Wealth statement S 116: Wealth statement shall be filed with the return of income where taxable income for

r the year or last assessed income is Rs.500,000 or more. Wealth statement shall show the following particulars: Total assets and liabilities of the person, his spouse, minor children and other dependents Any assets transferred to any other person during the tax year and the consideration for the transfer Total expenditure incurred by the person, his spouse, minor children and other dependents and details of such expenditures f a person finds any mista!e or omission in the wealth statement he may file a re"ised statement before the amendment of an assessment. Anti-avoidance - Unexplained Investments etc. S 111 #. The following shall be treated to be income of a person if he offers no explanation about the nature and source or the explanation is not satisfactory in the opinion of the $ T: a% any sum credited in the boo!s &e.g. loan% b% in"estment is made c% in"estment ' "aluable article is not recorded in the boo!s or is not shown in the wealth statement d% The $ T finds that the amount expended on in"estment ' "aluable article exceeds the amount recorded in the boo!s or shown in the wealth statement e% any expenditure is incurred. (. )oreign exchange remitted from abroad through normal ban!ing channels and got encashed in *a!istani rupees from a scheduled ban! is immune and no +uestion shall be as!ed u's ###. Wealth reconciliation statement: t is a reconciliation between opening net wealth and closing net wealth of a tax year. ,pening net wealth plus increase &or minus decrease% should be e+ual to closing net wealth and if it is not then the difference shall be considered as a concealment of income u's ###. Reasons for increase in net wealth may be: o ncome declared for the year - taxable or exempt f a taxpayer.s business income falls under *TR and he does not maintain boo!s of account then imputed income shall be included in the wealth statement o o o o Amount recei"ed from abroad thru ban!ing channel with proceed reali/ation certificate (PR ! for which immunity is being claimed Amount ' assets recei"ed under inheritance or gift 0ncashment of )01$ 2ale proceed in excess of cost of a personal asset disposed off during the year.

Reasons for decrease in net wealth may be:

o o o o

Amount ' assets transferred to any other person under inheritance or gift 3ifference in sale proceed and cost of a personal asset disposed off during the year where the sale proceed is less than the cost. *ayment of expenses and tax 3onations

Important note: $hange in the shape of assets or liabilities will not be a reason for increase or decrease in net wealth e.g.: o *ayment of a liability during the year o 4oan obtained during the year including loan from a foreign country o 3isposal of an asset at its cost o *urchase of an asset during the year thru cash or liability o n"estment in business or drawings from business ".# $ec %&&# I AP ': 5r. Awais is a resident indi"idual who owns a pri"ate business. 6e has pro"ided you with the following data: Rs. in &&& o 2ales - mported finished goods (0,000 o 2ales - 5anufactured goods - supplies #50,000 o 2ales - 5anufactured goods - others &without tax ded%75,000 o 2ales - 5anufactured goods 8 exports 50,000 (95,000 o $ost of sales &including cost of imported finished goods Rs.#5 million% (00,000 o :ross profit 95,000 o Administration and selling expenses ;5,000 <0,000 o ,ther income 3i"idend from a company en=oying tax holiday#,000 *rofit on sale of shares of listed company (50 #,(50 <#,(50 o W**) ;,<00 o WW) #,(50 >,?50 5<,>00 o *ro"ision for tax - @ormal 5,000 o *ro"ision for tax - 3eferred #,((0 <,((0 o @et *rofit 50,#?0 3uring the year, one of the export customers closed down his business and has defaulted on payment of Rs.#,000,000 Assume no opening and closing debtors. Trading 4iability outstanding for more than ; years Rs.#00,000 5r. Awais pro"ided the following additional information: &a% 2pecial $ertificates purchased during the year Rs.5,000,000 and profit earned Rs.500,000 &b% )01$ encashed during the year Rs.(,000,000 &c% *urchased agricultural land Rs.#0,000,000 &d% 3rawings from business Rs.5,000,000 &e% )oreign remittance recei"ed &*R$ a"ailable% Rs.5,000,000 &f% 3onations made during the year Rs.(00,000 &g% *ersonal expenses Rs.7,590,000 &h% 1usiness capital at the beginning of tax year Rs.(>,>(5,000 &i% $ash in hand at the beginning of tax year Rs.#(0,500 &=% Tax paid with last year return Rs.(,000,000

5r. Awais owns a house property which he has gi"en on rent. ,n ;0.<.(00> the house property was transferred by him to his second wife for a consideration of Rs.>00,000. 2he has recei"ed Rs.500,000 during the year as share of inheritance. The following data has been pro"ided regarding the house property: Rs. 5onthly rental <,(50 0xpenditure on reno"ations and up!eep of house property 5<,000 *roperty Tax paid. 5,000 Anad=ustable rent Rs.#50,000 recei"ed at the time the property was let out two years ago. 5r. Awais had at that time refunded Rs.50,000 to the pre"ious tenant who had "acated the property after 5 years and had paid initially Rs.#00,000 as unad=ustable rent. 5r. Awais owns another house property "alued at Rs.0.5 million. 3uring the year he di"orced his first wife 5rs. 2hehna/ and settled that house property in lieu of ha+ mehr of Rs.#50,000. Re()ired: $ompute taxable income and tax liability of 5r. Awais and prepare his wealth statement. (*ar+s %,! -)torial notes .or st)dents: #% *R$ is proceed reali/ation certificate based on which foreign exchange proceed is immune. %! /o)se propert0 trans.erred in lie) o. /a( mehr: a% 2ection 90 pro"ides that if a property is transferred to spouse, income from such property shall be taxable in the hands of the transferor. b% 6owe"er, the abo"e pro"ision is not applicable where the transfer is made for ade+uate consideration or in connection with an agreement to li"e apart and the property has been properly transferred by way of registration. c% $1R has explained "ide $ircular < of #957 that ha+ mehr is considered as ade+uate consideration. 6owe"er, the amount of ha+ mehr should be e+ual to or nearly e+ual to the "alue of property. f "alue of property exceeds the +uantum of ha+ mehr, the income proportionate to exceeding amount should be taxable in the hands of husband. d% 6owe"er, contrary to the abo"e $1R.s explanation, 2upreme $ourt has held that this type of income in the hands of husband is illegal - B#9?9C <0 TAD #0< &2.$. *a!% e% 5r. Awais settled his property "aluing Rs.500,000 in lieu of 6a+ 5ehr of Rs.#50,000. ncome from the said property, if any, shall not be taxable for 5r. Awais !eeping in "iew the abo"e 2$ decision. Ans1er: ommon tax expenses to 2e apportioned are as )nder: Admn and selling ;5,000,000 4ess: 1ad debt related to exports co"ered under *TR &assumed to be included in admn expenses% #,000,000 ;>,000,000 W**) ;,<00,000

Trading liability o's for more than ; years & t is assumed that trading liability was against common tax expense% &#00,000% $ommon expenses ;7,500,000 t is assumed that no admn or selling expense relates to di"idend income and capital gain. Wor!ing for business income under *TR and normal assessment:

Sales 4ocal sales of manuf. goods 8 without tax deduction 8 with tax deduction 0xports

3P

4xpense s 9,5;;,?9? #9,0<7,79 7 <,;55,9;(

Income

'-R or normal

2ale out of comm. imports

75,000,00 0 #50,000,0 00 50,000,00 0 (75,000,0 00 (0,000,00 0 (95,000,0 00

(>,5>5,>5 5 >9,090,90 9 #<,;<;,<; < 90,000,00 0 5,000,00 0 95,000,00 0

#5,0##,55 7 ;0,0(;,## ( #0,007,70 > (,>57,<( 7 57,500,00 0

@ormal )TR )TR

(,5>(,;7 ; ;7,500,00 0

)TR

Taxable business income under normal assessment before charging WW) #5,0##,557 WW) E (F of declared income or accounting income before tax and WW) whiche"er is higher i.e. (F of Rs.5<,>00 - #,(50 #,#0;,000 Taxable business income after WW) #;,90?,557 ncome tax E (5F 4ess: Rebate on donation E (5F on (00,000 Total tax liability excluding *TR Income .rom propert0 Rent Add: #0F of deposit &#50,000 - 50,000 already taxed% $hargeable rent &taxable E 5F on fixed tax basis% *rofit on 2pecial $ertificates taxable E #0F under *TR 75,000 #0,000 ?5,000 500,000 ;,>77,#;9 50,000 ;,>(7,#;9

Wealth Statement Assets at the beginning of tax year o 1usiness capital (>,>(5,000 o $ash in hand #(0,500 o 6ouse property &sold to his second wife - opening "alue is assumed to be Rs.>00,000 on which transfer too! place% >00,000 o 6ouse property &transferred during the year to 5rs. 2hehna/% 500,000 o 4iability - unad=ustable ad"ance &#50,000% (5,(95,500 @et increase during the tax year

o o o o o

1usiness profit after tax 50,#?0,000 *roperty income &75,000 - 5<,000 - 5,000% #>,000 *rofit on special certificates - net of tax deduction>50,000 0ncashment of )01$ (,000,000 )oreign remittance recei"ed 5,000,000 57,<>>,000

0xpenditure ' outgoings during the year o 3onations (00,000 o *ersonal expenses 7,590,000 o Tax paid with last year.s return (,000,000 o *roperty transferred to 5rs. 2hehna/ 500,000#0,(90,000 @et increase @et assets should be at the end of tax year 3etails of net assets at the end of tax year: o 1usiness capital &opening G profit - drawings%<9,<05,000 o 2pecial $ertificates 5,000,000 o Agricultural land #0,000,000 o 4iability - unad=ustable ad"ance &#50,000% @egati"e balance

>7,;5>,000 7(,<>9,500

?>,>55,000 &##,?05,500%

5ote: 5r. Awais must ha"e a proper explanation for this negati"e balance as to the source of in"estment during the year which is not sufficient at present. 6e may ha"e an o"erdraft balance from his personal ban! account etc. as a source of in"estment. f he does not succeed to pro"e his case, section ### shall be in"o!ed whereby the said negati"e balance G cash in hand, if any, shall be treated as his income with penal action as well. ".6 7)ne %&&, I AP ': 5r. 2yed is running a business under the name and style of 2yed H $o. and he deals in imported fancy lights. 6e imported lights worth Rs.#0 million during the year and an amount of Rs.0.< million was deducted u's #>?. )ollowing information is extracted from the wealth statement filed by him in tax year (00;: 8 8 8 8 (Rs.! $apital of 2yed H $o. <,000,000 mmo"eable properties #0,000,000 5o"eable properties (,000,000 *ersonal $ash H 1an! balance #,000,000

3uring the year he recei"ed an amount of Rs.;0,000 and there is no satisfactory explanation for the abo"e receipt. 6e rented one of his immo"eable properties to a company for an amount of Rs.#5,000 per month, howe"er, the A4I of the property is Rs.#5<,000. 6e paid an amount of Rs.<0,000 for repair of the property. 6e also paid an amount of Rs.5,000 as ground rent for the said property. 6e bought a flat at Tari+ Road for his third wife who does not ha"e any source of income, for an amount of Rs.(,000,000. 6e also purchased a Toyota $orolla for Rs.#,;00,000. 6e in"ested an amount of Rs.#,000,000 in his business. *ersonal expenses during the period were Rs.?00,000.

3uring the year he recei"ed a loan of Rs.<,000,000 from his friend who li"es in AA0 and 5r. 2yed holds proceeds reali/ation certificate issued by the ban!. Re()ired: *repare Wealth 2tatement of 5r. 2yed for the tax year (00>. (*ar+s 1&! Ans1er: Propert0 income $hargeable rent Rs.#?0,000 taxable on )TR basis E 5F Receipts Bwithout explanation - assumed to be re"enue receiptC not taxable being less than Rs.#00,000 Tax under *TR as full and final tax - <F on Rs.#0 million on import stage<00,000 Imp)ted 2)siness income to be included in wealth statement <00,000 ' (5F J Rs.(,>00,000

Wealth statement: 8penin9 net 1ealth $apital of 2yed H $o. mmo"able properties 5o"able properties *ersonal cash and ban! balances <,000,000 #0,000,000 (,000,000 #,000,000 #9,000,000

5et increase 1usiness profit - imputed net of tax deduction Rs.<00,000#,?00,000 Receipts &treated as re"enue receipt% ;0,000 *roperty income #?0,000 - <0,000 - 5,000 ##5,000 *ersonal expenses &?00,000% #,#>5,000 (0,#>5,000 losin9 net 1ealth $apital of 2yed H $0. ,pening <,000,000 n"estment #,000,000 1usiness profit net of tax deduction#,?00,000 ?,?00,000 mmo"able properties ,pening #0,000,000 )lat purchased during the year (,000,000 #(,000,000 5o"able properties ,pening (,000,000 $ar purchased during the year #,;00,000 ;,;00,000 4oan from a friend &<,000,000% #?,#00,000 $losing cash and ban! balance (,0>5,000