Common rules (general)

COMMON RULES (GENERAL)
Income of joint owners: (1) For the purposes of this Ordinance and subject to subsection (2), where any property is owned by two or more
persons and their respective shares are definite and
ascertainable –
(a) the persons shall not be assessed as an association of
persons in respect of the property; and
(b) the share of each person in the income from the property
for a tax year shall be taken into account in the computation
of the person‘s taxable income for that year.
(2) This section shall not apply in computing income
chargeable under the head ― Income from Business‖

Apportionment of deductions : (1) Subject to this Ordinance, where an expenditure relates to:
(a) the derivation of more than one head of income; or
1[(ab) derivation of income comprising of taxable income and
any class of income to which sub-sections (4) and (5) of
section 4 apply, or;]
(b) the derivation of income chargeable to tax under a head of
income and to some other purpose,
the expenditure shall be apportioned on any reasonable basis
taking account of the relative nature and size of the activities to
which the amount relates.
(2) The [Board] may make rules under section [237] for the
purposes of apportioning deductions.

Fair market value: (1) For the purposes of this Ordinance, the fair market value of
any property 4[or rent], asset, service, benefit or perquisite
at a particular time shall be the price which the property [or
rent], asset, service, benefit or perquisite would ordinarily
fetch on sale or supply in the open market at that time.
(2) The fair market value of any property [or rent], asset,
service, benefit or perquisite shall be determined without
regard to any restriction on transfer or to the fact that it is
not otherwise convertible to cash.
(3) Where the price referred to in sub-section (1) is not
ordinarily ascertainable, such price may be determined by
the Commissioner.

Receipt of income: For the purposes of this Ordinance, a person shall be
treated as having received an amount, benefit, or
perquisite if it is –
(a) actually received by the person;
(b) applied on behalf of the person, at the instruction of
the person or under any law; or
(c) made available to the person.

Recouped expenditure : Where a person has been allowed a deduction for
any expenditure or loss incurred in a tax year in
the computation of the person‘s income
chargeable to tax under a head of income and,
subsequently, the person has received, in cash or
in kind, any amount in respect of such expenditure
or loss, the amount so received shall be included
in the income chargeable under that head for the
tax year in which it is received. .

Currency conversion: (1) Every amount taken into account under this Ordinance
shall be in Rupees.
(2) Where an amount is in a currency other than rupees,
the amount shall be converted to the Rupee at the
State Bank of Pakistan rate applying between the
foreign currency and the Rupee on the date the
amount is taken into account for the purposes of this
Ordinance.

Cessation of source of income.
Where —
(a)
any income is derived by a person in a tax year from any
business, activity, investment or other source that has
ceased either before the commencement of the year or
during the year; and .
(b) if the income had been derived before the business,
activity, investment or other source ceased it would have
been chargeable to tax under this Ordinance,
This Ordinance shall apply to the income on the basis that the
business, activity, investment or other source had not
ceased at the time the income was derived

Rules to prevent double derivation and double deductions
(1) For the purposes of this Ordinance, where –
(a) any amount is chargeable to tax under this Ordinance
the basis that it is receivable, the amount shall not
chargeable again on the basis that it is received; or
(b) any amount is chargeable to tax under this Ordinance
the basis that it is received, the amount shall not
chargeable again on the basis that it is receivable.

on
be
on
be

(2) For the purposes of this Ordinance, where —
(a) any expenditure is deductible under this Ordinance on the
basis that it is payable, the expenditure shall not be
deductible again on the basis that it is paid; or
(b) any expenditure is deductible under this Ordinance on the
basis that it is paid, the expenditure shall not be deductible
again on the basis that it is payable.

COMMON RULES (TAX YEAR)
Tax year: (1)

For the purpose of this Ordinance and subject to this
section, the tax year shall be a period of twelve months
ending on the 30th day of June (hereinafter referred to as
normal tax year‘) and shall, subject to sub-section (3), be
denoted by the calendar year in which the said date falls.

(2) Where a person‘s income year, under the repealed
Ordinance, is different from the normal tax year, or where
a person is allowed, by an order under sub-section (3), to
use a twelve months‘ period different from normal tax
year, such income year or such period shall be that
person‘s tax year (hereinafter referred to as ‗special tax
year‘) and shall, subject to sub-section (3), be denoted by
the calendar year relevant to normal tax year in which the
closing date of the special tax year falls.

Tax year: (3) A person may apply, in writing, to the Commissioner to allow him to use a twelve
months‘ period, other than normal tax year, as special tax year and the
Commissioner may, subject to sub-section (5), by an order, allow him to use
such special tax year.
(4) A person using a special tax year, under sub-section (2), may apply in writing, to
the Commissioner to allow him to use normal tax year and the Commissioner
may, subject to sub-section (5), by an order, allow him to use normal tax year.
(5) The Commissioner shall grant permission under sub-section (3) or (4) only if the
person has shown a compelling need to use special tax year or normal tax
year, as the case may be, and the permission shall be subject to such
conditions, if any, as the Commissioner may impose.
(6) An order under sub-section (3) or (4) shall be made after providing to the
applicant an opportunity of being heard and where his application is rejected
the Commissioner shall record in the order the reasons for rejection .

Tax year: (7) The Commissioner may, after providing to the person concerned an opportunity
of being heard, by an order, withdraw the permission granted under subsection (3) or (4).
(8) An order under sub-section (3) or (4) shall take effect from such date, being the
first day of the special tax year or the normal tax year, as the case may be, as
may be specified in the order.
(9) Where the tax year of a person changes as a result of an order under subsection (3) or sub-section (4), the period between the end of the last tax year
prior to change and the date on which the changed tax year commences shall
be treated as a separate tax year, to be known as the ― transitional tax year‖.
(10) In this Ordinance, a reference to a particular financial year shall, unless the
context otherwise requires, include a special tax year or a transitional tax year
commencing during the financial year.
(11) A person dissatisfied with an order under sub-section (3), (4) or (7) may file a
review application to the 1[Board], and the decision by the 2[Board] on such
application shall be final.

COMMON RULES (ASSETS)
Disposal And Acquisition Of Assets: (1) A person who holds an asset shall be treated as
having made a disposal of the asset at the time
the person parts with the ownership of the asset,
including when the asset is —
(a) sold, exchanged, transferred or distributed; or
(b) cancelled, redeemed, relinquished, destroyed,
lost, expired or surrendered.
(2) The transmission of an asset by succession or
under a will shall be treated as a disposal of the
asset by the deceased at the time asset is
transmitted.

Disposal And Acquisition Of Assets: (3) The application of a business asset to personal use shall
be treated as a disposal of the asset by the owner of the
asset at the time the asset is so applied.
[(3A) Where a business asset is discarded or ceases to be
used in business, it shall be treated to have been
disposed of.]
(4) A disposal shall include the disposal of a part of an asset.
(5) A person shall be treated as having acquired an asset at
the time the person begins to own the asset, including at
the time the person is granted any right.
(6) The application of a personal asset to business use shall
be treated as an acquisition of the asset by the owner at
the time the asset is so applied

Disposal And Acquisition Of Assets: (3) The application of a business asset to personal use shall be treated as
a disposal of the asset by the owner of the asset at the time the asset
is so applied.
[(3A) Where a business asset is discarded or ceases to be used in
business, it shall be treated to have been disposed of.]
(4) A disposal shall include the disposal of a part of an asset.
(5) A person shall be treated as having acquired an asset at the time the
person begins to own the asset, including at the time the person is
granted any right.
(6) The application of a personal asset to business use shall be treated as
an acquisition of the asset by the owner at the time the asset is so
applied
(7) In this section, ― business asset‖ means an asset held wholly or partly for use in a
business, including stock-in-trade and a depreciable asset; and
― personal asset‖ means an asset held wholly for personal use.

Cost: (1) Except as otherwise provided in this Ordinance, this section
shall establish the cost of an asset for the purposes of this
Ordinance.
(2) Subject to sub-section (3), the cost of an asset purchased
by a person shall be the sum of the following amounts,
namely: —
(a) The total consideration given by the person for the asset,
including the fair market value of any consideration in kind
determined at the time the asset is acquired;
(b) any incidental expenditure incurred by the person in
acquiring and disposing of the asset; and
(c) any expenditure incurred by the person to alter or improve
the asset,
but shall not include any expenditure under clauses (b) and (c)
that has been fully allowed as a deduction under this
Ordinance.

Cost: (3) The cost of an asset treated as acquired under sub-section (6) of
section 75 shall be the fair market value of the asset determined at
the date it is applied to business use.
(4) The cost of an asset produced or constructed by a person shall be the
total costs incurred by the person in producing or constructing the
asset plus any expenditure referred to 1[in] clauses (b) and (c) of subsection (2) incurred by the person.
(5) Where an asset has been acquired by a person with a loan
denominated in a foreign currency and, before full and final
repayment of the loan, there is an increase or decrease in the liability
of the person under the loan as expressed in Rupees, the amount by
which the liability is increased or reduced shall be added to or
deducted from the cost of the asset, as the case may be.
[Explanation.- Difference, if any, on account of foreign currency
fluctuation, shall be taken into account in the year of occurrence for
the purposes of depreciation.]

Cost: (6) In determining whether the liability of a person has
increased or decreased for the purposes of subsection (5), account shall be taken of the person‘s
position under any hedging agreement relating to
the loan.
(7) Where a part of an asset is disposed of by a
person, the cost of the asset shall be apportioned
between the part of the asset retained and the
part disposed of in accordance with their
respective fair market values determined at the
time the person acquired the asset.
(8) Where the acquisition of an asset by a person is
the derivation of an amount chargeable to tax, the
cost of the asset shall be the amount so charged
plus any amount paid by the person for the asset

Cost: (9) Where the acquisition of an asset by a person is
the derivation of an amount exempt from tax, the
cost of the asset shall be the exempt amount plus
any amount paid by the person for the asset.
(10) The cost of an asset does not include the
amount of any grant, subsidy, rebate, commission
or any other assistance (other than a loan
repayable with or without profit) received or
receivable by a person in respect of the
acquisition of the asset, except to the extent to
which the amount is chargeable to tax under this
Ordinance

Consideration received: (1) The consideration received by a person on disposal of an
asset shall be the total amount received by the person for
the asset 1[or the fair market value thereof, whichever is
the higher], including the fair market value of any
consideration received in kind determined at the time of
disposal.
(2) Where an asset has been lost or destroyed by a person,
the consideration received for the asset shall include any
compensation, indemnity or damages received by the
person under —
(a) an insurance policy, indemnity or other agreement;
(b) a settlement; or
(c) a judicial decision.

Consideration received: (3) The consideration received for an asset treated as disposed of under
sub-section (3) [or (3A)] of section 75 shall be the fair market value of
the asset determined at the time it is applied to personal use [or
discarded or ceased to be used in business, as the case may be].
(4) The consideration received by a scheduled bank, financial institution,
modaraba, or leasing company approved by the Commissioner
(hereinafter referred to as a ― leasing company‖) in respect of an
asset leased by the company to another person shall be the residual
value received by the leasing company on maturity of the lease
agreement subject to the condition that the residual value plus the
amount realized during the term of the lease towards the cost of the
asset is not less than the original cost of the asset.
(5) Where two or more assets are disposed of by a person in a single
transaction and the consideration received for each asset is not
specified, the total consideration received by the person shall be
apportioned among the assets disposed of in proportion to their
respective fair market values determined at the time of the
transaction.

Non-arm’s Length Transactions: Where an asset is disposed of in a non-arm‘s length
transaction –
(a) the person disposing of the asset shall be treated as
having received consideration equal to the fair market
value of the asset determined at the time the asset is
disposed; and
(b) the person acquiring the asset shall be treated as
having a cost equal to the amount determined under
clause (a).

Non-recognition Rules : (1)
For the purposes of this Ordinance and subject to sub-section (2), no
gain or loss shall be taken to arise on the disposal of an asset –
(a)

between spouses under an agreement to live apart;

(b) by reason of the transmission of the asset to an executor or beneficiary
on the death of a person;
(c) by reason of a gift of the asset;
(d) by reason of the compulsory acquisition of the asset under any law
where the consideration received for the disposal is reinvested by the
recipient in an asset of a like kind within one year of the disposal;
(e) by a company to its shareholders on liquidation of the company; or
(f) by an association of persons to its members on dissolution of the
association where the assets are distributed to members in
accordance with their interests in the capital of the association.

Non-recognition Rules : (2) Sub-section (1) shall not apply where the person acquiring
the asset is a non-resident person at the time of the
acquisition
(3) Where clause (a), (b), (c), (e) or (f) of sub-section (1)
applies, the person acquiring the asset shall be treated as
—
(a) acquiring an asset of the same character as the person
disposing of the asset; and
(b) acquiring the asset for a cost equal to the cost of the asset
for the person disposing of the asset at the time of the
disposal.
(4) The person‘s cost of a replacement asset referred to in
clause (d) of sub-section (1) shall be the cost of the asset
disposed of plus the amount by which any consideration
given by the person for the replacement asset exceeds
the consideration received by the person for the asset
disposed of.

Common rules (general)

More Related Content

What's hot (18)

Viewers also liked (20)

Similar to Common rules (general) (20)

More from Mohammad Ghori (20)

Recently uploaded (20)

Common rules (general)