SEMESTER SPRING 2012
Taxation Management (FIN623)
Assignment No. 1
Due Date: 19th April , 2012 Maximum Marks: 15

Question # 1
For each case mentioned below, identify the agriculture income (if any) along with income chargeable to tax or in case the income is exempted from tax. You are also required to mention the reasons with section(s) of Income Tax Ordinance 2001.

1. Mr. Ali has five acres land being used by Mr. Imran for the cultivation of bamboos and flowers. The land is given on annual rent of Rs. 80,000 per acre. During the tax year 2012, Mr. Ali received Rs. 400,000 from Mr. Imran.

2. Mr. Ali has a building next to his land which was given to Mr. Imran on rent for warehouse. The rent of Rs. 40,000 for this data copied from vu solutions dot com building has been received during the tax year 2012.

3. Mr. Noor has a piece of agricultural land which has been on rent for last ten years, but during the current tax data copied from vu solutions dot com year the land is used as a market place for the sale of agricultural produce of the surrounding areas. Total commission of Rs. 60,000 has been received from the use of such land.

Question # 2
After completing MBA degree you are doing an internship in a tax consultancy firm these days, where you have been given two cases of the “person” in which you have to identify (with reason in this data copied from vu solutions dot com case the answer is ‘Yes’) that whether the status of each person is “taxpayer” or not under the Income Tax Ordinance 2001:

1. ABC Limited, a newly incorporated business in Pakistan is exempted from income tax for coming five years starting from tax year 2010.
2. Mr. Raza owns a brand new locally manufactured car of 1300 CC.

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IDEA SOLUTION / Tips:

For solution of question no.1:
Read:
Lesson no. 10 then you will find the answer easily,

I). Exempt from tax
II). Exempt from tax
III). Chargable to tax

Hint: for question no. 2
To my point of view, status of Company ABC regarding taxpayer is ‘no’ for the current period 2012. and ‘yes’ for after completion the exemption period.
and in case no. 2 the status of Mr. Raza is ‘Taxpayer’ ‘Yes’ because he owns this car.
Note: Both fall in the category of ‘Person’ as per the section 2(42).

……………

Solution:

(a) Taxable income of Mr. Harris for the tax year 2012
Tax Payer: Mr. ABC
Residential status: Resident
Computation of taxable income and tax thereon
Particulars Total Income Exempt from Tax Taxable income
Basic salary (700000*11) Note.1 7,700,000 – 7,700,000
One time relocation allowance from paragon company 100,000 – 100,000
Medical allowance from Bricks Pakistan Note:2 770,000 – 770,000
Payment to an approved superannuation by Employer Note:3 100,000 100,000 -
Voluntary payment to reimburse H for the salary not received 400,000 400,000
Monthly allowance (20,000*11) 220,000 220,000
Honda civic motor vehicle for office and personal use (400,000*5% ) Note:4 20,000 20,000
Motor vehicle Toyota Altis wholly for personal use (2,400,000*10% ) Note: 5 240,000 – 240,000
Loan Note:6 0 0 0

Other incomes
Income from business 1,000,000 – 1,000,000
Gain on sale of shares (600,000-500,000= 100,000) 100,000 100,000
Foreign interest income 800,000 800,000
Voluntary payment made by Mr. Ali a client of Bricks 500,000 500,000
Prize on a prize bond (not of which tax is deducted) 360,000 360,000
Total 12,310,000 370,000 11,850,000

B)
Tax liability:
Tax rate of 20% as given in serial # 20 for taxable income exceeding Rs.8, 650,000.
Amount in Rs.
Taxable Liability: 11,850,000 * 20% = 2,370,000
Less tax deducted at source by employer = 1,500,000
Net tax payable by Mr. Haaris = 870,000
Notes to taxable income statement of Mr. Harris
Note: 1 Basic first salary receive from Bricks Pakistan on 1st August 2011 and for the year 2012.
It was received for eleven (11) Months.
No salary was received from Paragon construction Lahore
Note: 2 Medical allowances are exempt up to 10% of basic salary, it free hospitalization services
are not provided by the employer.
Note: 3 Employer’s contribution to superannuation funds under rule 3 of part 1 of sixth schedule
exemption is available up to 10% of salary and excess amount shall be taxable. In this case
amount Rs100, 000 is within the limit of prescribed limit of 10% of salary so it is exempt from tax.

Note: 4 Party for personal and partly for office use. 5% of cost or 5% of FMV of vehicle, in case of lease is taxable.
Note: 5 Valuation of conveyance
For only personal use
10% of cost or 10% of FMV of vehicle, in case of lease will be charged to tax.

Note: 6
Bench mark rate for Tax year 2012 is 12%
Loan provided at the rate of mark up of 12%
Since both rates are equal so no amount will be added back.