Chapter 5: Definitions

CHAPTER 5
DEFINITIONS
(29C) “Industrial undertaking” means –
(a) An undertaking set up in Pakistan and which employs:
i. 10 or more persons and involves the use of electrical energy or any other energy which is
mechanically transmitted and is not generated by human or animal energy; or
ii. 20 or more persons and does not involve the use of electrical energy or any other energy which is
mechanically transmitted and is not generated by human or animal energy and
iii. And is engaged in,-
(i) - the manufacture of goods or materials or
- the processing goods in a way which substantially changes their original condition;
(ii) ship-building;
(iii) generation, conversion, transmission or distribution of electrical energy; or
(iv) the working of any mine, oil-well or any other source of mineral deposits;
(aa) a person doing construction of buildings, roads, bridges and other such structures (including the
development of land), for import of plant and machinery to be used (applicable from 1.5.20),
(ab) a resident company engaged in the hotel business in Pakistan (applicable from 1.7.20);
(c) telecommunication companies (operating under the license of Pakistan Telecommunication
Authority (PTA));

(23) “Fee for technical services” means amount received whether periodical or lump sum, for rendering of
managerial, technical or consultancy services (including the services of technical or other personnel), but
does not include:-
(a) Amount received for services rendered for a construction, assembly or like project; or
(b) receipt which is chargeable under the head “Salary”;
Associates [Sec. 85]
(1) Two persons shall be associates where the relationship between the two is such that:
 One may reasonably be expected to act in accordance with the intentions of the other, or both persons may
reasonably be expected to act in accordance with the intentions of a third person;
 One person sufficiently influences, either alone or together with an associate or associates, the other person;

Explanation. – Two persons shall be treated as sufficiently influencing each other, where one or both,
(directly or indirectly) are economically and financially dependent on each other and, decisions are made in
accordance with the directions, instructions or wishes of each other for common economic goal; or
 One person enters into a transaction, directly or indirectly, with the other who is a resident of jurisdiction
with zero taxation regime.
(2) Two persons shall not be associates solely because:
 one person is an employee of the other or
 both are employees of a third person.
(3) Subject to sub- section (4), the following shall be treated as associates –
(a) an individual and a relative of the individual;
(b) members of an AOP;
(c) a member of an AOP and the AOP, where the member,
 either alone or
 together with an associate or associates under another application of this section
controls 50% or more of the rights to income or capital of the association;
(d) a trust and any person who benefits under the trust;
(e) a shareholder in a company and the company, where the shareholder,
 either alone or
 together with an associate or associates,
controls either directly or through one or more interposed persons –
(i) 50% or more of the voting power in the company;
(ii) 50% or more of the rights to dividends; or
(iii) 50% or more of the rights to capital; and

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Chapter 5: Definitions

(f) two companies, where a person,

 either alone or
 together with an associate or associates,
controls either directly or through one or more interposed persons –
(i) 50% or more of the voting power in both companies;
(ii) 50% or more of the rights to dividends in both companies; or
(iii) 50% or more of the rights to capital in both companies.
Example 1
ABC Co. has the following shareholders:
LM AOP 55%
M 20%
N 10%
Q 10%
R 5%
LM AOP and ABC CO. are associates because LM AOP holds more than 50% shares in ABC Co.
Example 2
XYZ Co. has the following shareholders:
NA AOP 45%
R 10%
N 20%
Q 10%
M 10%
G 5%
You have also been informed that R and N are members of NA AOP having 60% and 40% share of profits
respectively and N is not expected to act in accordance with the intentions of R.
Following are associates:
 R and NA AOP
 NA AOP and XYZ Co.
 R and XYZ Co.
As N is not expected to act in accordance with the intentions of R so N and R are not associates. However
NA AOP and R are associates because R shares more than 50% profits of NA AOP.
Further NA AOP and XYZ Co. are associates because NA AOP alongwith an associate, R, holds more than
50% shares in XYZ Co.
Similarly R and XYZ Co. are associates because R alongwith an associate, NA AOP, holds more than 50%
shares in XYZ Co.

(4) Relatives and members of an AOP shall not be associates [under clause (a) or (b) of subsection (3)] where
Commissioner is satisfied that no one is expected to act in accordance with the intentions of the other.
(5) In this section,
i) “relative” in relation to an individual means:
a)
 an ancestor,
 a descendant of any of the grandparents, or
 an adopted child, of the individual, or of a spouse of the individual; or
b)
 a spouse of the individual or
 of any person specified in above clause (a)
ii) “jurisdiction with zero taxation regime” means jurisdiction as may be prescribed.

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Chapter 5: Definitions

(45) “private company” means a company that is not a public company

(47) “public company” means –
(a) a company in which at least 50% of the shares are held by the Federal or Provincial Government;
(ab)
 a company in which at least 50% of the shares are held by a foreign Government, and
 a company in which at least 50% of the shares are held by foreign company owned by a
foreign Government;
Example
China Government owns 100% shares of a foreign company X. Company X owns 70% shares
in Co. Q. Whether Co. Q will be considered as a public company?
Solution
Yes, because Q company is a company in which 70% of the shares are held by foreign
company X which is owned by a foreign Government (Government of China).
(b) a company whose shares:
 were traded on a registered stock exchange in Pakistan at any time in the tax year and
 remains listed on that exchange at the end of year; or
(d) a unit trust whose units are widely available to the public.
Question
Explain whether the following companies are public or private?
1 Sitara Chemical Limited (SCL) incorporated under Companies Act, 2017. It is a non-listed
company. Ching Chonge Limited (CCL), a company incorporated in Japan, holds 63% of shares
in SCL. 84% of shares in CCL are held by Japanese government.
2 MN Limited is a public company incorporated under Companies Act, 2017. The shares of MN
limited were traded on Karachi Stock Exchange (KSE) from 1st October 2013 to 29 June 2014.
On 29 June 2014 Company was delisted from KSE.
3 Star Limited, a public company incorporated under Companies Act, 2017, is a unlisted company
whose 50% shares are held by Federal Government.
4 Moon Limited is a public unlisted company, whose 43% of shares are held by Provincial
Government, 50% by UAE Government and 7% by Sun Limited.
Answer
1. A public company means a company in which not less than 50% percent of the shares are held by
a foreign government, or a foreign company owned by a foreign government. CCL is not wholly
owned by the Japanese government so Sitara Chemical Limited is not a public company.
2. A company whose shares 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 is considered as
public company. So MN Limited is a private company.
3. A public company means a company in which not less than fifty percent of the shares are held by
Federal Government or Provincial Government. So Star Limited is a public company.
4. A public company means a company in which not less than fifty percent of the shares are held by
a foreign government, or a foreign company owned by a foreign government. So Moon Limited
is a public company because UAE Government holds 50% shares of Moon Limited.

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(1) “Accumulated profits” for payment of dividend, include –

(a) any reserve made up from any allowance, deduction, or exemption under this Ordinance;
(b) all profits of the company including incomes/gains of a trust up to the date of distribution; and
(c) all profits of the company including incomes/gains of a trust up to the date of its liquidation;

(19) “dividend” includes:

(a) any distribution by a company of accumulated profits to its shareholders, whether capitalised or not,
if such distribution requires the release of assets (including money) by the company;
EXPLANATION
Requires the release of assets including money
Accumulated profits (Dividend) Dr.
Bank Cr.
(b) any distribution by a company to its shareholders of debentures, whether with or without profit
(interest), upto the extent of accumulated profits whether capitalised or not;
EXPLANATION
A company announced the dividend and issued debentures in lieu of dividend. So, following entries
shall be passed;
Accumulated Profit (Dividend) Dr.
Debentures payable (Loan payable) Cr.
 Whether with or without profit. i.e. interest bearing or non interest bearing
(c) any distribution by a company to its shareholders on its liquidation, upto the extent of accumulated
profits whether capitalised or not;
(d) any distribution by a company to its shareholders on the reduction of capital, upto the extent of
accumulated profits whether capitalised or not;
(e) the payment by a private company as defined in the Companies Act, 2017 or trust:
 by way of advance or loan to a shareholder or
 for the individual benefit of a shareholder,
The payment should be from accumulated profits.
In case loan/advance is repaid by shareholder, the tax on dividend will be refunded.

Tax implications of the loan/advance transaction on the shareholder as well as the company:

If loan provider is: Implication on shareholder Implication on company

Private Company Treated as dividend income Company will deduct tax
in the hands of share holder on dividend income
Public listed/unlisted Company No tax implication No tax implication

(f) Remittance (to head office) of after tax profit of a branch of a foreign company in Pakistan;

Following payments will not be considered as dividend:

(i) A distribution on liquidation or reduction of capital (for shares issued against cash), where
shareholder has no right in surplus assets on liquidation;
(ii) any advance/loan by a company involved in lending business;
(iii) any dividend paid by a company which is set off against amount previously paid by it and treated
as a dividend (under sub-clause (e)); and
(iv) Remittance (to head office) of after tax profit by a branch of Petroleum Exploration and
Production foreign company.

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Chapter 5: Definitions

Example
(a) Grey Enterprises Limited(GEL) is under the process of liquidation. The shareholders are
paid Rs. 15/share (Rs. 10 being the par value and Rs. 5 as share of accumulated profits)
on 31.07.20X6. Mr. A holds 20,000 shares in GEL. What amount is taxable in the hands
of Mr. A as dividend under ITO, 2001?
(b) House Pvt. Limited (HPL) is engaged in the business of purchasing/selling of
commercial & residential property. HPL extended a loan to one of its shareholder, Mr. A,
amounting to Rs. 5 Million on 25.10.20X6. What amount is taxable in the hands of Mr.
A as dividend under ITO, 2001?
(c) Shepard Petroleum (SP), incorporated in Seattle USA, is engaged in the business of
exploration and production of Oil around the globe. The Pakistani branch of SP has
remitted Rs. 23 Million as Interim Profit after tax to its head office in Seattle. What is the
amount of tax that should be deducted by the branch as „tax on dividend‟ while remitting
the profits?
Answer
(a) Rs. 100,000 (20,000 x 5) is taxable as dividend under ITO, 2001.
(b) Rs. 5 million is taxable as dividend under ITO, 2001.
(c) Nothing as it is a branch engaged in exploration and production of Oil.

(5) “assessment” includes provisional assessment and amended assessment;

(5A) “assessment year” means assessment year as defined in the repealed Ordinance;
(11A) “charitable purpose” includes relief of the poor, education, medical relief and the advancement of any
other object of general public utility;
(19C) “electronic record” includes the contents of communications and transactions under this Ordinance,
including attachments, annexes, accounts, returns, notices, and any other associated information created,
sent, forwarded, downloaded, read, or printed, by one or several electronic resources.
(29) “income” includes:
 any amount chargeable to tax under this Ordinance,
 any amount subject to collection or deduction of tax which is treated as final tax [Including Bonus
Shares Issued by Company under 236Z].
 any amount treated as income under any provision of this Ordinance and
 any loss of income
(29A) “income year” means income year as defined in the repealed Ordinance.
(36) “non-profit organization” non-profit organization means any person other than an individual, which is
(a) established for religious, educational, charitable, welfare purposes for general public , or for promoting
an amateur sport;
(b) formed by or under a law as a non-profit organization;
(c) approved by the Commissioner for specified period, on an appeal in prescribed form, accompanied by
the prescribed documents and
(d) the person do not derive any benefit from the assets.
(53) “resident taxpayer” means a taxpayer who is a resident person;
(38) “non-resident taxpayer” means a taxpayer who is a non-resident person;
(44A) “principal officer” with reference to a company or an association of persons includes –
(a) a director, a manager, secretary, agent, accountant or any similar officer; and
(b) any person connected with the management or administration of the company or an AOP on
whom the Commissioner has served a notice treating him as the principal officer
(66) “taxpayer” means any person who derives an amount chargeable to tax, and includes:
(a) any representative of a person who derives an amount chargeable to tax under this Ordinance;
(b) any person who is required to deduct or collect tax; or
(c) any person required to furnish a return of income or pay tax under this Ordinance;
(63) “Tax” means any tax imposed under this law, and includes any penalty, fee or other charge or any sum or
amount leviable or payable under this law.
(8) “Board” means the Federal Board of Revenue.

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(54) “Royalty” means any amount paid or payable, however described or computed, whether periodical or a
lump sum, as consideration for -
(a) the use of, or right to use any
i. patent (right to use name),
ii. invention,
iii. design or model,
iv. secret formula or process,
v. trade mark or
vi. other like property or right;
(b) the use of, or right to use any copyright of a literary, artistic or scientific work, including films or video
tapes for use in connection with television or tapes in connection with radio broadcasting, (e.g. PTV
pays royalty for broadcasting an ESPN cricket documentary); BUT shall not include consideration for
the sale, distribution or exhibition of cinematograph films
(c) the receipt of, or right to receive, any
i. visual images or
ii. sounds, or
iii. both,
transmitted by satellite, cable, optic fiber or similar technology in connection with television, radio or
internet broadcasting;
(d) The supply of any technical, industrial, commercial or scientific knowledge, experience or skill;
Difference with fee for technical services.
Fee for Technical services:
“Consideration for RENDERING of any managerial, technical or consultancy services including the
services of technical or other personnel”

Royalty:
“Consideration for SUPPLY of any technical, industrial, commercial or scientific knowledge,
experience or skill”

There is a transfer of knowledge in royalty in contrast with fee for technical services which involves
actual rendering of services.

(e) the use of or right to use any industrial, commercial or scientific equipment
(f) the supply of any assistance that is ancillary and subsidiary to any property or right as mentioned in
sub- clauses (a) through (e); and it is furnished as a means of enabling the enjoyment of any property
or right. and
(g) the disposal of any property or right referred to in sub- clauses (a) through (e);

(30AE) “IT enabled services”

IT enabled services include but not limited to inbound or outbound call centres, medical transcription, remote
monitoring, graphics design, accounting services, Human Resource (HR) services, telemedicine centers, data entry
operations, cloud computing services, data storage services, locally produced television programs and insurance
claims processing.

(30AC), “Iris”
means a web based computer programme for operation and management of Inland Revenue taxes and laws
administered by the Board.

(9) Bonus shares

“bonus shares” includes bonus units in a unit trust.

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Chapter 5: Definitions

(41) “Permanent Establishment” in relation to a person, means a place of business through which the business of
the person is (wholly or partly) carried on, and includes-
(a) a place of management, branch, office, factory or workshop, premises for soliciting orders, warehouse,
permanent sales exhibition or sales outlet, excluding a liaison office however if liaison office is
engaged in the negotiation of contracts (except purchase contracts) then it is a permanent
establishment.
(b) a mine, oil or gas well, quarry or any other place of extraction of natural resources;
(ba) an agricultural, pastoral or forestry property;
(bb) virtual business presence in Pakistan including any business where transactions are conducted through
internet or any other electronic medium, with or without having any physical presence;
(c) a building site, a construction, assembly or installation project or supervisory activities connected with
it that continue for a period or periods aggregating more than 90 days within any 12 months period;
(d) the furnishing of services (including consultancy services) by any person through employees or his
other personnel or entity engaged by the person for such purpose.;
(e) a person acting in Pakistan (the agent) [other than an independent agent acting in the ordinary course
of business] on behalf of the person if the agent –
(i) - exercises an authority to conclude contracts on behalf of the other person or
- plays the principal role and conclude contracts without material modification and these
contracts are-
(a) in the name of the person; or
(b) for the transfer of ownership of (or granting of the right to use) property
owned by that enterprise; or
(c) for providing services by that person; or
(ii) has no authority but habitually maintains stock (merchandise) for regular deliveries on
behalf of the other person:
(f) any substantial equipment installed, or other asset or property capable of activity giving rise to income;
(g) a place of business that is used or maintained by a person if the person (or an associate of a person)
carries on business at that place (or at another place in Pakistan) and:
(i) that place (or other place) constitutes a PE of the person (or his associate); or
(ii) business is carried on by the person (or an associate of the person) at the same place or at
more than one place constitute complementary functions that are part of a cohesive
business operation.

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ICAP PAST PAPER QUESTIONS

Question-1
Rose Company Ltd. has a paid up capital of Rs.5,000,000 consisting 500,000 shares of Rs.10 each. On 30.6.2001 the
company‟s balance sheet shows accumulated profits of Rs.1,500,000. The company has to be liquidated. The official
liquidator realized Rs.6,500,000 and distribution among the shareholders was made at the rate of Rs.13 per share.
Shewani Group owns 200,000 shares in the company.
How much of the amount received by Shewani Group is dividend? Please explain your answer. (4)
(Q.1(b)September 2002)
Question-2
Define the following with reference to the Income Tax Ordinance, 2001?
(a) Fee for technical services (3)
(b) Non-profit organization (3)
(c) Income (3)
(d) Taxpayer (2)
(Q.1September 2004)
Question-3
Identify the situations in which two companies shall be considered to be associates within the meaning of the
Income Tax Ordinance 2001. (6)
(Q.5 (a) September 2007)
Question-4
Certain types of payments by a private company to their shareholders can be treated as "dividend" under the Income
Tax Ordinance, 2001. State the conditions necessary for the application of this rule and the exceptions to it. (5)
(Q.4 (b) March 2008)
Question-5
State the circumstances when two companies shall be considered as associates, under the Income Tax Ordinance,
2001. (4)
(Q.5 (b) September 2008)
Question-6
A company engaged in manufacturing activities has decided to provide loan to one of its shareholders. Explain the
tax implication on the company as well as the shareholder if the Company:
(i) is registered under the Companies Act, 2017 as a private limited company.
(ii) is an unlisted public company. (6)
(Q.2 (a) September 2009)
Question-7
Tamba Pakistan (Pvt.) Limited is engaged in the manufacture of pharmaceutical products. Its board of directors has
approved a 3-year loan to one of its major shareholders.
Required:
Explain the tax implications of the above transaction on the company as well as the shareholder. (4)
(Q.5 (a) March 2012)
Question-8
Under the Income Tax Ordinance 2001, where a person is reasonably expected to act in accordance with the
intentions of another person, both persons are considered as associates.
Required:
(i) Explain the term “person” in the above context. (3)
(ii) State the circumstances in which a company and its shareholder shall be considered as associates. (4)
(Q.6 (b) March 2012)
Question-9
Differentiate between „Public company‟ and „Private company‟ within the meaning of Income Tax Ordinance, 2001.
(5)
(Q.5 (a) September 2013)
Question-10
Under the provisions of Income Tax Ordinance, 2001:
Explain the term „Associates‟. State the circumstances under which a shareholder in a company and the company
may be regarded as associates. (5)
(Q.2 (b) March 2014)

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Question-11
Certain payments made by a private limited company to its shareholders can be treated as „dividend‟. Explain the
above in the context of Income Tax Ordinance, 2001. Also identify the exceptions to this rule.
(7)
(Q.7 March 2014)
Question-12
Briefly discuss the provisions of Income Tax Ordinance, 2001 in respect of the following situation:
ABC (Private) Limited has decided to provide a loan of Rs. 5 million to one of its shareholders, for the purchase of a
house. (4)
(Q.2 (b) September 2014)
Question-13
Under the provisions of the Income Tax Ordinance, 2001 describe the following:
(i) meaning of the term „Associates‟. (2)
(ii) circumstances in which a member of an association of persons and the association may be regarded as
associates. (2)
(iii) situation in which members of an association of persons may not be regarded as associates. (2)
(Q.3 (b) September 2016)
Question-14
On 25 August 20X8, the Officer of Inland Revenue has issued a notice to Rahat Foods (Private) Limited (RFPL) to
deposit withholding income tax of Rs. 1,950,000 in respect of loan amounting to Rs. 13,000,000 given to Nadeem
Ahmad, a shareholder of RFPL, by treating the amount of loan as dividend. The notice was served to the company
on 30 August 20X8.
According to RFPL‟s records, the loan was given to Nadeem Ahmad on 25 May 20X7 when accumulated profit of
the company was Rs. 12,000,000.
In the light of the provisions of the Income Tax Ordinance, 2001 explain whether you agree with the notice issued to
RFPL by the Officer of Inland Revenue. (03)
(Q.4 (a) September 2018)
Question-15
(a) Briefly discuss the difference between a public company and a private company, within the meaning of
Income Tax Ordinance, 2001. (04)
(b) Certain types of payments by a private company to its shareholders can be treated as `dividend' under the
Income Tax Ordinance, 2001. State the conditions necessary for the application of this rule and the
exceptions to such rule. (05)
(Q.5 March 2019)
Question-16
Explain Industrial Undertaking as specified in the Income Tax Ordinance, 2001. (5)
(Q.4 (b) September 2011)
Question-17
Dr. Jamal is planning to establish a hospital as a non-profit organization.
Required:
Discuss the conditions that should be complied with by Dr. Jamal, under the Income Tax Ordinance, 2001. (03)
(Q.1(b) March 2021)
Question-18
Following information pertains to three unlisted companies:
Company Shareholders
A Limited 60% shares are held by a foreign company
B Limited 40% shares are held by the Provincial and Federal governments
C Limited 100% shares are held by a local group
Required: Under the provisions of the Income Tax Ordinance, 2001 briefly discuss whether each of the above
companies can be classified as public or private. Also state the additional information, if any, which may be required
for determining the classification of these companies. (03)
(Q.4 (c) March 2022)

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ICAP PAST PAPER SOLUTIONS

Note: Few of the questions are not answered below.
Answer-1
Any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is
from the accumulated profits of the company whether capitalised or not is treated as dividend.
Therefore Rs. 3 x 200,000 = 600,000 will be treated as dividend in the hands of Shewani Group.
Rs. 3 is calculated as (1,500,000/500,000)

Answer-2
Refer definitions.

Answer-3
S. 85(3) (f)

Answer-4
The payment made (from accumulated profits) by a private company as defined in the Companies Act, 2017 of any
amount (whether it is a part of the assets of the company or trust, or otherwise)
 by way of advance or loan to a shareholder
 for the individual benefit of a shareholder
shall be treated as dividend under the Income Tax Ordinance, 2001.

Exception
Following payments will not be considered as dividend:
(i) any advance/loan by a company involved in lending business;
(ii) any dividend paid by a company which is set off against amount previously paid by it and treated as a
dividend.

Answer-6
i. If the company is private limited company.
Tax implications on shareholders
The term dividend includes any payment by a private limited company by way of loan to its shareholder for
the individual benefit of shareholder to the extent of accumulated profits. Accordingly, amount received by
the shareholder shall be construed as dividend in the hands of the shareholder and taxable under the
provisions of the ITO-2001.
Tax implications on private limited company
Being a private company, it is responsible to deduct withholding tax on the payment of dividend at the rates
specified in the First Schedule.
ii. If the company is an unlisted public company, the payment made to the shareholders will not be construed
as dividend. So, no tax implication on the company or the shareholder.

Answer-7
Implications from point of view of shareholder
The payment made by a private company as defined in the Companies Act, 2017 of any amount by way of advance
or loan to a shareholder shall be considered as dividend.
Therefore the amount received by shareholder will be treated as dividend income in his hands.
Implications from point of view of company
Every person paying a dividend shall deduct tax from the gross amount of the dividend paid at the rate of 15% of
gross amount of dividend. Therefore company is required to deduct tax @ 15% of gross amount of dividend.

Answer-8
i) Refer Chapter-4
ii) S. 85(3)(e)
Answer-9
Refer definitions.

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Answer-10
Two persons shall be associates where the relationship between the two is such that:
 One may reasonably be expected to act in accordance with the intentions of the other, or both persons may
reasonably be expected to act in accordance with the intentions of a third person;
 One person sufficiently influences, either alone or together with an associate or associates, the other person;
Explanation. – Two persons shall be treated as sufficiently influencing each other, where one or both,
(directly or indirectly) are economically and financially dependent on each other and, decisions are made in
accordance with the directions, instructions or wishes of each other for common economic goal; or
 One person enters into a transaction, directly or indirectly, with the other who is a resident of jurisdiction
with zero taxation regime.
And S. 85(3) (e)

Answer-11
The payment by a private company as defined in the Companies Act, 2017 or trust by way of advance or loan to a
shareholder or for the individual benefit of a shareholder shall be considered as dividend. The payment should be
from accumulated profits.

Following payments will not be considered as dividend:

(i) any advance/loan by a company involved in lending business;
(ii) any dividend paid by a company which is set off against amount previously paid by it and treated as a
dividend.

Answer-12
The payment by a private company as defined in the Companies Act, 2017 or trust by way of advance or loan to a
shareholder or for the individual benefit of a shareholder. The payment should be from accumulated profits.
Therefore it is considered as dividend in the hands of shareholder and company is required to deduct tax at the rate
of 15% on the gross amount of dividend.

Answer-13
i. Associates
(4) Two persons shall be associates where the relationship between the two is such that:
 One may reasonably be expected to act in accordance with the intentions of the other, or both persons may
reasonably be expected to act in accordance with the intentions of a third person;
 One person sufficiently influences, either alone or together with an associate or associates, the other person;
Explanation. – Two persons shall be treated as sufficiently influencing each other, where one or both,
(directly or indirectly) are economically and financially dependent on each other and, decisions are made in
accordance with the directions, instructions or wishes of each other for common economic goal; or
 One person enters into a transaction, directly or indirectly, with the other who is a resident of jurisdiction
with zero taxation regime.
ii. A member of an AOP and the AOP, where the member,
 either alone or
 together with an associate or associates under another application of this section controls 50% or more of
the rights to income or capital of the association
iii. Members of an AOP shall not be associates where Commissioner is satisfied that no one is expected to act in
accordance with the intentions of the other.

Answer-14
“Dividend” includes the payment by a private company as defined in the Companies Act, 2017 or trust:
 by way of advance or loan to a shareholder or
 for the individual benefit of a shareholder,
The payment should be from accumulated profits.
Considering the above definition of dividend, the tax officer is correct to the extent of treating the loan payment as
dividend. However, he made error in treating the entire amount of Rs.13 million as dividend because the amount of
accumulated profit was Rs.12 million on that date. Therefore, only Rs.12 million can be treated as dividend.

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Answer-15
a) S. 2 (45), (47)
b) Dividend includes the payment by a private company as defined in the Companies Act, 2017 or trust:
 by way of advance or loan to a shareholder or
 for the individual benefit of a shareholder,
The payment should be from accumulated profits.
Following payments will not be considered as dividend:
(i) any advance/loan by a company involved in lending business;
(ii) any dividend paid by a company which is set off against amount previously paid by it and treated
as a dividend.

Answer-16
Refer the chapter above.

Answer-17
An individual cannot form a non-profit organization. However Dr. Jamal can run his clinic as a non-profit
organization:
(a) established for charitable purpose
(b) formed under a law as a non-profit organization;
(c) approved by the Commissioner for specified period, on an appeal in prescribed form, accompanied by the
prescribed documents and
(d) the person do not derive any benefit from the assets.

Answer-18
A Limited:
A Limited can be classified as private company. 60% of shares of A Limited are held by foreign company. If foreign
company is 100% owned by foreign government, then A Limited would be classified as public company. As the
ownership structure of foreign company is not known, we cannot classify it as public company.

B Limited:
B Limited can be classified as private company because neither the Provincial Government and nor the Federal
Government solely own 50% or more of the shareholding of company B.

C Limited:
C Limited can be classified as private company as 100% shareholding of the company is with local group (non-
government) and the Provincial, Federal or Foreign Government does not own 50% or more of the shareholding of
company C.

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Chapter 5: Definitions

OTHER QUESTIONS
Questions Treatment
a) A person has employed 17 persons for the manufacturing of room
carpets. Explain under two independent scenarios whether he will be
considered as industrial undertaking or not. [Sec.2(29C)(a)(i)(ii))
 He uses human energy.  Not an industrial undertaking
 He uses electrical energy.  It is an industrial Undertaking
b) Company XYZ a listed company has 70% shareholding in both of two Following are associates:
companies:  ABC and XYZ [S. 85(3)(e)]
 ABC Private limited company  DEF and XYZ [S. 85(3)(e)]
 DEF Private limited company  ABC and DEF [S. 85(3)(f)]
What is the status of all of the above three companies under the law?
c) What would be your answer if the company XYZ in above example is No change in answer
a private company?

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