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15. Head of income.- All income shall, for the purposes of the charge of tax and the computation of total income, be classified under the following heads, namely:-
(a) Salary;
(b) Interest on securities;
(c) Income from house property;
(d) Income from business or profession;
(e) Capital gains; and
(f) Income from other sources.

16. Salary.- (1) The following incomes shall be chargeable under the head "Salary", namely:-
(a) any salary due to the assessee from an employer in the income year, whether paid or not; and
(b) any salary (including arrears or advances of salary) paid to the assessee in the income year by an employer:

Provided that where any salary is included in the total income on the basis that it has become due to an assessee, it shall not be included again on the basis that it is paid.

(2) For the purposes of sub-section (1),-
(a) "salary" includes-
(i) any wages;
(ii) any annuity, pension or gratuity;
(iii) any fees, commissions, allowances, perquisites or profits in lieu of, or in addition to, salary or wages;

(b) "perquisite" includes-
(i) the value of rent-free accommodation;
(ii) the value of any concession in the matter of rent respecting any accommodation;
(iii) any sum payable by the employer, whether directly or indirectly, to effect an insurance on the life of, or to effect a contract for any annuity for the benefit of, the assessee, or his spouse or any dependent child;
(iv) the value of any benefit provided free of cost or at a cencessional rate;
(v) any sum paid by an employer in respect of any obligation of an employee;

(c) "profits m lieu of salary" includes-
(i) the amount of any compensation due to, or received by, an assessee from his employer at, or in connection with, the termination of, or the modification of any terms or conditions relating to, his employment;
(ii) any payment due to, or received by, an assessee from a provident or other fund to the extent to which it does not consist of contributions by the assessee and the interest on such contributions;

(d) "employer" includes a former employer; and

(e) "employee", in relation to a company, includes a managing director or any other director or other individual, who, irrespective of his designa-tion, performs any duties or functions in connection with the management of the affairs of the company.

17. Interest on securities.- (1) The following income shall be chargeable under the head "Interest on securities", namely:-
(a) interest on any securities of the Federal Government or a Provincial Government receivable by an assessee in any income year; and
(b) interest on debentures or other securities for money issued by, or on behalf off a local authority or a Pakistani company receivable by an assessee in any income year.

(2) Notwithstanding anything contained in sub-section (1),-
(a) where any security of the Federal Government is issued with the condition that the interest thereon shall not be liable to tax, the interest receivable on such security shall be exempt from tax in accordance with such condition; and
(b) tax payable on the interest receivable on any security of a Provincial Government issued with the same condition as aforesaid shall be payable by that Provincial Government.

18. Deductions.- (1) In computing the income under the head "Interest on securities", the following allowances and deductions shall be made, namely:-
(a) any interest paid by the assessee to any banking company or other person on moneys borrowed by him for the purpose of investment in securities; and
(b) any commission paid to a banking company for realising interest on such securities on behalf of the assessee.

(2) For the purposes of sub-section (1),-
(a) "moneys borrowed" shall, in the case of a banking company, include moneys received by way of deposits; and
(b) the amount to be regarded as interest paid on moneys borrowed shall not exceed an amount which bears to the amount of interest paid on all moneys borrowed by the assessee the same proportion as the total amount of interest on securities (inclusive of tax deducted under sub-section (2) of section 50) bears to the gross receipts from all sources included in the profit and loss account of the assessee.

(3) Where the securities in respect of which any interest is receivable by an assessee consist of, or include, any securities to which clause (a) of sub-section (2) of section 17 applies, no allowance or deduction on account of any interest or commission paid under clause (a) or clause (b) of sub-section (1), as the case may be, in respect of, or allocable to, the said securities shall be made in computing the income under the said sub-section (1).

(4) The allowances and deductions made under sub-section (1) shall not be admissible for the purpose of computing the income of the assessee under any other head.

(5) The provisions of section 24 shall, so far as may be, apply to the allowances and deductions under this section as they apply to the allowances and deductions in respect of income chargeable under the head "Income from business or profession".

19. Income from house property.- (1) The annual value of property shall be chargeable under the head "Income from house property".
(2) For the purposes of sub-section (1),-
(a) "house property" means any property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, but does not include any such property (or any portion-thereof) which is occupied by the assessee for purposes of any business or profession carried on by him the profits whereof are chargeable to tax under this Ordinance; and
(b) "annual value" of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year:

Provided that where the property is let on rent, the annual value shall not be less than the rent payable by the tenant.

(3) Nothing contained in this section shall apply in the case of any such property which is in the occupation of the owner for purposes of his own residence.

Explanation:- For the purpose of this section, any property, the owner of which is in receipt of any rent, whether in cash or otherwise, whether from employer or otherwise, shall not be taken to be in the occupation of such owner for the purpose of his own residence.

20. Deductions.- (1) In computing the income under the head "Income from house property" the following allowances and deductions shall be made, namely :-
(a) in respect of repairs, an allowance equal to one-fifth of the annual value;
(b) the amount of any premium paid to insure the property against risk of damage or destruction;
(c) the amount of any local rate, tax, charge or cess (being owners burden) in respect of property or income from property paid to any local authority or Government, not being any tax payable under this Ordinance;
(d) where the property is subject to a ground rent, the amount paid on account of such ground rent;
(e) where the property has been acquired, constructed, renovated or reconstructed with borrowed capital, the amount of any interest paid on such capital;
(ee) where the property has been acquired, constructed, renovated, extended or reconstructed with capital contributed by the House Building Finance Corporation constituted under the House Building Finance Corporation Act, 1952 (XVIII of 1952), or a scheduled bank, under a scheme of investment in property on the basis of sharing the rental income made by the said Corporation or the bank, the amount representing share in rental income (excluding return of capital, if any) from the said property paid to the said Corporation or the bank;
(f) where the property is subject to mortgage or other capital charge, the amount of interest paid on such mortgage or charge;
(g) any expenditure (not exceeding six percent of the annual value) incurred by the assessee for the purpose of collecting the rent of the property;
(gg) any expenditure incurred by the assessee on legal service acquired to defend title of the property or any suit connected therewith in a court of law;
(h) where the property is vacant during a part of the year, an allowance equal to that part of the annual value, which is proportionate to the period during which the property was vacant or, where the property is let out in parts that part of the annual value which is proportionate to the period during which such part was vacant; and
(i) subject to such rules as may be made in this behalf, an allowance on account of unrealised rent.

(2) The allowances and deductions under sub-section (1) shall not be admissible for the purpose of computing the income of the assessee under any other head.

(3) The provisions of section 24 shall, so far as may be, apply to the allowances and deductions under this section as they apply to the allowances and deductions in respect of income chargeable under the head "Income from business or profession".

(4) Where in any income year the assessee had paid any amount referred to in clauses (b) to (g) of sub-section(1) which relates to any earlier income year and the said amount has not been allowed as deduction in that year, the said amount shall be allowed as deduction in the income year in which it is paid or, at the written option of the assessee, in the income year to which it relates.

21. Liability in the case of co-owners.- Where any property to which section 19 applies is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not, in respect of such property, be assessed as an association of persons, but the share of each such person in the income from the property shall be included in his total income.

22. Income from business or profession.- The following incomes shall be chargeable under the head "Income from business or profession", namely:-

(a) profits and gains of any business or profession carried on, or deemed to be carried on, by the assessee at any time during the income year;

(b) income derived by any trade, professional and similar association from specific services performed for its members; and

(c) value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession.

Explanation.- Where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as "speculation business") shall be deemed to be distinct and separate from any other business carried on by the assessee.

23. Deductions.- (1) In computing the income under the head "Income from business or profession", the following allowances and deductions shall be made, namely:-

(i) any rent paid for the premises in which such business or profession is carried on;

(ii) any local rate, tax, charge or cess in respect of such premises paid to any local authority or Government, not being any tax payable under this Ordinance;

(iii) any amount paid on account of current repairs to any such premises or any machinery, plant, furniture or fittings used for purposes of business or profession;

(iv) any premium paid in respect of insurance against risk of damage or destruction to any building, machinery, plant, furniture or fittings, or stocks and stores used for the purposes of business or profession;

(v) in respect of depreciation ",including first year allowance or reinvestment allowance or industrial building allowance," of any such building, machinery, plant, furniture or fittings, being the property of the assessee, the allowance admissible under the Third Schedule , except depreciation or first year Allowence on assets given on lease shall be allowed against income from lease rentals only;

(vi) in respect of animals which have been used for the purposes of the business or profession (otherwise than as stock-in-trade) and have died or become permanently useless for such purposes, the difference between the original cost to the assessee of the animals and the amount, if any, realised in respect of the carcases or animals;

(via) any sum paid on or after the first day of July, 1985, to a scheduled bank, a financial institution, or such modaraba or leasing company as is approved by the Central Board of Revenue for the purposes of the Third Schedule,or any payment to a Special Purpose Vehicle on behalf of  the Originator" shall be inserted;   by way of lease money in respect of an asset taken on lease by the assessee and used for the purposes of any business or profession carried on by him;

(vii) any interest paid in respect of capital borrowed for the purposes of the business or profession;

(viia) any sum paid to a modaraba or to a Participation Term Certificate holder for any funds borrowed for the purposes of the business or profession;

(viib) any sum paid or credited to any person maintaining a profit and loss sharing account or deposit with a scheduled bank by way of distribution of profits by the said bank in respect of the said account or deposit;

(viic) any sum paid by the House Building Finance Corporation constituted under the House Building Finance Corporation Act, 1952 (XVIII of 1952), to the State Bank of Pakistan (hereinafter referred to as the 'Bank') as the share of the Bank in the profits earned by the said Corporation on its investment in the property made under a Scheme of investment in property on partnership in profit and loss, where such investment is provided by the Bank under the House Building Finance Corporation (Issue and Redemption of Certificates) Regulations, 1982;

(viie) any sum paid to a certificate holder under a Musharika scheme approved by the Corporate Law Authority and Religious Board formed under the Modaraba Companies and Modarabas (Floatation and Control ) Ordinance, 1980 (XXXI of 1980) representing his share in the profits of that Musharika;

(viicc) any sum paid by the National Development Leasing Corporation Limited to the State Bank of Pakistan (hereinafter referred to as the 'Bank') as the share of the Bank in the profits earned by the said Corporation on its leasing operations financed out of a credit line provided by the Bank on a profit and loss sharing basis;
"(viiccc)    any sum paid by the Small Business Finance Corporation to the State Bank of Pakistan (hereinafter referred to as the "Bank") as the share of the Bank in profit earned by the said Corporation on its investment in small business out of credit line provided by the Bank on profit and loss sharing basis.";
(viid) any sum paid to a bank under a scheme of musharika representing its share in the profits of that Musharika.
"(viidd) the financial cost of securitization of receivables by an Originator from a Special Purpose Vehicle being the difference between the amount received by the originator and the amount of receivables securitised  from a Special Purpose Vehicle.";
(viii) any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission:

Provided that the amount of the bonus or commission is of a reasonable amount with reference to-
(a) the pay of the employee and the conditions of his service;
(b) the profits of the business or profession for the year in question; and
(c) the general practice in similar businesses or professions;

(ix) Omitted

(x) in respect of bad debts, such amount (not exceeding the amount actually written off by the assessee) as may be determined by the Deputy Commissioner to be irrecoverable;

(xi) any sum paid to a scientific research institute, polytechnic, college or other institution in Pakistan affiliated to any University or Board of Education established or incorporated by, or under, any Federal or Provincial law, or recognised, aided or run by Government or run by any local authority, to be used for scientific research or technical training in Pakistan [ ];

(xii) any expenditure laid out or expended on scientific research in Pakistan [ ];

(xiii) any expenditure laid out or expended on any educational institution or hospital in Pakistan established for the benefit of the employees, their families and dependents;

(xiv) any expenditure laid out or expended on any institute in Pakistan established for the training of industrial workers recognised, aided or run by Government or run by any local authority;

(xv) any expenditure laid out or expended on the training of any person, being a citizen of Pakistan, in connection with a scheme approved by the Central Board of Revenue for the purposes of this clause;

(xvi) any sums paid on account of annual membership subscription to a registered trade organization within the meaning of the trade Organizations Ordinance, 1961 (XLV of 1961);

(xvii) any expenditure incurred by an assessee wholly and exclusively in connection with his visit abroad as a member of a trade delegation sponsored by the Federal Government;

(xviii) any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business or profession ;

(xix) any transfer to a participatory reserve created by a company under section 120 of the Companies Ordinance, 1984 (XLVII of 1984), in accordance with an agreement relating to participatory redeemable capital entered into between the company and a banking company as defined in the Banking Tribunals Ordinance, 1984:

Provided that, out of the amount so transferred in any income year, not more than five percent of the value of participatory redeemable capital shall qualify for deduction under this sub-section:

Provided further that no deduction shall be allowed if the amount of the tax-exempted accumulation in the participatory reserve exceeds 10 percent of the amount of participatory redeemable capital:

(xx) any expenditure incurred by an assessee in the purchase of one machine , with permanent sealed memory system, used for recording and printing cash sales made by him during the regular course of his business:

[ ]

Provided that, where a domestic company has, in any income year, incurred any expenditure on advertisement or publicity outside Pakistan in respect of such goods as may be specified by the Federal Government by notification in the official Gazette and as are exported in the said income year, or on furnishing of samples of such goods to a person outside Pakistan, deduction in respect of the said expenditure allowable under this clause shall be of a sum equal to one and one-third times the amount of actual expenditure so incurred.

Explanation.-
(a) the expression "any expenditure", as used in clauses (xii), (xiii) and (xiv), includes expenditure in the nature of capital expenditure; and
(b) the expression "paid", as used in this section and sections 18, [ ] 24 and 31, means actually paid or incurred according to the method of accounting upon the basis of which the income is computed.

(2) Where any such premises, building, machinery, plant, furniture or fittings is or are not wholly used for the purposes of the business or profession, any allowance or deduction admissible under this section shall be restricted to the fair proportional part of the amount which would be allowable if such premises, building, machinery, plant, furniture or fittings were wholly so used.

(xxi) any interest accrued on or after the first day of July, 2000 on a non-performing loan credited to suspense account by a banking company in accordance with the prudential Regulations for banks issued by the State Bank of Pakistan.and
"(xxii) any interest accrued on, or after, the first day of July 2001 on a non-performing loan credited to suspense account by a Development Finance Institution  in accordance with the Prudential Regulations for banks and such institutions  issued by the State Bank of Pakistan
Explanation.- For the purpose of this section the expression "Originator", "Special Purpose Vehicle" and "Securitization" shall have the same meaning as are respectively assigned to them in the Assets Backed Securitization Rules, 1999."


24. Deductions not admissible.- Nothing contained in section 23 shall be so construed as to authorise the allowance or deduction of-
(a) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed as a percentage, or otherwise on the basis, of any such profits or gains;

(b) any sum paid to a non-resident on account of interest, fees for technical services, brokerage or commission or any other sum chargeable under the provisions of this Ordinance, unless tax thereon has been paid or deducted and paid under section 50, as the case may be;

(c) any sum paid to any person on account of salary, interest or profit, services rendered, brokerage or commission or rent of house property on which tax is deductible under section 50, unless such tax has been paid or deducted and paid under section 50, as the case may be;
(cc) any expenditure or allowance which results directly or indirectly in the provision of salaries of directors of a domestic company, not being a public company as defined in the First Schedule, which exceeds forty per cent of total income of the company before the charge of such expenditure or allowance:

Provided that the deduction in respect, of the aggregate of such expenditure or allowance in respect of any director shall not exceed,-
(i) where such expenditure or allowance relates to a period exceeding eleven months comprised in an income year, the amount three hundred and sixty thousand rupees; and
(ii) where such expenditure or allowance relates to a period not exceeding eleven months comprised in an income year, an amount calculated at the rate of thirty thousand rupees for each month or part thereof comprised in that period :

Provided further that nothing contained in this clause shall apply in respect of any assessment year commencing on or after the first day of July, 1991.

(d) any sum paid, on account of interest, brokerage, commission, salary or other remuneration, by a firm or an association of persons to any partner of the firm or any member of the association of persons, as the case may be;

(e) any expenditure in the nature of head office expenditure, in the case of an assessee, being a non-resident, in excess of such limits as may be prescribed.

Explanation.- As used in this clause, "head office expenditure" means executive and general administration expenditure incurred by the assessee outside Pakistan for the purposes of the business or profession, including expenditure incurred in respect of-
(a) any rent, local rates and taxes (excluding any foreign tax corresponding to any tax leviable under this Ordinance), current repairs or insurance against risks of damage or destruction of any premises outside Pakistan used for the purposes of the business or profession;
(b) any salary paid to an employee employed by the head office outside Pakistan for the purposes of the business or profession;
(c) any travelling by such employee for the purposes of business or profession; and
(d) such other matters connected with executive and general administration as may be prescribed;

(f) any allowance in respect of expenditure on entertainment in excess of such limits and in contravention of such conditions as may be prescribed;

(ff) any payments, made on or after the first day of July, 1998, on account of expenditure under a single account head which, in aggregate, exceed fifty thousand rupees made otherwise than through a crossed bank cheque or by a crossed bank draft except transactions not exceeding five hundred rupees or payments on account of postage or utility bills.

(fff) Notwithstanding anything contained in clause (ff), any payment made on or after the first day of july, 1998, on account of salary if-
(i) it exceeds five thousand rupees, through a crossed cheque or transfer to the empoloyee's bank account; or

(ii) it does not exceed five thousand rupees, made through a bearer cheque.

(g) any sum paid to any provident fund, superannuation fund or gratuity fund, not being a recognised provident fund, an approved superannuation fund or an approved gratuity fund;

(h) any sum paid to any provident fund or other fund established for the benefit of employees of the assessee, unless the assessee has made effective arrangements to secure that tax shall be deducted at source from any payments made from the fund which are chargeable to tax under the head "Salary"; [-]

(i) any expenditure incurred by an assessee on the provision of perquisites , allowances or other benefits to any employee, in excess of fifty per cent of his salary excluding perquisites , allowances or other benefits :

[ ]

Explanation.- As used in this clause-
(i) "salary" means remuneration or compensation for services rendered paid, or to be paid, at regular intervals, and includes dearness or cost of living allowance and bonus or commission payable to an employee in accordance with the terms of his employment as remuneration or compensation for services but does not include the employer's contribution to a recognised provident fund or an approved superannuation or gratuity fund or any other sum which does not enter into the computation for pensionary or retirement benefits;
(ii) "perquisite", "employee", and "employer" have the same meaning as in sub-section (2) of section 16; and
(iii) "other benefits" does not include employer's contribution to a recognised provident fund or an approved superannuation or gratuity fund.

(j)  any expenditure incurred on account of payment of a fine or penalty for the violation of any law or rule or regulation for the time being in force.

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