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Practice Question - 1

Ms. Beena Sikandar is a lawyer who owns a law firm called Beena & Co. She also works as the Director of Legal Affairs at Ayesha Foods Limited. Her total income for tax year 2020 includes: 1) Rs. 3.5 million in net profits from Beena & Co after deducting various business expenses. 2) Rs. 1.2 million in salary and bonuses from her job at Ayesha Foods Limited. 3) Use of a company car valued at Rs. 1.5 million from Ayesha Foods Limited. She must pay tax on her total taxable income according to tax rates for tax year 2020.

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73 views

Practice Question - 1

Ms. Beena Sikandar is a lawyer who owns a law firm called Beena & Co. She also works as the Director of Legal Affairs at Ayesha Foods Limited. Her total income for tax year 2020 includes: 1) Rs. 3.5 million in net profits from Beena & Co after deducting various business expenses. 2) Rs. 1.2 million in salary and bonuses from her job at Ayesha Foods Limited. 3) Use of a company car valued at Rs. 1.5 million from Ayesha Foods Limited. She must pay tax on her total taxable income according to tax rates for tax year 2020.

Uploaded by

Zain-ul- Farid
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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34 MULTIPLE INDIVIDUALS

(i) Mr. Danish war, a renowned author, completed his book on “Human Behaviour” in two and a half
years. He received a lump sum amount of Rs. 900,000 in May 2020 on account of royalty.
(ii) Mr. Bari, a Pakistani national, was working as a clearing agent in Taiwan for the past six years.
He came back to Pakistan in July 2019 and joined the clearing house of his brother Ikram. In
March 2020 he received, in Taiwan, Rs.1.0 million as his share of commission from the
discontinued business.
Required:
In the light of the provisions of Income Tax Ordinance, 2001, briefly explain the taxability of income in
each of the given situations.

35 MS. BEENA SIKANDAR


Ms. Beena Sikandar is a lawyer and owns a law firm under the name Beena & Co. She is also Director
Legal Affairs at Ayesha Foods Limited. Details of her income for the tax year 2020 are as follows:

(A) INCOME FROM BEENA & CO.


Income Statement Note Note Rupees
Revenue (i) 8,500,000
Less: Expenses
Salaries (ii) (2,000,000)
Gifts and donations (iii) (400,000)
Lease charges (iv) (900,000)
Professional fee (v) (400,000)
Property expenses (vi) (350,000)
Travel expenses (150,000)
Other expenses (vii) (600,000)
Tax withheld by clients (200,000)
(5,000,000)
Net profit 3,500,000
Notes to the Income Statement
(i) Revenue includes Rs. 750,000 recovered from Ms. Rafia in respect of bad debts that had
been written off while calculating the taxable income for the tax year 2015. The amount
was receivable against professional services rendered to Ms. Rafia.
(ii) Salary expenses include amounts of Rs. 50,000 and Rs. 75,000 per month paid to Beena
and her brother respectively. Her brother looks after administration and financial matters of
the firm.
(iii) Gifts and donations include gifts to clients, gift to her son and donation to Edhi
Foundation amounting to Rs. 100,000, Rs. 50,000 and Rs. 250,000 paid through
crossed cheques respectively.
(iv) A vehicle was obtained solely for official purposes on operating lease, from a bank.
The lease commenced on 1 March 2020. Lease charges include Rs. 500,000 paid as
security deposit to the bank.
(v) The professional fee includes an amount of Rs. 150,000 paid to a legal firm for
defending a law suit filed against Ms. Beena, in a family court.
(vi) Ms. Beena lives in an apartment situated above her office, and two-fifths of the total
property expenses relates to this apartment.
(vii) Other expenses include an amount of Rs. 150,000 paid for Ms. Beena’s golf club
membership, which she exclusively used to promote her business interests. The
payment to the club was made in cash.

(B) DIRECTOR’S REMUNERATION FROM AYESHA FOOD LIMITED (AFL)


(i) Ms. Beena received monthly remuneration of Rs. 100,000 from AFL.
(ii) During the year, she also received two bonus payments of Rs. 100,000 each. One of
the bonus pertains to tax year 2019. It was announced last year but disbursed to her
in the current year.
(iii) Ms. Beena has also been provided a vehicle, by AFL, for her personal as well as
business use. The car was acquired by AFL in May 2016 at a cost of Rs. 2,000,000.
The fair market value of the car as at 30 June 2020 was Rs. 1,500,000.
(iv) She received a fee of Rs. 150,000 from AFL for attending the meetings of the
Board of Directors (BOD).
(v)Details of tax deducted by AFL are as follows: Rupees

From salaries 390,000

From fee received for attending the meetings of BOD 9,000

Required:
Compute the taxable income, tax liability and tax payable by Ms. Beena Sikandar for the tax year
2020. Ignore Minimum Tax provisions. Provide appropriate comments on the items appearing in
the notes which are not considered by you in your computations.

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