Since more benefits are derived by lower income groups, hence according to this principle, 🡺those who derive more income but enjoy less benefits from

the state should be taxed at the lower rates and those persons who derives less income but more benefits from State should be taxed at high rates.

Question No: 4 ( Marks: 1 ) – Please choose one

Taxation management is a strategy where by a person manages its business in such a way so as to maximize the utilization of which of the following?

Tax holidays

Exemption, Rebates & Concession Tax credits

All of the given options

REF:

Taxation Management—Explained

Taxation management is a strategy where by a person manages its business and other transactions/activities in such a way so as to make maximum use of tax holidays, exemption, concession, rebates, tax credits, deductible allowances available under law and as a result is able to derive the benefit of minimizing his tax liability.

Question No: 5 ( Marks: 1 ) – Please choose one

Which of the following was the First law on Income Tax promulgated in Pakistan? 1st July, 1979

1st July, 1969

1st July, 1949

1st July, 2002

REF:

First law on Income Tax was promulgated in Pakistan from 1st July, 1979.

Question No: 6 ( Marks: 1 ) – Please choose one

How many Sections are included in the Income Tax Ordinance 2001?

340 sections

440 sections

140 sections

240 sections REF:

Basic Features of Income Tax Ordinance 2001

Scheme of the Ordinance is given below:

There are thirteen chapters Chapters are divided into:

Parts & Divisions

There are 240 Sections

Question No: 7 ( Marks: 1 ) – Please choose one

Superior judiciary includes which of the following authorities?

City Court Supreme Court High Court

Both supreme and High court

REF: Punjab Superior Judicial Service by High Court of Punjab

http://www.trynaukri.com/punjab-superior-judicial-service-by-high-court-of- punjab-and-haryana-april-2011

Question No: 8 ( Marks: 1 ) – Please choose one

The            year is a period of twelve months arbitrarily chosen for tax purposes.

Economic Fiscal Economy Monetary REF:

Fiscal year is a period of 12 consecutive months without regard to the calendar year. The

fiscal year is designated by the calendar year in which it ends. The federal government’s fiscal year begins October 1 and ends September 30. The fiscal year carries the date of the calendar year in which it ends and is referred to as FY.

Question No: 9 ( Marks: 1 ) – Please choose one

Which of the following is the Special Accounting Year of Insurance Companies? 1st January to 31st December

1st July to 30th June

1st October to 30th September 1st September to 31st August REF:

All persons exporting rice and carrying insurance business 1st January to 31st December.

Question No: 10      ( Marks: 1 ) – Please choose one

Which of the following is the Special Accounting year of the persons carrying cotton ginning, rice husking and oil milling?

1st January to 31st December

1st July to 30th June

1st October to 30th September 1st September to 31st August REF:

All persons carrying on business of cotton ginning, rice husking and oil milling1st September to 31st August.

Question No: 11 ( Marks: 1 ) – Please choose one Which one of the following is the example of tax payer? Salaried Person

LESCO WAPDA

All of the given options REF:

Salaried person is an individual tax payer and LESCO & WAPDA are companies and they also pay taxes.

Question No: 12 ( Marks: 1 ) – Please choose one

Which of the following is the legal status of the Virtual University under the provisions of section 80 of the ordinance?

Individual Company Banking Company

Hindu Undivided Family

REF:

ABC University = Company

Question No: 13 ( Marks: 1 ) – Please choose one

For the purpose of Taxation the total Income includes which of the following? Income as per Section 11

Income from Capital gain Only business income Only Salary income REF:

HEADS OF INCOME (Section 11)

Following are the heads of income, ascertained in section 11

• Salary (Section 12)
• Income from Property (Section 15)
• Income from Business (Section 18)
• Capital Gains (Section 37)
• • Income from other Sources (Section 39)

Question No: 14 ( Marks: 1 ) – Please choose one

Which of the following section deals with the change of accounting method adopted by an entity?

Section 32(1)

Section 32(2)

Section 32(3) Section 32(4) REF:

• Change of Method of Accounting can be made under [Section 32(4)]

Question No: 15 ( Marks: 1 ) – Please choose one

What will be the tax treatment of any income chargeable under the head Salary earned by an individual outside Pakistan during that year?

Wholly Taxable Wholly Exempt Partly Exempt

Not mention in Ordinance

REF:

Page 23

Question No: 16 ( Marks: 1 ) – Please choose one

Date for the exemption limit for Foreign Currency Account (FCA) under Clause 80 of the Part I of Second Schedule is available to which of the following?

16 December 1999

16 November 1999

16 July 2001 1st

July 2002

REF:

Page 23

Question No: 17 ( Marks: 1 ) – Please choose one

Senior citizen-age 60 years & above where taxable income not exceeding

                 tax liability reduced by 50% under Part 3 of second schedule. Rs. 500,000

Rs. 200,000

Rs. 300,000

Rs. 400,000

REF:

Senior citizen-age 60 years &above where taxable income not exceeding Rs. 500,000/- tax liability reduced by 50%.

Question No: 18 ( Marks: 1 ) – Please choose one

M/s ABC & Co. has been incorporated under Pakistan Companies Ordinance 1984. However it’s most of the branched and control and management of affairs wholly situated out of Pakistan? What will be the residential status of M/s ABC & Co.?

Resident Company

Non-Resident Company

Resident Individual Resident AOP REF:

If Control and Management of affairs of a company lies in Pakistan, it is Resident Company, even if not incorporated in Pakistan.

And respectively if company is incorporated in Pak but it is controlled and managed from

outside the Pak then it will be a non-resident company.

Question No: 19 ( Marks: 1 ) – Please choose one

Salary income received by resident person from Federal Government of Pakistan in UK belongs to which of the following?

Pakistani source of Income

Foreign source of income

Both Pakistan and foreign source of income None of the given option

REF:

Question No: 20 ( Marks: 1 ) – Please choose one

Rental income shall be Pakistan-source income if it is derived from: The lease of immovable Property in Pakistan

The lease of immovable Property outside Pakistan

The lease of immovable Property both in and out of Pakistan None of the given options

REF:

9) Rental income shall be Pakistan-source income if it is derived from the lease of immovable property in Pakistan whether improved or not, or from any other interest in or over immovable property, including a right to explore for, or exploit, natural resources in Pakistan.

Question No: 21 ( Marks: 1 ) – Please choose one

Any gain arising on the disposal of shares in a non-resident company belongs to which of the following?

Pakistan- source income

Foreign source of income

Both Pakistan and foreign source of income None of the given option

REFERENCE:

13)Any gain arising on the disposal of shares in a resident company shall be Pakistan- source income. So it is obvious that income from a non-resident company’s shares will be foreign source income.

Question No: 22 ( Marks: 1 ) – Please choose one

Which of the following come under the ambit of Royalty under section 2 (54)?

Right to use any patent Copy right of a literary

Right to use any industrial or scientific equipment

All of the given options REF: Page 30 handouts

Question No: 23 ( Marks: 1 ) – Please choose one

What is the tax treatment of losses from the foreign source under section 104 of the ordinance?

Wholly taxable Partly Taxable

Deductible expenditure None of the given options REF: Page 31

Question No: 24 ( Marks: 1 ) – Please choose one

Which of the following section of Income Tax Ordinance 2001 deals with Income from Salary and its treatment?

Section 11 Section 12 Section 13

Section 14

REF: Page 17

Question No: 25 ( Marks: 1 ) – Please choose one

The definition of Employment under Sec. 2(22) of the ordinance is categorized in: Inclusive Definition

Exclusive Definition

Both Inclusive and Exclusive None of the given options

REF: page 8

Question No: 26 ( Marks: 1 ) – Please choose one

Salary by members of AOP is not treated as Salary but treated as appropriation of profit and charged under the head:

Income from Salary

Income from Property Income from Business Income from Other Sources REF: page 36

Question No: 27 ( Marks: 1 ) – Please choose one Tax year for the salaried individuals is called as:

Special Tax Year

Normal Tax Year Fiscal Year Financial Year REF: page 36

Question No: 28 ( Marks: 1 ) – Please choose one

Which of the following is the Tax year available for salaried individual?

1st January to 31st December

1st July to 30th June

1st October to 30th September 1st September to 31st August REF: page 36 handouts

Question No: 29 ( Marks: 1 ) – Please choose one

Mr. A non-resident of Pakistan received interest on Canadian Bonds Rs. 150,000 (entire amount received in Pakistan). What is the treatment of this amount for calculating his gross total income?

Rs. 150,000 added in his total income

Rs. 150,000 subtracted from his total income Rs. 75,000 added in his total income

Exempt from tax

REF: page 35 handouts

Question No: 30 ( Marks: 1 ) – Please choose one

Mr. X employed in Pakistan earned pension from Pakistan Government but received in London Rs. 100,000. Which one of the following option is right for this particular scenario?

Mr. X being resident of Pakistan Rs. 100,000 will be added in Gross total income        

Mr. X being resident of Pakistan Rs. 100,000 will be subtracted in Gross total income Mr. X being non-resident of Pakistan Rs. 100,000 will be added in Gross total income Mr. X being non-resident of Pakistan Rs. 100,000 will be exempted

REF: page 35 handouts PAPER NUMBER 5

MIDTERM EXAMINATION

Spring 2018

FIN623- Taxation Management (Session – 1)

Time: 60 min

Marks: 47

Question No: 1 ( Marks: 1 ) – Please choose one

A tax levied on the financial income of Persons, Corporations, or other legal entities is called as:

• Corporation tax

• Property tax

• Sales Tax

►   Income Tax REF:

An income tax is a tax levied on the financial income of persons, corporations, or other legal entities.

Question No: 2 ( Marks: 1 ) – Please choose one

Which of the following is the main objective of Fiscal Policy?

• Economic Development

• Price stability

• Removal of deficit in Balance of Payments

►   All of the given options REF:

• Objectives of Fiscal Policy
• Economic Development
• Raising level of employment (Achieving full employment level)
• Influencing consumption patterns
• Price stability
• Redistribution of income
• Removal of deficit in Balance of Payments

Question No: 3 ( Marks: 1 ) – Please choose one

Government Expenditure is one of the instruments of which of the following policy?

• Monetary policy

►   Fiscal policy

• Trade Policy

• Economic Policy

REF:

Instruments of Fiscal Policy

• Government Expenditures
• Taxes

• Deficit Financing
• Subsidies
• Transfer Payments—like Unemployment Allowances etc Question No: 4 ( Marks: 1 ) – Please choose one

In the canons of taxation, which one of the following statements best describe the benefits principle?

►   Persons deriving more income leads to enjoy less benefits from the state, should be taxed at the lower rates.

• Persons deriving more income leads to enjoy less benefits from the state, should be

taxed at the higher rates.

• Persons deriving less income leads to enjoy more benefits from the state, should be taxed at the lower rates.

• All persons deriving more or less income should be taxed at the same rates.

Ref:

Benefit principle

This principle suggests that taxes should be levied according to the benefits derived by the person from the state. Since more benefits are derived by lower income groups, hence according to this principle, those who derive more income but enjoy less benefits from the state should be taxed at the lower rates and those persons who derives less income but more benefits from State should be taxed at high rates.

Question No: 5 ( Marks: 1 ) – Please choose one Which of the following is not an employment tax?

• Social Security Tax

►   Federal Excise Tax

• Federal unemployment compensation tax

• State unemployment compensation tax

REF:

http://www.irs.gov/businesses/small/article/0,,id=172179,00.html http://www.vidaamericana.com/english/bizguide/employmenttaxes.html

Question No: 6 ( Marks: 1 ) – Please choose one

How many Schedules are contained in the Income Tax Ordinance 2001?

• Three Schedule

• Fifth Schedule

►   Seven Schedules

• Nine Schedules

Ref:

Basic Features of Income Tax Ordinance 2001Scheme of the Ordinance is given below: There are thirteen chapters are divided into: Parts &ƒ Divisions. There are 240 Sections this ordinance comprises of seven Schedules are integral part of the Ordinance.

Question No: 7 ( Marks: 1 ) – Please choose one Section 2(6) of Income Tax Ordinance 2001 defined:

“association of persons” means an association of persons as defined in section 80. In which criteria the above definition falls?

►   Exclusive definition

• Inclusive definition

• Both Exclusive and Inclusive definitions

• Statutory definition

REF:

Exclusive or Exhaustive Definition:

• It excludes ordinary dictionary meanings of the word. Exclusive definitions start with the expression ‘mean’ or ‘means

Question No: 8 ( Marks: 1 ) – Please choose one

The            year is a period of twelve months arbitrarily chosen for tax purposes.

• Economic

►   Fiscal

• Economy

• Monetary

REF:

Fiscal year is a period of 12 consecutive months without regard to the calendar year. The fiscal year is designated by the calendar year in which it ends. The federal government’s fiscal year begins October 1 and ends September 30. The fiscal year carries the date of the calendar year in which it ends and is referred to as FY.

Question No: 9 ( Marks: 1 ) – Please choose one

Which of the following is the time period of a Normal tax year?

• 1^st January and end on 31^st December

• 1^st June and ends on 31^st May

►   1^st July and ends on 30^th June                                                                                        

• 1^st October and ends on 30^th September

REF:

Tax year means a period of 12 months ending on June 30th which is also called Normal Tax Year.

Question No: 10 ( Marks: 1 ) – Please choose one

If the accounting year of a business engaged in cotton ginning is started from 01 September 2003 and ending on 31^st August 2004. What will be its tax year?

• Tax year 2002

• Tax year 2003

►   Tax year 2004

• Tax year 2005

Question No: 11 ( Marks: 1 ) – Please choose one Income Tax is charged on which of the following?

►   Income of the current tax year

• Income of the previous year

• Income of the coming year

• Any Receipt of money

Question No: 12 ( Marks: 1 ) – Please choose one

Which part of Income Tax Ordinance 2001 deals with the Exemptions and Tax Concessions?

►   Part IV

• Part V

• Part VI

►   Part VII REF:

PART VII

EXEMPTIONS AND TAX CONCESSIONS

http://www.fbr.gov.pk/newdt/ITordinance/ITOrdinance2009/ITaxOrdinance2001ut 28-10-2009.pdf

Question No: 13 ( Marks: 1 ) – Please choose one

Which one of the following section deals with the Agriculture Income?

• Section 40

►   Section 41

• Section 43

• Section 53

REF:

Section

41.    Agricultural income.

Question No: 14 ( Marks: 1 ) – Please choose one

Which of the following incomes are treated as agriculture income?

• Spontaneous forests

• Agro based industry

• Interest received by a farmer on lending

• Income from land in Pakistan used for agriculture REF: Page 19 handouts of Fin623 provided by VU Question No: 15 ( Marks: 1 ) – Please choose one

Any salary received by an employee of a foreign government for services rendered to such government shall be exempt from tax under which section of IT Ordinance 2001?

• Section 40

►   Section 43

• Section 47

• Section 53

REF: Page 22 handouts of Fin623 (tax) provided by VU

Question No: 16 ( Marks: 1 ) – Please choose one

An Individual will be termed as Short Term Resident under section 50 of the IT Ordinance 2001 on which of the following condition?

• His period of stay in Pakistan equal to 183 days

• The employee of Foreign Government

• The citizen of Pakistan

►   His period of stay in Pakistan not exceeding 3 years Ref: Page 23 handouts of Fin623 (tax) provided by VU

Question No: 17 ( Marks: 1 ) – Please choose one

Which of the following section deals with the residential status of Company?

►   Section 81

• Section 82

• Section 83

• Section 84

Fin623 Mid Term (2009 &2010) Papers subjective COMPOSED     BY (SAIDA ALI)

Q. 2 what is the rule of double derivation of income and double deduction of expense also write section? Mark5

Answer

Rules to Prevent Double Derivation of Income and Double Deductions (Section 73)

Where:

Any amount chargeable to tax on the basis that it is receivable, the amount shall not be charged that it is received;

Or

Any amount is chargeable to tax on the basis that it is received the amount shall not be chargeable to tax again on the basis that it is receivable.

With regard to expenditure, where:

Any expenditure is deductible on the basis that it is payable, the expenditure shall not be deductible again on the basis that it is paid;

Or

Any expenditure is deductible on the basis that it is paid, the expenditure shall not be deductible again on the basis that it is payable.

See answer page 90 above question

Rules to prevent double Derivation and double Deductions: Section 73 Sec 73

(1) Where:

a.any amount is chargeable to tax under this ordinance on the basis that it is receivable, the amount shall not be chargeable again on the basis that it is received; or

b.Any amount is chargeable to tax under this ordinance on the basis that it is received, the amount shall not be chargeable again on the basis that it is receivable; or

(2) For the purposes of this Ordinance, Where:

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(a)Any expenditure is deductible under this Ordinance on the basis that it is payable, the expenditure shall not be deductible again on the basis that it is paid; or

(b) Any expenditure is deductible under this Ordinance on the basis that it is paid, the expenditure shall not be deductible again on the basis that it is payable.

What is the non resident status of Pakistan source income? Marks 5

Answer

Business income of a non- resident person shall be Pakistan- source income to the extent to which it is directly or indirectly attributable to-

• A permanent establishment of the non-resident person in Pakistan
• Sales in Pakistan of goods or merchandise of the same or similar kind as those sold by the person through a permanent establishment in Pakistan
• Other business activities carried on in Pakistan of the same or similar kind as those effected by the non-resident through a permanent establishment in Pakistan (or)
• Any business connection in Pakistan

2. Income of Non-Residents Chargeable to Tax

All “Pakistan – source” incomes of non-residents are taxable under Pakistan Tax Law, including:-

·Business Income. ·Business incomes attributable to PEs. ·Business incomes from activities similar to those carried on through

PEs. ·Business incomes from rendering services ·Gains from disposal of any asset used in deriving business income in Pakistan. ·Profits on debts. ·Pensions or annuities. Technical Fees ·Dividends paid by a resident company ·Royalty or Rental Income ·Gain from alienation of any property or right. ·Salaries ·Execution of Contracts ·any other amount:

Mr. sohail going come in Pakistan 1st march 2008 to attend marriage ceremony and he is going back to Singapore 22nd march 2008 however he extend his visit and going back 30th may 2009. What is residential status of Mr. Sohail in tax year 2009? Marks 3

Answer

Resident

Define section 47 and Section 48? Mark 3

Answer

Section 47 Scholarships

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• Any scholarship granted to a person to meet the cost of person’s education shall be exempt from tax.

Section 48 Support Payments under an Agreement to Live Apart

Any income received by a spouse as support payment under an agreement to live apart shall be exempt from tax under this Ordinance.

Another Paper:

Q.! Define employment & also mention section?

Answer

Employment Sec. 2(22) Employment includes:

•A directorship or any other office involved in the management of a company; •A position entitling the holder to fixed or ascertainable remuneration; or •Holding or acting in any public office.

Q2: profit on debt in which conditions will be Pakistan source of income.

1. Resident person (25) page

2-Non Resident Person (25) page.

Answer

Profit on debt shall be Pakistan-source income if it is-

• Paid by a resident person, except where the profit is payable in respect of any debt used for the purposes of a business carried on by the resident outside Pakistan through a permanent establishment; or

• Borne by a permanent establishment in Pakistan of a non-resident person.

Q.3: define section 49(23page)

Answer

Section 49 Federal & Provincial Govt. and Local Authority Income

• Income of Federal Government exempt from tax
• Income of Provincial Government or a Local Authority in Pakistan shall be exempt under all heads of income other than income from Business, derived outside its jurisdictional area, which shall be taxable.

• Federal Government, a Provincial Government or a Local Authority shall not be liable to any collection or deduction of advance tax.

Another Paper:

1. Define these sections section 47, section 48 under the IT ordinance 2001 (3 marks)

Answer

Section 47 Scholarships

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• Any scholarship granted to a person to meet the cost of person’s education shall be exempt from tax.

Section 48 Support Payments under an Agreement to Live Apart

Any income received by a spouse as support payment under an agreement to live apart shall be exempt from tax under this Ordinance

• Mr. Ali is a resident of Pakistan, 1000 salary received in UK paid by the UK Company; he paid the income tax on his salary in UK. The tax treatment of Mr.ali s income in Pakistan with IT ordinance 2001, also mention the section that is applicable (3)

Ans:

Handouts (22, 23) I think no.

• Explain the two terms with their relevant sections (5 marks) Resident individual (page 23,26,27)

Resident AOP(27,36,)

Answer

Resident Individual (Section 82)

• An individual shall be a resident individual for a tax year if the individual:
• is present in Pakistan for a period of, or periods amounting in aggregate to, one hundred and [eighty-three] days or more in the tax year;

or

• is an employee or official of the Federal Government or a Provincial Government posted abroad in the tax year.

Resident Association of Persons Sec. 84

An association of persons shall be a resident association of persons for a tax year if the control and management of the affairs of the association is situated wholly or partly in Pakistan at any time in the year.

• If the utility bills are paid by the employer to an employee, give the rational with the applicable section (5 marks)

• Why the government imposes the taxes to its citizens, what element should be taken into account while formation of the tax laws (5 marks)

Another Paper:

Q: what is meant by reduction in tax liability? Give an example from Income Tax Ordinance 2001? 3 marks

Answer

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Reduction in Tax Liability under Second Schedule Part 3

• Any amount received as flying allowance by pilots etc. and junior commissioned officers or other ranks shall be taxed @2.5% as separate block.

• Senior citizen-age 60 years &above where taxable income not exceeding Rs. 500,000/-tax liability reduced by 50%

Q: what does Bench Mark rate means? Also mention which section describe bench mark rate? 3 marks

Answer

Sub Sec. (14) in this section “Benchmark rate” means:

For the tax year commencing on the first day of July 2002, a rate of 5% per annum; and

For the tax year next following the tax year refer to in sub clause (i), the rate for each successive year taken as 1% above the rate applicable for the immediately preceding tax year but not exceeding such rate, if any, as the federal Govt., may, by notification, specified in respect of any tax year.

“Services” includes the provision of any facility; and “Utilities” includes electricity, gas, water, and telephone. Benchmark rate for the tax year 2009 is 11 %.

Q: list down the examples of Income from Agriculture under section 41 of the ordinance (any five) 5 marks

Answer

1. Income from growing flowers and creepers

1. Interest on capital received by a partner from a firm engaged in agricultural operation.

1. Profit on sale of standing crops or the produce after harvest by a cultivating owner or tenant of land.

1. The fees collected from owners of cattle (normally used for agricultural purpose) for allowing them to graze on forest lands covered by jungle and grass grown spontaneously

1. Compensation received from an insurance company for danger caused by hailstorm or another natural calamity to crops or agricultural produce.

1. Share of profit of a partner from a firm engaged in agricultural operation (similarly salary received by him for services in agricultural operations as salary is only a mode of adjustment of the firm’s income).

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Q: An association of persons named M/S Khan and sons has its most of its branches in Pakistan is it sufficient to be resident AOP or not?

Answer

M/S khan is resident AOP because control and management of the affairs of the association is situated wholly or partly in Pakistan at any time in the year.

Explain with reference to Income Tax Ordinance 2001? 5 marks

Answer

Income Tax Ordinance, 2001

To updates the tax laws and brings our law in accordance with international standards, this ordinance was promulgated on 13th September, 2001, which became effective from 1st July, 2002.

Basic Features of Income Tax Ordinance 2001

Scheme of the Ordinance is given below: There are thirteen chapters Chapters are divided into:

Parts & Divisions

There are 240 Sections

This ordinance comprises of seven Schedules

Schedules are integral part of the Ordinance

Q: list down some important characteristics of salary? 5 marks

Another Paper:

1. Under which circumstances business income of a non-resident person shall be considered as Pakistan-source income? (Marks 3)

Answer

Business income of a non- resident person shall be Pakistan- source income to the extent to which it is directly or indirectly attributable to-

• A permanent establishment of the non-resident person in Pakistan
• Sales in Pakistan of goods or merchandise of the same or similar kind as those sold by the person through a permanent establishment in Pakistan
• Other business activities carried on in Pakistan of the same or similar kind as those effected by the non-resident through a permanent establishment in Pakistan (or)
• Any business connection in Pakistan

Where the business of a non-resident person comprises the rendering of independent services (including professional services and the services of entertainers and sports persons), the Pakistan-source business income of the person shall include [in addition to any amounts treated as Pakistan-source income under sub-section (3)] any remuneration

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derived by the person where the remuneration is paid by a resident person or borne by a permanent establishment in Pakistan of a non-resident person

4. Section 102 deals with Foreign-source of income of resident individuals. Identify the tax treatment. (Marks 3)

Answer

Foreign Source Salary of Resident Individuals Sec. 102

• Any foreign-source salary received by a resident individual shall be exempt from tax if the individual has paid foreign income tax in respect of the salary.

• A resident individual shall be treated as having paid foreign income tax in respect of foreign-source salary if tax has been withheld from the salary by the individual’s employer and paid to the revenue authority of the foreign country in which the employment was exercised.

Question No: 29  ( Marks: 3 )

What exemption granted under section 46 of IT Ordinance 2001?

Answer

Section 46 Profit on Debt

Any profit received by a non – resident person on a security issued by a resident person shall be exempt from tax provided:

•Persons not associates

•Security widely issued by resident person outside Pakistan •Profit on security was paid outside Pakistan

•Security approved by Central Board of Revenue (CBR)

Question No: 30  ( Marks: 3 )

Under which conditions any royalty is treated as Pakistan source income if it is paid by:

1. Resident person

1. Non-resident person

Answer

A royalty shall be Pakistan-source income if it is:

• Paid by resident person, except where the royalty is payable in respect of any right, property, or information used, or services utilized for the purposes of a business carried on by the resident outside Pakistan through a permanent establishment; or

• Borne by a permanent establishment in Pakistan of a non-resident person

Question No: 32  ( Marks: 5 )

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Determine total income of Mr. Sharif, a non-resident individual for tax year 2009. Relevant data is given below:

1. Share of profit received in Singapore from a business controlled through a permanent establishment in Pakistan Rs 200,000.

1. Salary income of Mr. Sharif from an employment in Pakistan Rs600,000
2. Remittance received from China Rs 400,000

1. Profit on debt received on deposits kept with a bank in Pakistan Rs 50,000

Question No: 29  ( Marks: 3 )

What is the difference between remittance and receipt of income? Which one is chargeable to taxable?

Answer

Difference between remittance and receipt of income

Receipt of income is the money that you receive and you might have to return it on a later stage. Further the receipt can be on sale of goods, or business receipts out of which the profit shall be your income. If salaried, the salary is your income for the purpose of tax calculations. While a remittance is a transfer of money by a foreign worker to his or her home country. See “Remittance Man” below for the historical use of the word, which is the opposite of the modern use.

Question No: 30  ( Marks: 3 )

Section 102 deals with Salary received from Foreign-Source by resident individual. What is the tax treatment of such salary?

Answer

Foreign Source Salary of Resident Individuals Sec. 102

• Any foreign-source salary received by a resident individual shall be exempt from tax if the individual has paid foreign income tax in respect of the salary.

• A resident individual shall be treated as having paid foreign income tax in respect of foreign-source salary if tax has been withheld from the salary by the individual’s employer and paid to the revenue authority of the foreign country in which the employment was exercised.

Question No: 31  ( Marks: 5 )

Profit on debt earned by a non-resident person is exempt from tax under clause (77) of Part I of the second schedule. Is this exemption only available to “Individuals” as

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reference has been made to persons being citizens of Pakistan or otherwise? Provide the details of this clause.

Answer

No this exemption is also available Approved loans, Foreign currency accounts held in the Pakistani account, profit on rupee help with a scheduled bank in Pakistan, profit from the private frogin currency accounts held in the authorized banks.

Question No: 32  ( Marks: 5 )

Mr. Irfan resident of Pakistan received salary from UK. He has also paid tax on his salary from UK as per the tax laws prevailing there. What will be the tax treatment of his salary as a Pakistani resident? Which section of the income tax ordinance deals this scenario?

Answer Foreign-Source Salary Income [102]

Mr. Irfan’s salary from UK would be exempted from tax, because he has paid tax on his salary from UK. Under Foreign-Source Salary Income [section102] foreign source salary income of a resident individual will be exempt from tax, if he has paid foreign income tax in respect of such income. Payment of foreign tax means that the employer has deducted the tax at source and deposited the same to the revenue authorities of the country in which employment was exercised.

Question No: 31 ( Marks: 5 )

Why the right to acquire share is not chargeable to tax under Employee Share Scheme section 14. Under what condition the right to acquire share under section 14 is taxable?

Answer

Employee Share Schemes sec 14:

The value of a right or option to acquire share under this scheme shall be not chargeable to tax.

Where shares issued are subject to a restriction on transfer of the shares

1. no amount shall be chargeable to tax under the head Salary until the earlier of i. the time the employee has a free right to transfer the shares; or

ii. the time the employee disposes of the shares &

• the amount chargeable to tax to the employee shall be fair market value of shares at the time employee has free right to transfer as reduced be any amount given as consideration for the grant of a right or option to acquire the shares.

Where in a tax year an employee disposes of a right or option to acquire shares under an employee share scheme, the amount chargeable to tax shall include the amount of any gain made on the disposal computed accordance with the following formula:

A-B

Where A is the consideration received from the disposal of the right or option.

B is the employee’s cost in respect of the right or option.

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Question No: 30 ( Marks: 3 )

If Mr. Kamal resident of Pakistan suffered a foreign loss against the income received from foreign country in tax year. What is the treatment of such foreign loss? Which section deals this kind of loss? Such losses can be carried forward up to how many years?

Answer

Foreign losses Sec.104: Deductible expenditures incurred by a person in deriving foreign source income chargeable to tax under a head of income shall be deductible only against that income. Foreign losses carried forward up to 6 years.

Question No: 32 ( Marks: 5 )

If Mr. Basit resident of Pakistan suffered a foreign loss against the income received from foreign country in tax year 2008-09. What is the treatment of such loss? Which section deals this kind of loss?

Answer: Under Sec.104 Foreign losses Deductible expenditures incurred by a person in deriving foreign source income chargeable to tax under a head of income shall be deductible only against that income. These type of losses carried forward up to six years.

Question No: 31 ( Marks: 5 )

Define Income that is charged to tax under section 2(9).

Answer

Business Defined Section 2(9)

“Business includes any trade, commerce, manufacture, profession, vocation but doesn’t include employment”

Following incomes (except exempt income) shall be charged to tax under the head ‘Income from Business’.

1. Profits & Gains from any business in a tax year.

• Income derived from any trade, profession, sale of goods or provision of any services.

• Income from hire or lease of tangible movable property.

• FMV of Perquisites derived by a person by virtue of business relationships.

• Management Fee derived by a management company.

Income from Business also includes:

• Any profit on debt derived by a person. (it is only applicable to such person, whose is business is to derive such income. e.g.; a banking company)
• Any amount received by schedule bank from mutual fund, as share of profit.

• Profit earned on debts in course business shall be chargeable to ‘income from business’.

• Income on leasing by lessor, being banks, leasing companies etc.

Income derived from any trade, profession, sale of goods or provision of any services.

• Income from hire or lease of tangible movable property

• FMV of Perquisites derived by a person by virtue of business relationships.

• Management Fee derived by a management company

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Question No: 16  ( Marks: 3 )

Mr. Zeeshan an employee of federal government has been posted at Paris on 1^st July, 2006. He came on a visit to Pakistan on 1^st November, 2006 and returned back to Paris on 15th December, 2006. For the rest of the period pertaining to tax year 2007, he remained in UK.

Determine residential status for the tax year 2007 with respect to section 81 of Income Tax Ordinance 2001.

Answer

Mr. Zeeshan is resident of tax year 2007

Question No: 17  ( Marks: 3 )

Enumerate the essentials of Taxation Management.

• Understanding and application of updated laws particularly tax laws, rules and procedures.

• Application/use of benefits such as Tax credits, rebates, exemptions, reductions etc. available under the law.
• Maintenance of Records/Books of Accounts as per requirement of law.

• Disclosure of true facts (no concealment).

Question No: 18  ( Marks: 3 )

Determine tax year in the light of following information:

a) Mr. Kamran a rice exporter deriving income during the period from 1^st January 2004 to 31^st December 2004.

Answer : Tax year is 2005

b) M/S XYZ an insurance company having an accounting period from 1^st January 2006 to 31^st December 2006.

Answer : Tax year is 2007

c)  Mr. X an individual derived income during the period from 1^st July 2002 to 30^th June 2003.

Answer : Tax year is 2003

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Make a comparison between the residential status of Resident AOP and Resident Company.

Resident Association of Persons Sec. 84

An association of persons shall be a resident association of persons for a tax year if the control and management of the affairs of the association is situated wholly or partly in Pakistan at any time in the year.

Resident Company– Sec. 83

A company shall be resident company for a tax year if:

• it is incorporated or formed by or under any law in force in Pakistan;
• the control and management of the affairs of the company is situated wholly in Pakistan at any time in the year;

or

c.  It is a Provincial Government or local authority in Pakistan.

Question No: 20  ( Marks: 3 )

Is the income of non- resident taxed in Pakistan? Which part of his/her income is taxed?

Yes non-resident person charged only on Pakistan Source Income. Sec.11(6)

Business income of a non- resident person shall be Pakistan- source income to the extent to which it is directly or indirectly attributable to-

• a permanent establishment of the non-resident person in Pakistan;

• Sales in Pakistan of goods or merchandise of the same or similar kind as those sold by the person through a permanent establishment in Pakistan.
• Other business activities carried on in Pakistan of the same or similar kind as those effected by the non-resident through a permanent establishment in Pakistan (or)
• Any business connection in Pakistan.

Question No: 31 ( Marks: 5 )

Why Government levy tax on Person? What are the important elements that take into consideration while levying tax?

5. This question was related to identification of tax year of the given cases. (Marks 5)