I3 Chapter 2 DEFINITIONS Section 2 of the Income Tax Ordinance, 2001, provides definitions of various terms and concepts used in the Ordinance. This section defines a total of 75 terms. NECESSITY OF UNDERSTANDING DEFINITION Like every other subject, Income Tax Law also contains a few terms which are exclusively meant for the subject. It also contains certain other concepts which although are used in other subjects, yet in the Ordinance they have some specific meanings., As the: readers come across this terminology throughout the discussion of ‘the law, we have tried to provide an understanding of these concepts at the very start. These concepts include the important definitions provided in section 2 of the Ordinance and also include many others terms which are subsequently used in the law. A complete understanding of these definitions will enable the readers to follow the subject more easily and comprehensively. For this purpose, important definitions and terms are being explained in this chapter. ACCUMULATED PROFITS + [Section 2(1)] The accumulated profits mean: 1. Any reserves maintained by a business out of its profits; 2. All profits of the company up'to the date these are distributed; 3. .- These profits kept in whatever shape, whether capitalized or not, will be treated as accumulated profits uptil their distribution to shareholders. Explanation Many businesses prefer to set aside a portion of the earned profits for future use. It may be used for a specific purpose in future or may ultimately be distributed amongst the owners. Whenever such an amount is present in any business it will be known and treated as accumulated profit for tax purposes. Active Taxpayers? List [Section 2(1A)] Every year a list is instituted by Federal Board of Revenue,.by Azad Jammu and Kashmir Central Board of Revenue and Gilgit-Baltistantno Tay, Council Board of Revenue of the Potsons, Who have filed the income ten Teluen Lor the year. ‘This iat ia Known as Active Taxpayers? list, APPELLATE Tap, UNAL [Section 22)] in case of any dispute between the taxpayers’ and tax department an Soveal can be made 10 Appellate Tribunal. ‘This is the highest judicial Sultority in the matters of tax. [4 Consists of judicial as well as accountant snes. The members are appointed by the Federal Government. The Ea'sion of the Tribunal on point of facts is final. However, in case of point of teat nn ater may be referred to High Court. Finance Act, 2010, has added sai “Appeliate Tribunal” means the Appellate Tribunal Inland Revenue, APPROVED GRA TUITY FUND ’ [Section 2(3)] Paid w his family. Tae emplover gets a lot of benefits if the Sratuity fund is approved by Se _Beome tx authorities. Under the Income Tax Ordinance, 2001, the Commissioner of Income Tax grants such an approval, APPROVED EMPLOYMENT PENSION OR ANNUITY SCHEME x [Section 2(3D)] Azy employment related retirement scheme which makes Pension or Srsssance, 2001, are known as approved employment pension or annuity Esamies of such schemes include an Approved superannuation fund, a Pune se=xoe pension scheme, employees old age benefit scheme, etc, cress nent to their employees after retirement, Tie amount in this fund is comimucus!y contributed by the employer. These amounts arc paid to the SMPIONCSS BS annuities or Pensions after their retirement or if they become malic before retirement, or to their families in case of death, ‘The Present fcvermment has adopted a reasonable 4nd liberal policy for the pension ofDEFINITIONS Is widows and orphans of the deceased employees. This amount is also paid out of the superannuation funds. Under the Income Tax Ordinance, 2001, the Commissioner of Income Tax approves such funds in which case the amount contributed by an employer is treated as business expenditure, resailting 4 in a decrease in the tax payable. ASSESSMENT ‘ * [Section 2(5)] Assessment includes provisional assessment, re-assessment and amend- ed assessment and the cognate expressions shall be construed accordingly. Explanation Assessment is a process whereby the data of a person, e.g. income, expenses, tax payments etc. which help in calculating his final tax liabi- lity is checked either by the person himself or by the tax department. _ ASSESSMENT YEAR * : [Section 2(5A)] “Assessment Year” means the period of 12 months beginning on the first day of July next following the income year and includes any such period that is deemed under the provision of this Ordinance, to be the assessment year in respect of tax year. Explanation The concept of assessment year was prevailing in our income tax law up to 2001.-Uptil that time any income earned by a person during one year was assessed in the relevant “assessment year” which started on next 1s July. However, this concept is no more applicable when tax under Income Tax Ordinance, 2001, is assessed and paid. ASSOCIATION OF PERSONS * [Section 2(6)] “Association of persons” includes a firm, a Hindu undivided family, any artificial judicial person and any body of persons formed under a foreign law; However it does not include a company. AGRICULTURAL INCOME ° [Section 41] ‘The agricultural income means income: (i) derived from land; (ii) _ land is situated in Pakistan; and (iif) land is used for agricultural purposes.16 IWcoME TAX = Thus, any income derived as rent, revenue, or from sale of any produce which is grown on a Pakistani land is agricultural income. However, it is necessary to understand that the land must be used for agricultural purposes, which means that some human labour and efforts are. necessary to be employed. If a produce is grown wild or spontaneously on land without any human efforts or labour, it will not be treated as agricultural income under this definition. (EE \ (@) Income derived from forests of spontaneous growth is not agricultural income, because no human efforts are involved. (6) If a zamindar grows trees on his own land and derives income therefrom, it is agricultural income. Ifa person owns some land in a foreign country, the income derived _ from such land is also excluded from the scope of the above definition because it does not fulfil part (if) of the definition. It must be directly connected with any activity with land. Non-agricultural income does not become agricultural by reason of indirect connection with agricultural land. (a) Income from supply of water for irrigation purposes is non-agricultural income. It cannot become agricultural income merely because the water is being supplied to an agricultural land. (6) Salary received as agricultural manager is non-agricultural income. It cannot become agricultural income merely because the income has an indirect connection with agricultural land, It is immaterial whether the agricultural income is being realized in the shape of cash or kind. ey (a) A person grows wheat in his farm and sells the crop. The cash received is agricultural income. (4). A landlord receives rent in the form of share of crop. The produce so received is also agricultural income. Types of Agricultural Income ‘Agricultural income has been classified into five categories: 1. Rent or revenue derived from agricultural land.Sy DEFINTIONS I7 Income derived from such land by agriculture. Income derived from such land by the performance of a process ordinarily employed by a cultivator or receiver of rent in kind to render the produce fit for market. Income derived from such fand by the sale of produce by a cultivator or receiver of rent in kind. Income derived from any building ‘aqulted for agricultural purposes. The last category, i-e., income from agricultural building, will be treated as agricultural income only, (a) (6) © if: Building is in the immediate vicinity of agricultural land. Building is occupied by the’ cultivator or the recipient of agricultural income. The cultivator or récipient by reasons of his connection with the land requires it as a dwelling house, store room or other.out- building. Examples of Agricultural Income Some. tuariples of agricultural iicome‘are as follows: Rent received by lessor of agricultural land. Income received by lessee of ‘agricultural land by cultivation. Income from cultivation of tobacco, wheat, sugarcane, rubber, ete. * Income from growing tea. Land revenue assigned to Jagirdar. Income from building used for agricultural purposes. Fee paid by tenant for renewal of lease. Income from any land used for carrying on any process necessary to make the agricultural produce fit for the market. Income from sale of honey or its products. Receipt of an amount for compromis: of a dispute regarding agricultural land. maa18 INCOME TAX. Examples of Non-Agricultural Income Some examples of non-agricultural income are as follows: 1. Income from stone quarries. ” Income from fisheries and ferries. Income from mining and mining royalties. Income from land used as a market. Income from a flour mill. Income from land used for storing timber. Income received from a cotton ginning factory. : Profits from a contract of cutting and selling trees. Income from sale of earth for brick making. Income from markets." PRIN Awawn 5 - Examples of Partly Agricultural and Partly Non-Agricultural Income ° 1. Income of a person who grows tea leaves on his own farms in Pakistan and then manufactures it into tea. 2. Income of a sugar mill which grows sugarcane and manufactures sugar. . 3. Income of a cigarette company growing tobacco on its own lands and manufacturing cigarettes. In all the above cases, growing of crops (tea plants, sugarcane and tobacco respectively) is an agricultural process fulfilling all the conditions of agricultural income. The second component of these incomes is a manufacturing process and thus chargeable to tax under the head “Income from Business and Profession”. In determining that part which is chargeable to tax, the market value of any agricultural produce which has been raised by the person or received by him as rent in kind and which has been utilized as raw material in such business, shall be deducted and no further deduction in respect of any expenditure incurred by the person as a cultivator or receiver of rent in kind will be allowed. ‘BANKING COMPANY " [Section 2(7)] _ Banking Company has the same meaning as in the Banking Companies Ordinance, 1962 (LVII of 1962) and includes any body corporate which transacts the business of banking in Pakistan.DEFINITIONS: 19 BOARD . [Section 2(8)] Uptill 30% June 2006 the ‘Board’ meant Central Board of Revenue as established under the Central Board of Revenue Act, 1924 (IV of 1924). On the commencement of Federal Board of Revenue Act, 2007, ‘Board’ means the Federal Board of Revenue. BUSINESS . © [Section 2(10)] “Business” includes any: trade, commerce, manufacture, profession, vocation or. adventure or concern in the nature of trade, commerce, manufacture, profession or vocation, but does not include employment. Explanation ‘The. definition of business includes the following terms: (a) Trade. Any dealing between two or more parties for the purchase and sale of commodities to earn profit. (6) Commerce. It includes not only trade but also all the activities to facilitate the exchange -of goods - between producers and consumers such as transportation, insurance, warehousing, marketing, banking, etc. (c) Manufacture. The term: ‘manufacture’ simply means trans- forming inputs such as raw material etc. into a form which has greater value to customers. (@) . Profession or Vocation. It is the occupation that requires some specialized education and training. The income is generated by intellectual or manual skills. Examples are architecture, law, medicine, teaching, secounting, © etc. BUSINESS BANK ACCOUNT (Section 2(10A) “Business Bank Account” means a bank account utilized by the taxpayer for business transactions declared to the Commissioner through registration form prescribed under Section 181: CAPITAL ASSET : [Section 2(11) and 37(5)] Capital asset means property ‘of any kind held by a person, It is immaterial whether the property is connected with his business or not. However, the following are excluded from the definiti (@) Any stock in trade, consumable stores or raw materials held for the purpose of business.20 INCOME Tax Explanation 1.’ © The medicines available in a medical store for the purpose of sale is stock-in-trade and so excluded from the definition of ‘capital asset’. 2. Shares possessed by a dealer of shares for the purpose of sale are his stock in trade but still these will be treated as ‘capital asset’. 3. Spare parts owned by a manufacturing concern for use in the machinery are consumable store and are excluded from the scope of ‘capital asset’. 4. ° Yarn possessed by a cotton mill is their raw material held for the purpose of business and so not a ‘capital asset’. (b) Any property with respect to which the person is entitled to a depreciation deduction or amortization deduction. | Explanation Any asset which a taxpayer uses for the purpose of his business is entitled. to depreciation. In case of intangible assets used for the business purposes entitlement of amortization is present. Such assets are not included in the definition of “capital asset”. For example, a car being used for business purpose or a trademark purchased and being + used in a business concem are not treated to be “capital assets”, | | (c) Any movable property (including wearing apparel, jewellery, or | furniture) held for personal use by the person himself or any | «member of his family dependent upon him. | It should be noted that the definition states that property should be held | by a person. It means that even if the property is held on some one else’s | behalf, «.g., as a trustee, executor, liquidator, receiver, lessee, assignee, | administrator, co-owner etc., it will be treated as his capital asset. | In item (c) of the definition the three items have been given only for the | purpose of illustration, which provides a guide as to what type of movable property can be treated as property held for personal use. (CHARITABLE PURPOSES F [Section 2(11A)} Charitable purpose includes relief of the poor, education, medical relief and the advancement of any other object of general public utility.DEFINITIONS 21 Explanation Under the Income Tax Ordinance, 2001, relief i in tax is provided to the person if certain amount is spent during the tax year for charitable purposes, The amount so spent is called charitable donation. CHIEF COMMISSIONER ~ “ [Section 2(11B)] -An officer of inland Revenue including a Regional Commissioner of Income Tax and a Director General of Income Tax and Sales Tax may be appointed on this post and will be known as Chief Commissioner Inland Revenue. COMPANY [Section 2(12) and 80) According to the Income Tax Ordinance, 2001, ‘company’ means: (), Accompany as defined in the Companies Act, 2017; (i) A body corporate formed by or under any law in force in Pakistan; (ii) A Modaraba; If) “A heey: incorponsind by-ox water the tew af'a eauninyoutnide Pakistan relating to incorporation of companies; (v) | A cooperative society, a finance society or any other society; (vi). A.non-profit organization; es (vii) A trust, an entity of a body of persons established or constituted by any other law; (viii) A foreign association whether incorporated or not, which the Board has declared to be a company; (i) A provincial government; (x) A-local authority in Pakistan; or (xi) . A Small Company. Explanation In our country, there are three popular forms of business organizations: sole proprietorship, partnership and company. The company is created by law and so has a distinct legal entity. For the purpose of tax, a company is treated to be a separate business entity apart from its shareholders. The assets possessed, or liabilities owned by a company are its own, and legally the shareholders are not responsible for any liabilities. Company pays the tax in discharge of its own liability and not on behalf of its shareholders or as their agent. -. It must be noted that any foreign body, even if it is an uncorporated association, can be declared as company by the Board and will be taxed22 Income Tax as such. A foreign association can neither object to such an order nor it can claim as a right that it should be declared a company. It is on the sole discretion of the Board whether or not to declare a foreign association as a company. COMMISSIONER [Section 2(13)] Commissioner means a person appointed by the Board as Commissioner Inland Revenue according to the rules and orders of Federal Government. 7 CONCEALMENT OF INCOME {Section 2(13AA)} Its includes the following: a) Supression of any receipt liable to tax wholly. or partially or failure to disclose taxable income. b) Claiming any deduction or expenditure not actually incurred c) Providing wrong information about income or expenditure. d) ing any income or receipt as exempt which is otherwise Explanation: all those acts would not be treated as concealment of income unless it is proved that taxpayer has knowingly and willfully committed these acts. . CONSUMER GOODS {Section 2(13AB)} Consumer goods means goods that are consumed by the end consumer rather than used in the production of another good. CO-OPERATIVE SOCIETY é [Section 2(14)] “Co-operative Society” means a co-operative society registered under the Co-operative Societies Act, 1925 (VII of 1925) or under any other law for the time being in force in Pakistan for the registration of co-operative societies. DEBT [Section 2(15)] 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.. DerINTIONS =. 23 Explanation All the claims of outside parties relating to’business which are payable either in short run or in long run are called debt. Normally the interést is paid on long-term debt such as debentures, bonds, etc. DEPRECIABLE ASSET {Section 2(17)] Depreciable asset means a depreciable asset as defined in section 22 of Income Tax Ordinance, 2001. In this section depreciable asset implies any tangible moveable property, immoveable property (other than unimproved land), or structural improvement to immoveable property, owned by a person that: (a) has a normal useful life exceeding one year; () ~is likely to lose value as a result of normal wear and tear, or obsolescence; and (c) _ is used wholly or partly by the person in deriving income from business chargeable to tax. DIVIDEND oe [Section 2(19)] . Dividend includes: (a) Any distribution by a company of accumulated profits to its shareholders, whether capitalized ar not; (b) any distribution by a company, to its shareholders of debentures, debenture stock or deposit certificate in any form whether with or without profit, to. the extent to which the company possesses accumulated profits whether capitalized or not; (c) any distribution made to the shareholders of a company on its liquidation out of accumulated profits of the company immediately before its liquidation, whether capitalized or nc (d) any distribution by a company to its shareholders on the reduction of its capital to the extent to which the company possess accumulated profit whether capitalized or not; ” (e) any payment by a private company or trust of any sum by way of advance or loan to a shareholder or any payment by any such company or trust on behalf, or for the individual benefit, of any such shareholder to the extent to which the company or trust, in either case, possesses accumulated profits;24 Income Tax () remittance of after tax profit of a branch of foreign company operating in Pakistan; But does not include: (a distribution made in respect of any share for full cash consideration or redemption of. debentures or debenture stock, where the holder of the share or debenture is not entitled in the extent of liquidation to participate in the surplus assets; (i) any advance or loan made to a shareholder by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend; and (iv) _ remittance of after tax profit by a branch of petroleum exploration and production foreign company operating in Pakistan. Explanation Dividends are distribution to the shareholders of a company in proportion to the number of shares held by them. During a tax year a company cams profits from its business. This profit may be retained by a company in its business or may be distributed to the shareholders. The profit which is distributed to the shareholders is called dividend, and the profit which is retained by a company in its business is known as accumulated profit or retained earnings. Dividend may be distributed out of current year’s profit or out of accumulated profits, It must also be noted that dividend may be distributed by way of cash or in any other form, such as property dividend, stock dividend, script dividend, etc. By virtue of an amendment made through Finance Act, 2008, clause (/) above was inserted. It is a legitimate attempt to curb remittance of after tax profits by a branch of foreign company as a measure of foreign exchange conservation. MS) Sodhi Company Limited has a paid up capital of Rs. 500,000 consisting of 50,000 shares of Rs. 10 each. On 31.12.2020, company’s balance sheet shows accumulated profits of Rs. 150,000. The company has to be liquidated. The official liquidator realized Rs. 450,000 and distribution among the shareholders was made at the rate of Rs. 9 per share. Mr. Akram had 20,000 shares in the company.DEFINITIONS: 25 Required. How much of the amount received by Mr. Akram is dividend? Why? Solution Mr. Akram received a total of Rs. 180,000 (20,000 x 9). Out of this amount Rs. 3 per share will be treated as dividend. That means Rs. 60;000 (Rs. 20,000 x 3).is dividend because the company at the time of liquidation + possessed Rs. 1,50,000 as accumulated profits and every share is receiving 3 (ee 50,000 ELIGIBLE PERSON [Section 2(19A)] ‘Any Pakistani individual who holds either a valid National Tax Number or Computerized National Identity Card or a National Identity Card in case of overseas Pakistani will be known as ‘Eligible Person’. This term is used for the purpose of providing tax credit under Voluntary Pension System. EMPLOYMENT. +. « [Section 2(22)] Under the Income Tax Ordinance, 2001, employment includes: } from such profits. (a) A directorship or any other office involved in the management of a company; (5) A position due to which the holder is entitled to a fixed or ascertainable remuneration; or (c) The holding or acting in any public office. Fist moving consumer goods ' [Section 2(22A)] Means consumer goods which are supplied in retail market as per daily demand of a consumer excluding durable goods. FBR Refund Settlement Company Limited [Section 2(22C)] _” Any company incorporated under companies Act, 2017 for the purpose of settlement of income tax refunds claims including payment by way of issuing refund bonds will be known as FBR Settlement Company Limited. Explanation As per Finance Act, 2019 FBR plans to set up a company under the above name in order to settle the income tax refund claims. It will also issue rofiund bonds, These bonds will have a maturity period of three years.26 IooMe TAX FILER . . [Section 2(23A)] Filer means any person whose name is in the Active Tax Payers list issued by. (i) _ Federal Board of Revenue, or- ‘Azad Jammu and Kashmir Council Board of Revenue, or iii). Gilgit-Baltistan Council Board of Revenue, or (iv) The person is holder of a taxpayer’s card. The definition of filer has been included in the Ordinance through Finance Act, 2014 and then amended in 2018. It is important because rates of tax for filers and non-filers are different in many cases. The definition.of filer has been omitted through Finance Act, 2019. So it will not be applicable for the year 2020. FINANCIAL INSTITUTION [Section 2(24)] . “Financial institution” means an institution as defined under the Companies Act, 2017, by the Federal Government as a financial institution. Explanation Its means super tax imposed for rehabilitation of temporarily displaced persons @ 4% of income of banking companies and other persons having @3% income equal to or more than Rs. 500 million for the tax 2015 onwards. Rate for other persons has been reduced to 3 % for tax year 2018 and 2.% for tax year 2019. On all types of income whether taxable under the normal law or under.the final tax regime the income which would have resulted in the same tax , had this amount not been subjected the final tax. FINANCE SOCIETY [Section 2(25)} Finance society under the Income Tax Ordinance, 2001, means any finance society which receives amounts from general public and then advances loans out of such amount or invests this amount in various businesses. A co-operative society engaged in the above mentioned activities is also included in the definition of finance society.- FIRM + {Section 2(26) and 80) Under the Income Tax Ordinance, 2001,“‘firm” means the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.DEFINTIONS. 27 FOREIGN SOURCE INCOME [Section 2(27)] ‘This is a new concept which has been introduced through the Income Tax Ordinance, 2001. According to the Ordinance, an amount shall be foreign source income to the extent to which it is nota Pakistan source income. Greenfield Industrial Undertaking {Section 2(27A)} Greenfield industrial undertaking means:- 'a)_ a new industrial undertaking which is é (i), Set up on land which has not been previously utilized for any commercial, industrial or manufacturing activity; (ii) Built without demolishing, revamping, renovating and upgrading any existing structure or plant; (iii) Not formed by splitting up of reconstitution of an undertaking already in existence or by transfer of machinery plant are building established in Pakistan previously; (iv) It must use a process or technology that has earlier not been used in Pakistan. This condition should be approved by the Engineering Development Board ; and “ b) It must be approved by the Commissioner of Income Tax. Note: This definition will be applicable w.e.f. 1% July 2019 onwards Imputable income | (section 228A)} The definition has been added in the Income Tax Ordinance for imposition of super tax on companies and certain other persons for the tax year 2015, 5 Imputable Income in relation to an amount subject to final tax , means, the income which would have resulted in the same tax, had this anon not been subject to final tax. . Examples.of imputable income are revenue from imports, revenue from export, revenue from supply of goods etc.28 INCOME TAX. Explanation wave It means one time super tax has been imposed for the rehabilitation of temporarily displaced persons @ 4 % of the income of banking companies and other persons @3% having income equal to or more than 500 million °for the tax 2015 on all types of income: whether taxable under.normal law or under the final tax regime. INCOME . ~ [Section 2(29)] Income includes: ‘ ji (@) - Any amount chargeable to tax under the Income Tax Ordinance, 2001; (6) Any amount subject to. collection or deduction of tax at the time of import of goods; Explanation It is necessary for Collector of Customs at the time of import of goods to collect the tax at the prescribed rates from the importers. The value of the import has been treated as income in the hands of importer under this clause. (©) . Any payment received by a resident from a pressed person for supply of goods and services... «v . (a) Any amount received as export proceeds. (e) Amounts received on prizes and winnings. Explanation The total amount received for sale of goods and services, amount of foreign exchange received as export proceeds and amount received on prizes and winnings have been treated as income under the law. This has been done because in all these cases it is necessary for the person making the payment to deduct tax from such amounts. i () any amount collected from a person being the owner of goods transport vehicle by the Excise Department. Explanation ‘Owners of vehicles have to pay advance tax under the law. ‘The amount so charged is included in the definition of income. (e) Any other amount deducted or collected by any person ‘at source is included in the definition of income. (H) Any loss of income.DEFINITIONS 29 Explanation In case of (a) above there is possibility of loss while amount chargeable to tax is being calculated. As such loss is duly considered by the law so it has also been included in the definition of income. Note. From the tax year 2015 onward face value of any bonus or bonus shares declared , issued or paid by company with a view of increase its paid up share capital shall constitute an income in the hands of shareholders. Previously its was excluded from the preview of income. INDUSTRIAL UNDERTAKING [Section 2(29C)] This definition has been added through Finarice Act, 2004. An organization fulfilling the following conditions will be known as industrial . “undertaking” 1, Organization is set up in Pakistan; 2. It uses electrical energy or any other form of mechanical energy and employs ten or more persons; or it does not use electrical or any other form of energy but: wae (a)* ‘Employs twenty or more persons; (b) Is engaged in a manufacturing process; (c) |. Engaged in ship building; (d)* Engaged in generation, conversion, transmission or distribution of electrical energy, or the supply of hydraulic power; (e) Engaged in the working of any mine, oil well or any other source of mineral deposits, 3. From 1* May 2020, a person involved i in the construction of buildings , roads, bridges and other’ such structures or development of land provided that it fulfils the conditions as notified by the Board. 4, From 01.07.2020, a resident company engaged in hotel business in Pakistan 5, ° Telecommunication Companies operating under the license of Pakistan. Telecommunication Authority (PTA).30 INCOME TAX. INTANGIBLE [Section 2(30)] Intangible means any patent, invention, design or model. secret formula OF Process, copyright and other properties and rights of the same kind, It also includes any other expenditure incurred by a business which provid (4) Benefit or advantage for a period of more than one year; and (4) * The expenditure is not incurred to acquire-a depreciable asset or unimproved land, Amtegrated Enterprise" {Section 2(30A)} Integrated Enterprise means a person integrated with F.B.R through apmroved fiscal electronic device and software and also fulfills obligations and requirements for integration. KIBOR * [Section 2(30AB)] “KIBOR means Karachi Inter Bank Offered Rate applicable on the first day of each quarter of the financial year.” % This definition has been introduced in the law through Finance Act, 2006, It was necessitated because now the comperisation on delayed refunds will-be payable on KIBOR. Moreover, for the purpose of additional tax the rate will be used. KIBOR on July 2, 2021 was 6.95%, : ARIS [Section 2(30AC)] Iris ‘means a web based computer program for operation and ‘management of Inland revenue taxes and laws administered by the Board, LOCAL GOVERNMENT [Section 2(31A)] Local Government shall have the same meanings as defined in the Funjab Local Government Act, 2019, the Sind Local Government Act, 2013, the Khyber Pakhtunkhwa Local Government Act, 2013, and the Balochistan Local Government Act, 2010, Explanation After the new devolution plan was announced and implemented in 2001, there was a need to add the newly established forms of local govern. pent €.&. district government, city governments eic. in the definition as these have replaced the Municipal Corporations and Development Authorinc, Local Government will now replace Local Authority. Keeping in view this Fequirement this clause was inserted in the law through Finance Act, 2007, f=DEFINITIONS. 3 MINOR CHILD - [Section 2(33)] Under the Income Tax Ordinance, 2001, minor child means an individual who is under the age of eighteen years. The age is to be determined at the end of a tax year, NATIONAL CLEARING COMPANY OF PAKISTAN LIMITED [Section 2(35AA)] National Clearing Company of Pakistan Limited (NCCPL) is a company which has been incorporated under the Companies Act, 2017, and it is licensed as “clearing house” by Securities and Exchange Commission of Pakistan or any subsidiary of NCCPL verified ‘by the Federal Board of Revenue for this purpose.“ é NON-PROFIT ORGANIZATION : [Section 2(36)] Non-profit organization ‘means any person other than an individual which is. (a) Established for religious, educational, charitable, welfare or. purposes for general public or for the promotion of an amateur ‘sport; (b) it should be registered by or under any law 8. profit organization and the Commissioner of Income Tax has certified it to be a non-profit organization for a specified period, under the Income Tax.Ordinance. (c) Any asset of the organization should not be used for the private benefit of any other person. OFFICER OF INLAND REVENUE _ [Section 2(38A)] The following officers are included in the definition of “otheer of Inland Revenue”: (a) © Additional Commissioner Inland Revenue (6). Deputy Commissioner Inland Revenue (c) Assistant Commissioner Inland Revenue (d) Inland Revenue Audit Officer (e) District Taxation officer Inland Revenue. (f) Assistant Director Audit. (g) Any other officer sleet, as such by the Federal Board of Revenue32 INCOME TAX: OFFSHORE ASSET [Section 2(38AA)] Offshore asset includes any ‘moveable or immovable asset possessed by a person outside Pakistan ..It also includes any gain, profit or income derived, or any expenditure incurred by a person outside Pakistan. ONLINE MARKET PLACE _ [Section 2(38B] Online market place means an information technology platform tun by e-commerce entity over an electronic network that acts as a facilitator in transactions that occur between a buyer and seller. PAKISTAN SOURCE INCOME [Section 240& 101)] Income Tax Ordinance, 2001, has given consideration to the geographical source of income while taxing any income. In this context the Pakistan-source income includes the income which a person earns in . Pakistan, irrespective of the fact that where it is actually received. Explanation Such income may be from salary, business or property situated in Pakistan. Some examples of this income are as follows: 1. Salary received by virtue of employment i in Pakistan, wherever paid. 2. Salary paid anywhere in the world by or on behalf of the Federal Government, a Provincial Government or a local ‘authority in Pakistan. 3. Income derived from any business carried on in Pakistan. 4. Business income of a non-resident person from a permanent establishment in Pakistan. _ 5. Any dividend paid by a resident company. 6. Profit on debt paid by a resident person, if the profit is from a business carried on in Pakistan. : 7. Any royalty paid by a resident person provided the services are utilized for the business carried on in Pakistan. 8. Rental income derived from the lease of immovable property in “Pakistan, . 9. Rental income from the lease of a right to explore natural resources in Pakistan. 10. Any pension or annuity paid by a resident.DeFWNmiONS * 33 11. Any technical fee paid by a resident person for a business carried on in Pakistan. 12. Any gain arising on the disposal of shares in resident company. Moreover, any of the above mentioned amounts shall be treated as Pakistan-source income if it is paid by a resident person or paid by a permanent establishment in Pakistan of'a non-resident person. PERSON... . “|” [Section 2(42) and 80) Under the Income Tax Ordinance, 2001, a person includes the following: ; i ‘ (a) Anindividual; ..... vob Pato utd (6) A company; Laie . |. ,{€), An “association of persons incorporated, fated, oremized or established in Pakistan or elsewhere; (d) The Federal Government, a foreign government, a political sub- division of a foreign government, or public - international organization: PERMANENT ESTABLISHMENT « [Section 2(41)] This term has been included in the income tax’ law by Income Tax Ordinance, 2001. It means a fixed place of business through which: the business of a person is wholly or partly carried on and includes: : . e “a place of management, branch, ‘office, factory or workshop, othier than a liaison office except, where the office engages in the 7 negotiation of contracts (other than contracts of purchase); (2) amine, oil or gas well, quarry or any ¢ other place of extraction of vs, Natural resources), wb ot(¢) -@ building site, a construction: assembly or installation project or supervisory activities connected with such site or project provided thatithe activities continue for more than ninety days within the & To ceateriyearyi., bap avait \ . “+ (qd) the furnishing of services, including nsittanc services, by any "Berson through employees or other personnel ‘engaged ‘by the person for such purpose, but only where activities of that nature +, :to° » continue for the same or a connected project within Pakistan for a period or periods aggregating org than ninety days within any twelve-month period;INcoMe Tax (©) a person acting in Pakistan on behalf of the person (referred to as the “agent”), other than an agent of independent status acting in the ordinary course of business as such, if the agent, » (@ has and habitually exercises an authority to conclude contracts on behalf of the other person; (i) has no such authority, but habitually maintains a stock-in- trade or other merchandise from which the agent regularly delivers goods or merchandise on behalf of the other person; or () Any substantial equipment installed, or other asset or property capable of activity giving rise to income. - PRINCIPAL OFFICER [Section 2(44A)] “Principal Officer” used with reference to a company or association of persons includes: : (a) A director, a manager, secretary, agent, accountant or any similar officer, and (4) any person connected with the management or administration of the company or association of persons upon whom the Commissioner has served a notice of treating him as the principal officer thereof. Explanation As explained earlier, person includes an individual, an association of persons, company, etc. These persons are required by law to submit their return of total income, providing other details or documents if needed. In case of a company or an association of persons, it is very difficult to contact with every shareholder or every member or owner by the tax department regarding the tax requirements. For this purpose, a few responsible persons connected with the management are treated as principal officer. The Commissioner of Income Tax may also serve upon a notice to any person connected with the management and administration of a company or an association of persons to treat him as a principal officer and such person will become the principal officer for the purpose of. Income Tax Ordinance, 2001. PRIVATE COMPANY {Section 2(45)] Private company means a company which is not a public company.DEFINITIONS 35 PROFIT ON DEBT [Section 2(46)] Profit on a debt means: (a) Any profit, yield, interest, discount, premium or other amount payable on a debt. However, it does not include the return of capital. . (4) Any service fee or other charge in respect of a debt. Any fee or * charge incorporated in respect of credit facility will also be treated as profit on debt even if it has not been utilized. PUBLIC COMPANY : [Section 2(47)} . Under income tax law a public company means: (a) - A company in which at least fifty percent of the shares are held by the Federal Government or Provincial Government. (6) A company in which at least fifty per cent of the shares are held bya Foreign Government. (c) ‘A foreign company owned by a Foreign Government. (d) A company whose sharés were traded on a registered stock exchange in Pakistan at any time in the tax year and which remained listed on that exchange, at the end of that year; or (e) A unit trust whose units are widely available to the public and any other public trust. REAL ESTATE INVESTMENT TRUST SCHEME [Section 2(47A)] Real Estate Investment Trust (REIT) Scheme means a REIT Scheme as defined in the Real Estate Investment Trust Regulations, 2015. Explanation Finance Act, 2006, has introduced this scheme. It has been amended in - 2015. The purpose is to encourage investment in construction sector enabling investors of average income group to invest in real estate. REAL ESTATE INVESTMENT TRUST MANAGEMENT COMPANY [Section 2(47B)] It means’ a’ company’ licensed “by the Security and Exchange Commission of Pakistan under the Real Estate Investment Trust Rules, 2015.* ‘These companies are formed for the management of Real Estate Investment Trusts formed RMC scheme.36 ~ INCOME TAX Rental REIT scheme ° {Section 2(47Q)} Hts means ‘a rental REIT scheme as define under the Real Estate Investment Trust Regulation, 2015, RESIDENT AND NON-RESIDENT PERSONS [Sections 81-84] Income Tax Ordinance, 2001, does not make any distinction on nationality or domicile basis, rather tax liability of a person is determined on the basis of the fact that whether he is a resident or non-resident person. At must be noted that: 1. “To be a resident or non-resident as used above has nothing'to do with a dwelling place or nationality, rather it is a. term purely . _, designed for tax purposes. : 2. The status of resident or non-resident is always associated with a Particular income year because it may change from year to year. 3. A person’s status is determined with reference to the period of his stay (purpose of stay is immaterial) in Pakistan in the tax year. 4. The Federal Government is treated as resident. For the purpose of income tax, all the persons are ‘grouped under two categories: : (@) Residents * (®) Non-Residents oe 1. Resident Individual, | «1 [Section 82] An individual will be a resident in Pakistan in any tax year if he fulfils any one of the following two conditions: " 1. He is in Pakistan for a period or periods amounting, in all, to 183 days or more. 2. _, He is an.employee or official of the-Federal Government or a Provincial Government posted abroad in the tax year. Explanation ‘ FALAL ANENGA Mn An individual will become a resident of Pakistan in’a tax year if his stay’ in Pakistan in that year is 183 days or more. It is not necessary that the Stay should be continuous. Moreover, as already mentioned, purpose of Stay is also immaterial. It is also not necessary that the stay should be at ‘one place only. Mere physical presence for the period is sufficient,DeFINITIONS . 37 Fulfillment of any one of the requirements given in clause (1) or (2) is sufficient. The purpose or nature of stay, the place of stay, the frequency of visits, the circumstances of visits etc. have no bearing on the determination of residential status. & In case of (2)-above a visit to Pakistan is not necessary. : Ce During the tax year 2021: “i Mr. ‘Akbar stayed in Pakistan in a rented house for 170 days, then went abroad and came back. He again stayed in a hotel at Karachi for 15 days. 2. For the first time in his life ‘Me. Ajmal left Pakistan for ‘aq on September 29, 2020 and came back on May 15,2021."*" 3. Mr. Anthony, a foreigner, came to Pakistan-on‘a pleasure trip and stayed with his friend for niné months. ~ 4... Mr. Abdullah serves in Saudi Arabia with a private employer. During the last 4 years, his total stay in Pakistan was of 8 months. During this year he came on a long leave to stay. with his family for 4 months. 3. Mr. Asad came to Pakistan to attend a marriage ceremony. He fell ill and on medical advice had to stay in Murree for 7 months. 6. | Mr. Umar is an employee in foreign ministry. He is posted in Iraq. During the tax year 2021'he did not come to Pakistan. Required. Determine whether these individuals are resident or non-resident for the tax year 2021. . Solution. ., ‘Resident or ‘Non-Resident Reasons. 1. Resident His total stay during the tax year is more than 183 . , days (continuous stay not necessary). 2. Resident His stay in Pakistan was more than 183 days. 3. Resident His total stay during the tax year is for more than 183 days (purpose and place of stay is immaterial). 4, Non-Resident He does not fulfil any one condition, Resident He stayed. in Pakistan for more than 183 days during the year.38 INCOME TAX 6. Resident The employee or official of Federal or Provincial Government posted abroad is treated as resident. 2." Resident Company {Section 83] A company shall be a resident company for a tax year if it fulfills any one of the following conditions: (a) It is incorporated or formed by or under any law in Pakistan; (6) The control and management of the company is situated wholly in Pakistan at any time in the year; or (c) _ Itisa Provincial Government or local authority in Pakistan. Explanation : (a). In.case a company is incorporated in Pakistan, it will always be a resident in Pakistan. (5) In case of other companies, they will become resident in Pakistan *~ only their control and management is wholly situated in Pakistan. Partial control is not sufficient for this purpose. (c)__A major difference in determining the status of an association of persons and company (other than a company incorporated in Pakistan) must be noted. In case of association of persons, even if partial contro! is in Pakistan it will be a resident of Pakistan for that tax year. But in case of a company (other than a company incorporated in Pakistan) if partial control is in Pakistan, it will be treated as non-resident. (d) It is necessary to differentiate between the act of doing business and controlling and managing a business. It may be possible that fa business is being wholly done in a foreign country but it is” being fully managed and controlled from within Pakistan, and vice versa. Distinction should be made between employees, agents, attomeys or managers who are doing business and partners, board of directors, presidents, etc., who are controlling. the organization. For the purpose of finding the place of control and management for tax purposes, the whereabouts of the brain behind the business should be found out. IDDeFINTIONS . 39 3. Assoclation of Persons [Section 84] An association of persons shall be resident for any 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. Explanation In case of an association of persons even a partial control is sufficient to become a resident for tax purposes. Moreover, it is not necessary that the control should be exercised for the whole year. It means that an association of persons will only not be a resident if its control and management is completely outside Pakistan through the year. The residence of the members of the association of persons is immaterial. The mere fact that members of the association are not residents of Pakistan does. not necessarily mean that association is also not a resident. . RESIDENT PERSONS te [Section 2(52)] A person shall be a resident person for a tax year if the person is: (a) aresident individual, resident company or resident association of person for the year; or : (6) _ the Federal Government. RESIDENT PERSONS [Section 2(37)] Under the Income Tax Ordinance, 2001, a person shall be a non-resi- dent person for a tax year if the person is not a resident person for that year. Ne Explanation The conditions for becoming a resident individual, resident company and resident association of persons have been explained in detail in the preceding pages. One must not have any problem now in distinguishing whether any person is resident or non-resident during a tax year. _ NON-RESIDENT TAXPAYERS ; [Section 2(38)] A non-resident taxpayer means a taxpayer who is a non-resident person. Reasons for Distinguishing Resident and Non-Resident Person There are two basic reasons due to which it is necessary to determine whether a person is a'resident or non-resident during the tax year:;.40 INCOME TAX 1. Incidence of Taxation . - The income of a resident person is calculated by taking into account both the Pakistan-source igcome and the foreign-source income. The income of non-resident person is computed by taking into account only those amounts which are Pakistan-source income. 2° Rates of Tax There is a difference in rates of tax for residents and non-residents. This difference will be discussed in later chapters. ROYALTIES [Section 2(54)] Royalties mean any amount paid or payable as consideration for: (a) the use of any patent, invention, design or model, secret formula or. process, trademark or any other property or right of this type; (8) the use of or right to use any copyrights of a literary, artistic or scientific work including films or videotapes for use in connection with television or tapes in connection with radio broadcasting. However, consideration for the sale of cinema autograph films will not be treated as royalty; (c) the receipt of, or right to receive, any visual images or sounds or both transmitted by satellite cable, optic fiber or similar techno- logy in connection with television, radio or internet broadcasting; (@ - the supply of any technical, industrial, commercial or scientific knowledge, experience or skill; (e) the use of, or right to use, any industrial, commercial or scientific | equipment; () — the supply of any assistance that is subsidiary to any property or ., Fight mentioned above; (g) _ the disposal of any property or right referred above. ; SALARY [Section 2(55)] Salary means an amount received by. an employee, from any employment whether of revenue or a capital nature. SMALL AND MEDIUM ENTERPRISE {Section 2(59A)] It means a person. who is engaged in manufacturing and his business turnover in the year does not exceed 250 million rupees.DerTions a If the annual business turnover exceeds the above amount, it shall not qualify as a small and medium. enterprise in the tax year in which annual turnover exceeds that turnover or any subsequent tax year. Fourteenth Schedule has been added in the Ordinance to facilitate the Small and medium Enterprises. Such Enterprise will be required to get registered with FBR. These enterprises have been distributed into two categories. 1. If the annual business turnover does not exceed Rs. 100 million, the income will be taxed at the.rate-of 7.5 %, 2. > ‘If the annual businéss turnover exceeds Rs. 100 million but does not exceed Rs. 250 million the tax payable will be 15 % of taxable income. SMALL COMPANY “i j {Seiten 2(59AB)} Under Income Tax Law “Small Company” means a company which fulfills the following conditions: 1. It is registered on or after 1* July 2005 under the Companies **-Ordinance, 1984; 2°" paid up capital plus undistributed reserves should not exceed fifty million rupees; 3." Annual turnover should not exeéed two hundred and fifty million rupees; 4. "The company ‘is not formed by’ reconstituting or splitting up an already existing business; and 5. _ Total employees are not more than two hundred and fifty at any time during the year. 6. It is not a small and medium enterprise as sefned as clause 2(59A) SPECIAL JUDGE : * [Section 2(59B)} A: special judge under the Income Tax Ordinance means a person appointed as such by the Federal Government under section 203 of the Ordinance. SPECULA TION BUSINESS. “ . [Section 2(61)) A speculation business means any business in which a contract for the purchase and sale of any commodity (including stock and shares) isa © nome Tax Periodically or ultimately settled otherwise than by the actual: delivery or transfer of the commodity, but does not include a business in which: (a) A contract in respect of raw materials or merchandise is entered into by @ person in the course of a manufacturing or mercantile business to guard against loss through future price fluctuations for the purposes of fulfilling the person’s other contracts for the actual delivery of the goods to be manufactured or merchandise to be sold. (6) A contract'in respect of stocks and shares is entered into bya dealer or investor therein to guard against loss in the person's holding of stocks and shares through price fluctuations: or () A contract is entered into by a member of a forward market or stock exchange in the course of any transaction to guard against any loss which may arise in the ordinary course of the person's business as such member. STOCK FUND [Section 2(61A)] Stock fund means a collective investment scheme or a mutual fund Where the investible funds are invested by way of equity shares in companies to the extent of more than ‘seventy percent of the investment. STOCK IN TRADE [Section 2(62)] Stock in trade means anything produced, manufactured, purchased, or otherwise acquired for manufacture, sale or exchange, and any materials or supplies to be consumed in the production or manufacture Process, but does not include stock or shares. STARTUP é {Section 2(62A} This definition has been included through finance Act 2017 It means: : (i) A business of a resident that commenced on or after 1.07.2012 and the person is engaged in technology driven products or services provided the person is registered by the Pakistan Software Export Board (PSEB) and its turnover is less than ‘one hundred million in each of the last five tax years; or *DEFINITIONS: , 43 Gi) Any business of a person’ which the Board with the approval of Federal Minister -in —Charge may specify in the official - Gazette. TAX : : [Section 2(63)] ‘Tax means any tax imposed under the income tax law. It also includes any penalty fee or other charge or any sum or amount leviable or payable under the Income Tax Ordinance, 2001. TAXABLE INCOME [Section 2(64)] ‘The taxable income of a person for a tax year shall be the total income of the person for the year as reduced by any deductible allowances. However, the taxable income should not be below zero. TAXPAYER ‘[Section 2(66)] Taxpayer means: : (a) "A person who derives an amount chargeable to tax; (2). Representative of such person; (c) A person responsible to deduct or collect tax and deposit it with the government under the provisions of the income tax law; (@) . Any person required to furnish a return or pay tax under Income Tax Ordinance, 2001. Explanation 1. It is necessary for the following persons to furnish the return of income: (a) _ Every person whose total income during the tax year exceeds the maximum amount that is not chargeable to tax; (6) ‘Every company irrespective of its income; (©) Any non-profit organization; (@)__ Any approved welfare institution; *(e) Any person who has been charged to tax for any of the two tax years immediately preceding the previous tax year; (Any person who claims a loss carried forward from a previous tax’ year;44 INCOME TAX (g) any person who owns immovable property with a land area of 250 square yards or more or owns any flat located in areas falling within the municipal limits existing immediately before the commencement of Local Government laws in the provinces; or in Cantonment or the Islamabad Capital Territory; (h) , Any person owning 500 yards or above immoveable property ina rating area; ; (9 Any person who owns a flat with covered area of 2,000 square _ feet or more located in a rated area; () | Any person who owns a motor Vehicle having engine capacity above 1,000 cc; (Kk) Any person who has obtained Nasional Tax Number. () Any person holding commercial or industrial connection. of electricity where the annual bill exceeds Rs. 5,00,000. (m) every businessman whose inconie is more than Rs. 3,00,000 but Jess than Rs. 4,00,000 for the tax year. (n) Any organization registered with a chamber of commerce and industry, any trade association or a professional body should also file the return. Section (g) above, however, will not be applicable, i.e. they are not required to file the return if they belong to any of the following categories: 1. Awidow. 2. An orphan below the age of 25 years. 3. Anon-resident person. = 4... A disabled person. 2. All the taxpayers should file a wealth statement and wealth reconciliation statement along with the return. TAX YEAR : “ [Section 2(68)] The concept of tax year has been introduced in our income tax law through Income Tax Ordinance, 2001. Tax year is a period of time for which tax is to be calculated regarding a person. ‘The tax year may be of three types:DeFinmTions Se 4s 1. Normal Tax Year It is a period of twelve months ending on 30" June and is known by the Calendar Year in which the ending date falls. Such a tax year is known as normal tax year. Explanation + Period starting on 01.07.2017 and ending on 30.06.2018 is 2 normal tax year and will be known as tax year 2018. In some cases a normal tax year may be of less than twelve months, e.g. if a person starts a business on 01.09.2017 and ends his accounting period on 30.06.2018. This period of ten months will also be a “normal tax year” and will be tax year 2018. Tax years of most of the persons fall under this category. 2. Special Tax Year In case of any person or class of persons or any source of income the Board may specify a period of twelve months as their tax year. For example, in case of all companies manufacturing cotton textiles the Board has specified that their tax year will commence on I October and will end on 30% September following. This period of 12 months is tax year for all companies engaged in cotton textiles manufacturing, Such a tax year is called special tax year and is known by the calendar year relevant to normal tax year in which the ending date falls. ‘ Explanation These specific periods of time to be considered as “tax year” have been declared by the Board-keeping in-view the nature of businesses. In this respect the following years have been specified by the Board throigh notification in the official Gazette: ~ Classes of Taxpayers Commencing Date Ending Date Companies manufacturing 1 July 30" June jute goods ~ Companies manufacturing 1* October 30 September sugar or cotton textiles All persons exporting rice 1* January 315 December All persons carryingon , “1% September 31% August business of cotton ginning46 INCOME Tax, All persons carrying on - _1* September. 31* August business of rice husking Alll persons carrying on I® September 31* August business of oil milling All persons carrying on 18 April 31* March business manufacturing and dealing of in “Shaws? All insurance companies 18 January 31* December ‘A Berson is engaged in rice husking business. He will have to adopt the Period starting on 1* September and fading on 31* August as his tax year It ill be known as a “special tax year” His tax year which started on 1.9.2016 and ended on 31.8.2017 will be known az tax year 2018. Mr. Hatecm is manufacturing. shawls. For this business “special tax year” has been notified commencing on I* April and ending on 31% March. His tax year which started on 01.04 2917 and ended On 31.03.2018 will be Known as tax year 2018 . The Board May permit any class of Persons or business to change its tax Year from “normai tax veae" to. “soecial tax year” of vice versa, In such cases, all the persons carving, ow the: paroles business will have to change their ie 4, ‘te his “special tax year” to normal tax © Commissioner of Income Tax who has peed is shown for such a change, The 2 wemdition for such a change, He also has ™ wanted for the change, TA AF ay dace. of PHAKE 8 Sige person is changed as a BP ct ee ie hea POA et Cpt eh det sf Mame Vox, it results in OF EADS OF Shel Ae om, HK tonaitonal tax year” AF ails 9 the nepind between the PON tt a EP. al ia Shee tan your,special Commissioner of Income Tax and produced solid reasons for changing his Special tax year to normal tax year. The Commissioner allowed the change, Now his present special tax year will end om 31.12.2016. But as per change his next tax year will be from 01.07.2017 to 3 06.2018. The period from 01.01.2017 to 30.06.2017 shall be MutaPs “transitional tax year”, Te a) end . Dermurions = 47. TO) Mr. Mutaf is in the rice export business, According to law he has a | {ax year. It started on 01.01.2016. During the year he applied to Mr. Jabbar wants to change his tax year, Previously he was observing . normal tax year, however, due to Pressing needs of the business, he now wants to adopt the period of twelve months from 15 October to 30" September as special tax year. The Commissioner has allowed him the change on 15" June 2014, His tax years will be as follows: (@) Normal Tax Year (Previously in practice) 1* July 2015 to 30% June 2016 ° @®) Transitional Tax Year (Only for the purpose of change) 1* July 2015 to 30 September 2016 (©) Special’ Tax Year (As approved by Commissioner) 1 October 2016 to 30 September.2017 We can sum up this discussion by concluding that a tax year may be of. three types: normal. tax year, special tax year and transitional tax year. If a tax Year ends on or before 30 June it is known by the name of the same year, oe. 2 tax year ending on 31% March 2018, shall be tax year 2018. However, if vean Zar ends after 30" June, it will be known by the name of nen calendar Sore. 9% Year ending on 31% August 2017 will be known es te year 2018. TOTAL INCOME : {Section 2(69)] ‘The total income of a person for a tax year shall be tre sum of the Person's income under each of the heads of income for the year. Following (a) . Salary (6) Income from property (c) Income from business (Capital gains48 Income Tax (e) Income from other sources TURNOVER [Section 2(70A)] Tumover means: (a) the gross receipts, exclusive of Sales Tax and Federal Excise Duty or any trade discounts shown on invoices, or bills, derived from the sale of goods, and also excluding any amount taken as deemed income and is assessed as final discharge of the tax liability for which tax is already paid or payable. (6) the gross fees for the rendering of services for giving benefits including commissions; except covered by final discharge of tax . liability for which tax is separately paid or payable; (c) the gross receipts from the execution of contracts; except covered by final discharge of tax liability for which tax is separately paid or payable; and (@) the company’s share of the amounts stated above of any association of persons of which the company is a member. Whistle Blower . [section 2(75&227B)] Whistle blower is a person who reports concealment or evasion of income tax, due to fraud, corruption or misconduct, to competent authority who can take action against such person or authority committing fraud, corruption or misconduct. ASSOCIATES [Section 85] This term has been introduced by Finance Ordinance, 2001. 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 instructions of other or both persons may reasonably be expected to act in accordance with the instructions of a third person, e.g. 1. An individual and his close relative; Members of an association of persons; A trust and any person who beriefits from the trust; A company and its shareholder who controls 50% or more voting power, rights to dividend or rights to capital. AYN LO