Taxation Lecture#3

Lecture # 3
TERRITORIAL LIMITS & DEFINITIONS
3.1
Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved
Chapter I
Preliminary Section 1
Short title
The title of this book is Income Tax
Ordinance 2001
Scope and extent

It extends to whole of Pakistan
SCOPE OF INCOME TAX LAW AND TERRITORIAL LIMITS

Pakistan includes all areas except the following:
AZAD KASHMIR
NORTHERN AREAS
TRIBAL AREAS
Article 246 of the Constitution 1973

Tribal Areas means the areas in Pakistan which, immediately before the commencing day, were Tribal Areas, and includes: 1 The Tribal Areas of Balochistan and NorthNorthWest Frontier Province, and 2.The former States of Amb, Chitral, Dir Amb, Chitral,
Provincially Administered Tribal Areas means:
The districts of Chitral, Dir and Swat (which includes Kalam), Malakand protected area, the Tribal Area adjoining Hazara district and the former State of Amb; and Zob district, Loralai district (excluding Bhuke Tehsil), Dalbandin Tehsil of Chagai district and Marri and Bugti Tribal territories of Sibi district.
2.2
Federally Administered Tribal Areas include:

1. Tribal Areas adjoining Peshawar district 2. Tribal Areas adjoining Kohat district 3. Tribal Areas adjoining Bannu district 4. Tribal Areas adjoining Dera Ismail Khan district 5. Bajaur in Malakand Agency 6. Mohamand Agency 7. Khyber Agency 8. Kurram Agency 9. North Waziristan Agency 10. South Waziristan Agency
Executive Authority
Subject to the Constitution, the executive authority of the Federation shall extend to the Federally Administered Tribal Areas, and the executive authority of a Province shall extend to the Provincially Administered Tribal Areas therein.
2.1
Act of Parliament or Provincial Assembly
No Act of Parliament shall apply to any Federally Administered Tribal Areas, or to any part thereof, unless the President so directs, and no Act of Parliament or a Provincial Assembly shall apply to Provincially Administered Tribal Areas, or to any part thereof, unless the Governor of the Province in which the Tribal Area is situated, with the approval of the President, so directs.
3.1
3
10
IMPORTANT CONCEPTS
RELATING TO TAX
3.4
11
ROLE OF LEGAL FICTION

1. 2. 3. 4. 5.
ARTIFICIALLY DECLARES A THING WHICH IS ACTUALLY NOT. ASSIGNS MEANING TO A WORD WHICH IT ORDINARILY DOES NOT HAVE. DECLARES AN EVENT TO HAVE TAKEN PLACE WHEREAS, IT HAS NOT ACTUALLY TAKEN PLACE AND VICE VERSA. DECLARES A SITATION TO EXIST WHICH ACTUALLY DOES NOT EXIST AND VICE VERSA. THE WORD DEEMED IS USED.
2.2
12
TYPES OF FICTION
FICTION OF A PERSON FICTION OF INCOME FICTION OF TIME FICTION OF PLACE
3.1
13
FICTION OF PERSON

EXAMPLE
INCOME OF A MINOR CHILD Section 91
INCOME OF MINOR CHILD TREATED AS INCOME OF ONE OF THE PARENTS
FICTION OF INCOME
EXAMPLEEXAMPLE-I ADVANCE /PUGREE RECEIVED SECTION 39 (2)
10th part is charged to tax, although it is capital receipt.
EXAMPLE II PRIVATE LOANSRECEIVED OTHER THAN A CROSS CHEQUE SECTION 39(3)
Treated as income of the recipient
FICTION OF TIME

EXAMPLE Unexplained Property / Investment Section 111
Property constructed in the previous year but detected today will be treated as the income of the current year.
FICTION OF PLACE

Income paid outside Pakistan will be treated as paid in Pakistan Section 101(1)(b)
Salary paid by Government of Pakistan in other country to the staff of its embassy will be treated as Pakistan source income and the staff has to file return in Pakistan
DEFINITIONS
74 definitions plus insertions SECTION 2 SUBSUB-SECTIONS 74 Arranged alphabetically
1
18
DEFINITIONS AND CONCEPTS

ASSESSMENT 2(5)
Assessment is the determination of taxable income ,tax liability and payment of tax. It Includes reassessment and amended assessment. Checking of return of income. Making changes accordingly Paying more tax or refund of the tax. What type of definition it is ?
EXPLANATION
HEADS OF INCOME

Salary Income from property Income from business Capital gain Income from other sources
Section 11
Sec 12 to 14 Sec 15 to 17 Sec 18 to 36 Sec 37 & 38 Sec 39 & 40
BUSINESS 2(9)

It includes any; Trade; Commerce; Manufacture; Profession; Vocation; Or any adventure in the nature of trade, commerce, or manufacture. However, it does not include an employment.
CAPITAL ASSET 2(10) & read with 37(5)
It means property of any kind (personal or business) held excluding: Stock in trade (other than stocks and shares), consumable stores, or raw material.
Any depreciable asset ( provided in the 3rd Schedule of the Income Tax Ordinance 2001).
Any intangible asset on which amortization is charged.
CAPITAL ASSET --- cont
Any immovable property. Movable property for personal use but

include the following:
A painting, drawing, work of art,

jewelry, a rare manuscript (Qalmi (Qalmi nuskha), nuskha), a coin or medallion, an antique.
BOARD
i.
2(11)
F.B.R
Board means Federal Board of Revenue (FBR) established under Federal Board of Revenue Act 2007.
ii. Highest tax collecting authority in Pakistan. iii. Regulates all federal taxes including direct and indirect taxes. iv. Appointed by Federal Government.
CHARITABLE PURPOSES 2(11A)
Relief of the poor Education
Medical relief Any other object of public utility

3.2
25
INCOME

SECTION 2 (29)
Income includes; Any amount chargeable to tax; a) Salary b) Income from property c) Income from business d) Capital gain e) Income from other sources Any amount chargeable to tax; Import of goods Sec 148 Dividends Sec 150 Royalty or fee for technical services Sec 152 Payment for supply of goods and services Sec 153 Winning of prizes & lottery Sec 156
26
INCOME

--- cont
SECTION 2 (29)
Any loss of income (adjustment of loss against income) But does not include amount representing face value of bonus shares in the hands of shareholders
Presumptive Tax Regime (PTR) and Normal Tax Regime (NTR)

Tax on gross receipts is called PTR e.g the realization of foreign exchange proceeds of exports is taxed @ 1%.It is also called Final Tax Regime (FTR) Tax on the Net Income of the business @35% for companies, given under the1st Schedule is called Normal Tax Regime (NTR).
2.4
28
CONCEPT OF INCOMEINCOME-
Broad Principles
Temporary & Permanent

income No distinction Lumps sum & Installment taxable Personal gifts
Birthday, marriage gift- not taxable gift-
Tax free income

Treated as facility which is ultimately taxed
Income cannot be taxed twice

CONCEPT OF INCOME- Broad Principles INCOME No trading with himself

Head office cannot make profit from a transaction with its branch Revenue receipts taxable Capital receipt taxable if stated specifically Certain income excluded - if exemption is provided Burden of proof Amount is taxed against the wish of taxpayer, burden of proof lies upon tax department.
3.2
3
30
Principal Officer:

section 2(44A)
With reference to company or association of persons, it includes:
a.A a.A director, a manager, agent, accountant or any similar officer, and b.Any person with management upon b.Any whom commissioner has served a notice c.It is to ensure by the tax c.It department that notice has been served on the taxpayer.
Taxable Income

Section 2 (64)
The taxable income of a person for the tax year shall be the total income for the year as reduced by any deductible allowances. However, the taxable income should not be below zero.
Taxable Income --- cont

Total Income Less: deductible Allowance Zakat paid under Zakat and Usher Ordinance Donations (specified) Taxable Income
Section 2 (64)
xxx
(xxx) (xxx) xxx
Tax Year
2 (68) read with section 74
Tax year means a period of 12 months ending on June 30th, which is called Normal Tax Year under the ordinance and is denoted by the calendar year in which the closing date falls.
Special year period of 12 months other than

normal tax year is called special tax year. It denoted by the calendar year relevant to the Normal year in which closing date of Special year falls.
CONCEPT OF TAX YEAR
Convenient to taxpayer
Accounting period
Operating cycle of the business
Cash flows of the business
Special tax year calculation

Accounting period. Normal year relating to Accounting period. Closing date. Calendar year in which closing date of Normal year falls. Formula : Same
Closing date falls before 30th June
Closing date falls after 30th June Add one year
Special Tax Year

Classes of taxpayers
Mr. Umer Javed, a rice exporter
Accounting period
Ist Jan 10 to 31st Dec 10
Tax year
2011 (Special Tax Year)
2012
2013
Special Tax Year

Classes of taxpayers Accounting period Tax year
Mr. Zaheer ud Ist April 09 to 31st March 10 Babar, a manufacturer of shawls Ist April 10 to 31st March 11
2010 (Special Tax Year) 2011
Ist April 11 to 31st March 12
2012
Special Tax Year

Classes of taxpayers Accounting period Tax year
M/S XYZ, a company Ist Oct 09 to 30th Sep 10 manufacturer of sugar Ist Oct 10 to 30tt Sep 11
2011
2012
Ist Oct 11 to 30th Sep 12
2013
Transitional tax period

Whenever, a taxpayer changes his/her tax year from Normal to Special, Special to Normal or from Special to Special tax year, there exists a gap which can be ranging from one day to less than a year. This gap is called Separate Tax Year or Transitional Tax Period. A taxpayer has to file separate return for such period.
CHANGE OF TAX YEAR - I

APPLICATION DATE = 15-07-2010 15-07REQUEST FOR CHANGE OF NORMAL TAX YEAR TO SPECIAL TAX YEAR (WITH EFFECT FROM 01-10-2010) 01-10PERIOD OF INCOME TYPE OF TAX YEAR DENOTED BY
FROM
01-0701-07-2010 01-1001-10-2011 01-0701-07-2011
TO
30-06-2011 30-0630-09-2012 30-0930-09-2011 30-09-
NORMAL
2011
SPECIAL 2013 SEPARATE

TRANSITIONAL TAX YEAR
CHANGE OF TAX YEAR - II
APPLICATION DATE = 15-01-2010 15-01REQUEST FOR CHANGE OF SPECIAL TAX YEAR TO NORMAL TAX YEAR PERIOD OF INCOME TYPE OF TAX YEAR DENOTED BY
FROM
01-0101-01-2010 01-0701-07-2011 01-0101-01-2011
TO
31-12-2010 31-1230-06-2012 30-0630-06-2011 30-06SPECIAL 2011
NORMAL 2012 SEPARATE TRANSITIONAL TAX YEAR
PERSON
2 (42) & read with 80(1)

Individuals A Company
Association of Persons (AOP) The Federal Government or Public International Organization

11
43
Why to determine the status as a person ?

Legal status (first item in the tax returns to fill in). Different tax rates. Identification of person for Tax Department is necessary to collect the tax. Tax year for different persons is different.
44
COMPANY
2 (12) read with section 80 (2) (b)
i) A company registered under Companies Ordinance 1984 ii) Body Corporate formed Under Law iii) A Modaraba iv) Body Corporate Formed Under Foreign Law v) Trust, Co-operative Society or Any Other Society Under the Law vi) Foreign Association Declared to be a Company vii) Provincial Government viii) Local Authority in Pakistan
45
EXPLANTION

The Companies Ordinance, 1984 has defined a company as a company which has been registered under the Companies Ordinance, 1984 or any other law regulating companies prior to the promulgation of the Companies Ordinance. According to the Modaraba Companies and Modaraba (Floatation and Control) Ordinance , 1980, modaraba means a business in which a person participates with his money and another with his efforts or skill or both and shall include unit trusts and mutual funds.
46
ASSOCIATION OF PERSONS (AOP)

(Sections 2 (6) read with section 80 (2) (a) FIRMS HINDU UNDIVIDED FAMILY
BODY FORMED UNDER A FOREIGN LAW
ARTIFICIAL JUDICIAL PERSON
11
47
Determine the personal status?

University of the Punjab Habib Bank Limited A joint family of Mr. Hari Ram and his two sons and one daughter. Federal Government Kashmiri Traders, an unregistered firm of A and B. Mr. Hammad working as General Manager in Millat Textile Company. Punjab University Housing Society
48
ANSWERS

Company Company a banking company Hindu Undivided Family Company Association of a persons (AOP) Individual Company
49
PUBLIC COMPANY
a) 50% or more shares owned by Government
Section 2(47)
b) Foreign Company owned by a foreign Government c) Company Registered on Stock Exchange; or d) Unit Trust, if units are widely available or any other trust.
PRIVATE COMPANY
Section 2(45)
BANKING COMPANY Banking Companies Ordinance 1962

Section 2(7)
50
DIVIDEND SECTION 2(19)

A:DISTRIBUTION OF PROFITS OR ACCUMULATED PROFITS IN ANY SHAPE AT ANY TIME TO SHAREHOLDERS.
B:LOAN BY A PRIVATE COMPANY

51
AGRICULTURAL INCOME DEFINITION

Section 41

Agricultural Income is exempt from tax. There are three conditions given in the definition which are cumulative, not alternative.
DEFINITION

Derived from land, Land is situated in Pakistan, and The land is used for agricultural purposes.
52
AGRICULTURAL INCOME
(Section 41)
a. Rent or revenue from land in Pakistan used for
agricultural purposes b. Income from land in Pakistan through i) Agriculture ii) Process necessary to make the produce fit for market iii) Sale of produce iv) Building used for agricultural purpose
INCOME WHICH IS PARTIALLY AGRICULTURAL
The market value of the Agricultural raw

material used in own business is treated as an expense of the business.on the other hand it is Agricultural Income.
54
Examples of Non- Agricultural Income

Income from spontaneous forests. Profit of merchant from purchase and resale of agricultural produce. Income from fisheries. Income from poultry farming. income from a manufacturing process undertaken in connection with the agricultural produce.
EXAMPLES OF AGRICULTURAL INCOME

Income arising from the forest grown and maintained by a person. Amount received from cattle owners for allowing the cattle to graze. Profit on the sale of standing crops. Income from growing flowers.
Illustration:

Mr Junaid is running a Flour Mill and using wheat having market value Rs. 2,25,000 (Cost Rs.80,000) produced from his own land. Sales during the year is Rs. 6,00,000 Cost of goods sold (excluding own produced wheat) Rs. 1,75,000 Selling and Admin expenses Rs. 1,20,000 Calculate Net Income from business and Agricultural Income.
SOLUTION

Sales Rs. 6,00,000 Cost of goods sold 2,75,000 Gross profit 3,25,000 Selling and Admin expenses 1,20,000 Net Income 2,05,000
Is it correct ?
SOLUTION

Sales Cost of goods sold (adjusted) Gross profit Selling and Admin expenses Net Income Rs. 6,00,000 4,00,000 2,00,000 1,20,000 80,000
This is the correct position.
SOLUTION
Agricultural Income
Market value of the Ag. Raw material 1,25,000 Less Cost 80,000 Agricultural Income (exempt) 45,000
RESIDENT AND NON RESIDENT PERSONS (Sections 81 to 84)

RESIDENTS
NON RESIDENTS
RULES AND APPLICATIONS
RESIDENT- INDIVIDUAL Sec 2(50) & 83

It is determine for one tax year. Next year the persons residential status may change. Period or periods, amounting in all 183 days or more in a tax year Or He is an employee of a Federal or a Provincial government posted abroad in the tax year
Residential status
183 days or more
=
Determination
Posted abroad by Government
63
RULES GOVERNING RESIDENT INDIVIDUAL

Given under Income Tax Rules 2002 Part oh the day shall be counted as whole day , for example day of arrival or day of departure. Following days shall be counted as whole day. A public holiday
EXERCISE 1
DETERMINATION OF RESIDENTIAL STATUSFOR THE YEAR 2010:
Mr. Kamran visited Pakistan on 1st August 2009 in connection with his business. After 7 days he left for Paris. Mr. Kamran again came back to Pakistan on 16 February 2010 and stayed in Pakistan till 20th June 2010.
Solution
Accounting period 1st July 2009 to 30th June 2010
Month August 2009 February 2010 March 2010 April 2010 May 2010 June 2010 Days 7 days 13 days 31 days 30 days 31 days 20 days
TOTAL
132 days
RESIDENT OR NON-RESIDENT ?
Give logical reason ,quote the provisions of the law.
EXERCISE - 2

Mr. Saleem is an employee of Federal Government posted at London, stayed in Pakistan from 1st September 2008 to 20th November 2008. For the rest of period pertaining to tax year 2009 and 2010, he stayed in London. Determine his residential Status for the tax year 2010.
EXERCISE - 2

Mr. Saleem is an employee of Federal Government posted at London, stayed in Pakistan from 1st September 2008 to 20th November 2008. For the rest of period pertaining to tax year 2009 and 2010, he stayed in London. Determine his residential Status for the tax year 2010.
EXERCISE - 3

Mr. Hamid came to Pakistan on April 1st 2009 for the first time and left the country on 30th September 2009. Determine his residential status for the tax year 2010.
Solution First determine the Accounting Period which is 1st July 2009 to 30th June 2010
Months July August September TOTAL
Days 31 days 31 days 30 days 92 days
EXERCISE - 4

Mr. Jamil came to Pakistan on 1st March 2009 to attend a marriage ceremony of his cousin. He had to return back to Colombo by 22nd March . However, due to his illness, he had to extend his stay till 30th June 2009. Determine his residential status for the tax year 2009.
Solution
First of all determine the Accounting Period which is 1st July 2009 to 30th June 2010
Months March April May June TOTAL

Days 31 days 30 days 31 days 30 days 122 days
EXERCISE - 5

Mr. Bob Woolmer, former English test player and a famous coach, came to Pakistan to give training to Pakistan Test cricket team in Lahore . He came to Pakistan on March 14th 2004 and then left for South Africa to join his family on May 31st 2005, Determine his residential status for the tax tear 2005.
RESIDENT COMPANY

Incorporated or formed under any law in Pakistan or Control and management whole in Pakistan at any time in a tax year. or It is a Provincial Government or Local Authority in Pakistan
THEORY OF MANGEMENT AND CONTROL
It refers to the management of the vital affairs and the policy making areas of the business. It is the Head and Brain of the business. For example the decisions like the appropriations of the profit, the payment of dividend, the capital budgeting decisions, the working capital, the debt- Equity ratio etc. It includes Board of Directors (BOD) and top ranking managers.
EXAMPLE

A subsidiary company has its BOD in Pakistan, whereas, the parent company is situated outside Pakistan. The major decisions are taken in Pakistan by the BOD of the subsidiary company. The subsidiary company will be the Resident company of Pakistan.
ASSOCIATION OF PERSON (AOP)

Control and management of the affair of the Association is situated wholly or partly in Pakistan at any time in the year, then an AOP is treated as resident. e
Reasons for distinction between Resident and Non-Resident

Incidence of taxation
Resident both Pakistan and Foreign sources of income are taxable Non-Resident only Pakistan source income is taxable
Different tax rates for resident and non-resident

entities.
ASSOCIATION OF PERSONS (AOP)

Control and management of the affairs of the Association is situated wholly or partly in Pakistan at any time in the year, then an AOP is treated as resident.
SCOPE OF TOTAL INCOME OF A RESIDENT AND NON-RESIDENR PERSON

Section 11(5) & 11(6) The income of the resident person will include both Pakistan and foreign source incomes. The non- resident person will be charged to tax, only the Pakistan source income. Section 11(6)
GEOGRAPHICAL SOURCE OF INCOME -PAKISTAN SOURCE INCOME
Section 101 Salary shall be Pakistan source income to

the extent to which the salary; If received from any employment received in Pakistan, wherever paid,(can be credited to his bank account in Paris) or Is paid by, or on behalf of, the Federal Government, a Provincial Government, or a Local Authority in Pakistan, wherever the employment is exercised (may be serving in UAE).
PAKISTAN SOURCE BUSINESS INCOME -- cont

2) Business income of a resident person shall be the Pakistan source income to the extent to which the income is derived from any business carried on in Pakistan. 3) Business income of a non-resident person shall be the Pakistan source income to the extent to which it is directly or indirectly attributable to (connected 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.

PAKISTAN SOURCE BUSINESS INCOME ---cont
Other business activities (e.g. consultancy) carried on in Pakistan of the same or similar kind as those sold by the person through a permanent establishment in Pakistan, or Any business connection in Pakistan.
PAKISTAN SOURCE -BUSINESS INCOME ---cont

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(coaches), derived any remuneration, paid by resident person (Pakistan Sports Board) or a permanent establishment in Pakistan of a non-resident person. 5) Any gain from the disposal of any asset or property used in deriving any business income referred to in sub-section (2),(3) and (4) shall be Pakistan source income.
PAKISTAN SOURCE BUSINESS INCOME cont--
6) a dividend shall be Pakistan income if it is

paid by a resident company. Profit on debt shall be Pakistan source income if it is; a) paid by a resident persons except where the profit is payable in respect of any debt used for the purpose of a business carried on by the resident outside Pakistan through a permanent establishment, or b) borne (paid) by a permanent establishment in Pakistan of a non-resident person.
IMPORTANT POINTS REGARDING INCOME

Receipts of income is taxable while Remittance is just transfer of amount, therefore not taxable. Cash or kind Receipts and Accrual Actual Receipts or Constructive receipts (Deemed Income e.g. unexplained income ,treated as actual income).
TWO IMPORTANT CODITIONS FOR PAKISTAN SOURCE INCOME

Any income, paid by a resident person or Borne (paid) by permanent establishment in Pakistan of a non-resident person.
EXERCISE 1 RESIDENTIAL STATUS AND TAXATION.

Determine Gross total income of MR. Ahmed in the light of the following particulars for the Tax Year 2010. Mr. Ahmed employed in Pakistan, received Rs. 4,00,000 as salary. His income from other sources is given under: Dividend received in Tokyo on 20th August 2010 from a Pakistani resident company. , amounting to Rs. 10,000. Received dividend from an American company worth Rs. 70,000 in Pakistani currency. Share of profit received in Tokyo on 10th May 2010 from business situated in Kuwait but controlled through a Permanent Establishment in Pakistan, Rs.60,000. Remittances from Tokyo on March 10th 2010 out of past profit earned and received there amounting Rs.6,00,000. Profit on debt received and earned in Pakistan on 1st August 2010 Rs.50,000. Calculate his gross total income , if he is a) a resident and b) a non- resident
COMPUTATION OF GROSS TOTAL INCOME OF TAX YEAR 2010

Particulars Salary (Pak source income) Dividend from Pakistani resident company Dividend from non- resident company Share of profit from PE in Pakistan (Pak source income) Remittance from past profits ( Not an income) Profit on Debt (not relating to Tax Year 2006) Gross Total Income Resident Rs. 4,00,000 10,000 70,000 60,000 NIL NIL 5,40,000 Non- resident Rs. 4,00,000 10,000 NIL 60,000 NIL NIL 4,70,000
TAXPAYER

2 (66)
Income chargeable to tax Representation of such person Person responsible to deduct tax & deposit with Govt. treasury. Required to file return of income Note: Filing the Return of Income and paying tax are two different aspects, a return may be a Nil Return.
WHO IS TO FILE THE RETURN OF INCOME ?

(Section 114) a) b) c) Company Any other person whose income exceeds minimum taxable limit. Paid Income Tax in any of the previous four years Claims a loss
d)
e) It includes the followings:

Owner of immovable property (land area of 250 square yards or more)
Owns a motor vehicle Foreign Travel by a Resident person (except Haj, Umra, Ziarat) Member of a Club. Subscriber to a telephone, including mobile phone
f) Notice by the Commissioner
EXCEPTIONS TO (e)
(Section 115)
a)
Hundred percent salary income i) Widow ii) Orphan below the age of 25 years iii) Disabled person iv) Non resident person owning immovable property
b)
Total income section 11

HEADS OF INCOME
2 (69) read with

(Section 11)
a) Salary b) Income from Property c) Income from Business d) Capital Gains and e) Income from other Sources
ASSOCIATES
Section 85
Two persons will be associates where the

relationship between the two is such that one may reasonably be expected to act in accordance with the instruction of the other, e.g. 1) an individual and his close relative 2) members of AOP 3) Company and shareholder Dealing between associates is called Nonarms length transaction. Arms length means proper distance.

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Lecture # 3

TERRITORIAL LIMITS & DEFINITIONS

 Scope and extent

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

SCOPE OF INCOME TAX LAW AND TERRITORIAL LIMITS

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

Article 246 of the Constitution 1973

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

Provincially Administered Tribal Areas means:

Federally Administered Tribal Areas include:

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

Act of Parliament or Provincial Assembly

ROLE OF LEGAL FICTION

INCOME OF MINOR CHILD TREATED AS INCOME OF ONE OF THE PARENTS

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

10th part is charged to tax, although it is capital receipt.

EXAMPLE II PRIVATE LOANSRECEIVED OTHER THAN A CROSS CHEQUE SECTION 39(3)

Treated as income of the recipient

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

EXAMPLE Unexplained Property / Investment Section 111

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

74 definitions plus insertions SECTION 2 SUBSUB-SECTIONS 74 Arranged alphabetically

DEFINITIONS AND CONCEPTS

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

CAPITAL ASSET 2(10) & read with 37(5)

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

Any intangible asset on which amortization is charged.

CAPITAL ASSET --- cont

 Any immovable property.  Movable property for personal use but

 A painting, drawing, work of art,

CHARITABLE PURPOSES 2(11A)

Relief of the poor Education

Medical relief Any other object of public utility

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

Presumptive Tax Regime (PTR) and Normal Tax Regime (NTR)

Temporary & Permanent

Tax free income

Income cannot be taxed twice

CONCEPT OF INCOME- Broad Principles INCOME No trading with himself    

With reference to company or association of persons, it includes:

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

Taxable Income --- cont

(xxx) (xxx) xxx

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

2 (68) read with section 74

Special year period of 12 months other than

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

CONCEPT OF TAX YEAR

Operating cycle of the business

Cash flows of the business

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

Special tax year calculation

Closing date falls before 30th June

Closing date falls after 30th June Add one year

Copyright 2007 by South-Western, a division of Thomson Learning. All rights reserved

Special Tax Year

Ist Jan 11 to 31st Dec 11

Scope and extent

Any immovable property. Movable property for personal use but

A painting, drawing, work of art,

Temporary & Permanent

Tax free income

Income cannot be taxed twice

CONCEPT OF INCOME- Broad Principles INCOME No trading with himself

The market value of the Agricultural raw