Section:All

Total marks: 60
Subject: CAF-02
Time allowed: 2 hour
Teacher: Sir Adnan/ Sir Salman
Term Test 1 Date: 17 Dec, 2021

Question-1
Saima, aged 50 and a resident of Pakistan, is the executive director of Irfan Services Ltd (ISL). The
following information relates to Saima for the year ended 30 June 2017:
(1) In accordance with her employment contract with ISL, Saima received a basic salary of
Rs.180,000 per month inclusive of a medical allowance of Rs. 18,000. In addition, in June 2017
she received an ex gratia payment of Rs. 360,000.
(2) ISL pays Saima a house rent allowance of Rs. 60,000 per month, but she only pays rent of
Rs.45,000 per month for her rented house.
(3) ISL provides Saima with a company car, which she also uses for private purposes. The car was
acquired by ISL in December 2015 for Rs. 2,000,000. The value of the car on 30 June 2017 is
estimated to be Rs. 2,400,000 due to the general rise in the price of cars.
(4) ISL paid medical expenses for Saima to a private clinic of Rs. 75,000 as per the terms of her
employment.
(5) ISL provides all of its employees, including Saima, with annual membership of the Royal Palm
Club. The Club's annual membership is normally available for Rs. 200,000, but ISL receives a
discount and pays Rs. 180,000 per membership.
(6) Saima is entitled to 20 days earned leave a year. She did not avail of any leave during the current
year and ISL compensated her with a payment of Rs. 120,000.
(7) Saima employs a security guard at her apartment at a monthly salary of Rs. 20,000. Saima is
reimbursed 50% of the guard's salary by ISL.
Other information
(8) Saima took out a loan from a scheduled bank for the acquisition of an apartment in Faisalabad in
which her husband lives in connection with his employment there. During the year ended 30 June
2017, Saima paid profit of Rs. 500,000 to the scheduled bank on this loan.
(9) Saima paid a charitable donation of Rs. 50,000 to a school run by the local government in Lahore.
(10) Saima paid tuition fees of Rs. 700,000 for her son, who is studying in a medical college. The
college collected Rs. 35,000 income tax along with the fee.
(11) Saima received agricultural income of Rs. 800,000 on which agricultural tax of Rs. 97,500 was
paid to the Punjab Board of Revenue.
(12) Saima earned interest income from bank of Rs. 800,000 on which bank deducted Rs. 120,000
income tax. On this Saima gave a party for her friends in a hotel, which invoiced her Rs. 300,000.
(13) Tax deducted on payments made by ISL to Saima during the year ended 30 June 2017 was
Rs.300,000.
Required:
Compute Saima's taxable income, the income assessable under the final tax regime (FTR) and her total
tax payable for the tax year 2017. Note: Show all relevant exemptions, exclusions and disallowance (17)

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Question-2
Usman Hassan (UH) is engaged in the business of manufacturing beverages with the name UH beverages.
Following is the extract from the profit and loss account of UH beverages for the period ended June 30,
2009.
Rs. in ‘000’
Sales 5,000,000
Cost of sales (Note 1) (3,000,000)
Gross profit 2,000,000
Administrative and selling expenses (Note 2) (750,000)
Finance cost (250,000)
Other income 500,000
Profit 1,500,000
1. Cost of sales:
Rs. in ‘000’
Electricity & gas (incurred in cash) 1,600,000
Salaries, wages and other benefits 800,000
Local freight charges (paid in cash) 100,000
Depreciation 500,000
3,000,000
 10% of the total salaries were paid in cash. Of these, Rs. 20.0 million were paid to daily
wage employees @ Rs. 400 per day, whereas Rs. 60.0 million were paid to contract
employees who earn a monthly salary of Rs. 35,000 each.
2. Administrative & selling expenses
Rs. in ‘000’
Salaries and other benefits 200,000
Advertisement expenses 100,000
Insurance 85,000
Rent, rates and taxes 65,000
Entertainment expenditure 25,000
Contributions to approved retirement funds 100,000
Depreciation 75,000
Amortization 25,000
Penalties paid under Sales Tax Act 25,000
Miscellaneous expenses 50,000
750,000
 Rent, rates & taxes include Rs. 0.5 million paid under a provincial tax law imposed on all
beverage manufacturers having a manufacturing facility in the province of Punjab.
 Tax amortisation is Rs. 20 million.
 Depreciation computed under the Income Tax Ordinance, 2001 on all depreciable assets
is Rs 500.0 million.
Required:
In the light of the provisions of Income Tax Ordinance, 2001, compute the taxable income and tax
liability of UH for the tax year 2009. (Ignore minimum tax) (12)

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Question-3
The following information is made available to you by Murtaza who is the owner of a house property in
Islamabad.
(i) On 1 July 2002, Murtaza had rented the house to Jack on a monthly rental of Rs.50,000 and had
also received from Jack a deposit of Rs.1,000,000 which is not adjustable against the rent payable.
On 1 July 2004, Jack vacated the house and the Rs.1,000,000 was returned to him.
(ii) On I July 2004, Murtaza lets the house to Jill on a monthly rental of Rs.60,000 which includes
Rs.10,000 for the services of a security guard. Murtaza received from Jill a deposit of Rs.1,500,000
which is not adjustable against the rent payable
(iii) In the accounting year ended 30 June 2005, Murtaza incurred expenditure of Rs.79,600 on repairs
to the house and paid rent collection charges of Rs. 120,000.
Required:
Compute the taxable income of Murtaza for the tax year 2005. (6)

Question-4
1. A company made online payment of Rs. 450,000 on purchase of professional books for its
business use.
2. On 30 November 2020 Jamila, received a cash gift of Rs. 100,000 and a gold necklace having fair
value of Rs. 30,000 from her friend Mehreen. Mehreen had bought this necklace in 2017 for Rs.
25,000. Jamila sold the necklace with in two weeks at a jewellery shop for Rs. 33,000.
3. Mr. Anjum has purchased a machine for the purpose of his business. He is unsure how he will
determine its cost.
Requirement:
In the light of Income Tax Ordinance, 2001 for the tax year 2021 comment on each of the above
independent scenarios. (6)

Question-5
Explain whether the following amounts are chargeable/exempt in the hands of employee for TY 2016?
i. Mr Ali worked for XYZ Co. He got retired on July 1, 2015 and from that date, company
started paying monthly pension of Rs. 15,000. He got a new job on July 1, 2015 in BZ Ltd.
which is an associate of XYZ Co. (2)
ii. Mr A received Rs. 505,000 interest free loan from employer in current year. In 2012 the
employee also gave loan to employer which was also interest free. (2)
iii. Mr Daniyal is a citizen of Pakistan. He left Pakistan on June 1, 2016 and remained abroad
and got employment in Dubai. He received Rs. 20,000 Dirham/ month. He didn't pay any tax
there. (2)
iv. Mr Anjum is currently receiving two pensions. One of Rs. 40,000 from Izar Corporation and
another pension of Rs 42,000 from Real Corporation. (2)
Question-6
Mr. Chaiwalla, is engaged in the business of operating a number of cafes in Karachi under the name of
Doodpati Chai. The assessment of Chaiwalla for the tax year 2007 was selected for audit u/s 177. On
completion of the audit the Commissioner issued a notice why Rs. 40,000 received from Ali Canteen
Stores Lahore should not be considered as income.
Chaiwalla is not in agreement with the Commissioner‗s proposal. Chaiwalla has submitted his objections
as follows:
The amount received from Ali Canteen Stores Lahore relates to the business of a coffee house previously
run by Chaiwalla in Lahore. The coffee house business ceased to exist on 31 December 2002. As on 31
December 2002, Ali Canteen Stores Lahore owed Chaiwalla Rs. 40,000 in respect of the sale of coffee
beans. The Rs. 40,000 had not been recognised as the taxable income of Chaiwalla, since the system of
accounting was on the cash basis.

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The receipt of Rs. 40,000 is not chargeable to tax since:
– it is not a profit or gain of a business carried on by Chaiwalla at any time during the
tax year 2007;
– it is not traceable to any source of income in the tax year 2007; and
Required:
State giving reasons, whether or not the amendments proposed by the Commissioner is or is not in
accordance with the provisions of the tax statute. (4)

Question-7
Mr. Shandar is running a small business of textiles. During the tax year 2015, in order to expand the
business, he has decided to purchase new assets and replace some of the old machines with new ones. He
has provided you with the following information. Discuss the implication of tax laws in each of the given
scenario.
1) On 1.1.2015, purchased a new plant from China for USD 25,000 (USD 1 = Rs.100).
Government gives a subsidy of 15% on import of plant and machinery of which only 25% is
exempt from tax. Plant was delivered to Karachi port on 1.2.2015. (3)
2) Mr. Shandar constructed a new textile designing machine and following expenditures were
incurred:
Labour 50,000
Instruments 200,000
Payment to experts for installation 100,000
For the construction of machine he took loan in foreign currency of $6,500 (1$=Rs.100) 0n 1st
July 2014. First payment of loan is due on 30.06.15 amounting to $1,000.
At the date of payment (1$=Rs.105) (4)

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 THE FIRST SCHEDULE

Rates of Tax for Individuals and

Association of Persons
(1) Subject to clause (2), the rates of tax imposed on income of every individual and association of
persons except a salaried individual shall be as set out in the following Table, namely:—

TABLE

S. No Taxable Income Rate of Tax

1. Where taxable income does not exceed Rs. 0%
400,000
2. Where taxable income exceeds 5% of the amount exceeding Rs. 400,000
Rs. 400,000 but does not exceed
Rs. 600,000
3. Where taxable income exceeds Rs. 10,000 plus 10% of the amount
Rs. 600,000 but does not exceed exceeding Rs. 600,000
Rs. 1,200,000
4. Where taxable Income exceeds Rs. 70,000 plus 15% of the amount
Rs. 1,200,000 but does not exceed exceeding Rs. 1,200,000
Rs. 2,400,000
5 Where taxable Income exceeds Rs. 250,000 plus 20% of the amount
Rs. 2,400,000 but does not exceed exceeding Rs. 2,400,000
Rs. 3,000,000
6 Where taxable Income exceeds Rs. 370,000 plus 25% of the amount
Rs. 3,000,000 but does not exceed exceeding Rs. 3,000,000
Rs. 4,000,000
7. Where taxable Income exceeds Rs. 620,000 plus 30% of the amount
Rs. 4,000,000 but does not exceed exceeding Rs. 4,000,000
Rs. 6,000,000
8. Where taxable Income exceeds Rs. 1,220,000 plus 35% of the amount
Rs. 6,000,000 exceeding Rs. 6,000,000

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(2) Where the income of an individual chargeable under the head ―‗salary‖ exceeds seventy-five per
cent of his taxable income, the rates of tax to be applied shall be as set out in the following Table,
namely:—

S. No Taxable Income Rate of Tax

(1) (2) (3)
1. Where taxable income does not exceed Rs.
0%
600,000
Where taxable income exceeds
2. 5% of the amount exceeding
Rs. 600,000 but does not exceed
Rs. 600,000
Rs. 1,200,000
Where taxable income exceeds
3. Rs. 30,000 plus 10% of the
Rs. 1,200,000 but does not exceed
amount exceeding Rs. 1,200,000
Rs. 1,800,000
Where taxable income exceeds
4. Rs. 90,000 plus 15% of the
Rs. 1,800,000 but does not exceed
amount exceeding Rs. 1,800,000
Rs. 2,500,000
Where taxable income exceeds
5. Rs. 195,000 plus 17.5% of the
Rs. 2,500,000 but does not exceed
amount exceeding Rs. 2,500,000
Rs. 3,500,000
Where taxable income exceeds
6. Rs. 370,000 plus 20% of the
Rs. 3,500,000 but does not exceed
amount exceeding Rs. 3,500,000
Rs. 5,000,000
Where taxable income exceeds
7. Rs. 670,000 plus 22.5% of the
Rs. 5,000,000 but does not exceed
amount exceeding Rs. 5,000,000
Rs. 8,000,000
Where taxable income exceeds
8. Rs. 1,345,000 plus 25% of the
Rs. 8,000,000 but does not exceed
amount exceeding Rs. 8,000,000
Rs. 12,000,000
Where taxable income exceeds
9. Rs. 2,345,000 plus 27.5% of the Amount
Rs. 12,000,000 but does not exceed
exceeding Rs. 12,000,000
Rs.30,000,000
Where taxable income exceeds
10. Rs. 7,295,000 plus 30% of the
Rs. 30,000,000 but does not exceed
amount exceeding Rs. 30,000,000
Rs.50,000,000
Where taxable income exceeds
11. Rs. 13,295,000 plus 32.5% of the amount
Rs. 50,000,000 but does not exceed
exceeding Rs. 50,000,000
Rs.75,000,000

12. Rs. 21,420,000 plus 35% of the

Where taxable income exceeds Rs.75,000,000
amount exceeding Rs. 75,000,000

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 Rates of tax for disposal of immoveable property

(3A) Gain arising on disposal of an immovable property shall be computed in accordance with the formula:

S.No. Holding Period Gain

1. Where holding period of an immovable property does not exceed one year A
2. Where holding period of an immovable property exceeds one year but Ax¾
does not exceed two years
3. Where holding period of an immovable property exceeds two year but Ax½
does not exceed three years
4. Where holding period of an immovable property exceeds three year but Ax¼
does not exceed four years
5. Where holding period of an immovable property exceeds four years 0
Where A is the amount of gain on disposal of an immovable property.

The tax will be calculated on immovable property at the following rates:

S. No. Amount of gain Rate of tax

1. Where the gain does not exceed Rs. 5 million 3.5%
2. Where the gain exceeds Rs. 5 million but does not exceed Rs. 10 million 7.5%
3. Where the gain exceeds Rs. 10 million but does not exceed Rs. 15 million 10%
4. Where the gain exceeds Rs. 15 million 15%

Rates of tax for securities

TY 2022

Securities acquired Securities acquired

S. No. Period
before 01.07.2016 after 01.07.2016

1. Where holding period of a security is less than 12 months 15%

2. Where holding period of a security is 12 months or more 12.5% 12.5%

but less than 24 months
3. Where holding period of a security is 24 months or more 7.5%
but the security was acquired on or after 1.7.2013
4. Where the security was acquired before 1st July, 2013 0% 0%

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