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25. Amounts subsequently recovered in
respect of deductions, etc.-Notwithstanding anything contained in this Ordinance,
where an, allowance or deduction has been made under section 23 for any year in respect of
any loss, bad debt, interest credited to
suspense account. expenditure or trading liability incurred by the assessee, and
subsequently,-
(a) during any income year, the assessee has received, whether in cash or in
any other manner whatsoever, any amount in respect of such loss [ ] or expenditure; the amount so received shall be deemed to be
income from business or profession of that income year;
(aa) during any income year, the assessee
has received, whether in cash or in any other manner whatsoever, any amount in respect of
such bad debt,-
(i) where the said amount is greater than the difference between the whole of such bad
debt and the amount of bad debt allowed as deduction under section 23, the excess shall be
deemed to be income from business or
profession of that income year; and
(ii) where the said amount is less than the difference between the whole, of such bad debt
and the amount of bad debt allowed as deduction under section 23, the deficiency shall be
deemed to be a business expense of that year;
(b) during any income year, the assessee has derived any benefit in respect of such
trading liability, the value of such benefit shall be deemed to be income from business or
profession of that income year;
(c) such trading liability or a portion thereof is found not to have been paid within
three years of the expiration of the income year in which it was allowed, such liability
or portion thereof, as the case may be, shall be deemed to be income from business or
profession of the year in which such finding is made or any other year (not being a year
commencing after the expiration of five years from the end of the said
three years) as the Deputy Commissioner may think fit ;
(d) where any amount accumulated in the
participatory reserve of a company which has been allowed as a deduction under clause
(xix) of sub-section (1) of section 23 is applied by the company towards any purpose other
than payment of share of profit on the participatory redeemable capital or towards any
purpose not allowable for deduction or exemption under this Ordinance, the amount so
applied shall be added to income of the company in the income year during which it is so
applied,
and the business or profession in respect of which such allowance or deduction was made
shall, for the purposes of section 22, be deemed to be carried on by the assessee in that
year:
Provided that where a trading liability referred to in clause (c) is paid in a subsequent
year, the amount so paid shall be deducted in computing the income in respect of that
year.
26. Special provisions regarding business of insurance and production of
oil and natural gas and exploration and extraction of other mineral,
deposits , etc.- Notwithstanding anything
contained in this Ordinance,-
(a) the profits and gains of any business of insurance and the tax payable thereon shall
be computed in accordance with the rules contained in the Fourth Schedule;
(b) the profits and gains from the exploration and production of petroleum
(including natural gas) and from refineries to be set up
at Dhodak and Bobi fields; income of exploration and production companies from pipeline
operations, and manufacture and sale of liquefied petroleum gas or compressed natural gas
and the tax payable thereon shall be computed in accordance with the rules contained in
Part I of the Fifth Schedule:
Provided that nothing in this clause shall apply to the profits and gains attributable to
the production of petroleum (including natural gas) which was discovered before the
twenty-fourth day of September, 1954; and
(c) the profits and gains of any business which consists of, or includes, the exploration
and extraction of such mineral deposits of a wastings nature (not being petroleum and
natural gas) as may be specified in this behalf by the Federal Government carried on by an
assessee in Pakistan shall be computed in accordance with the rules
contained in Part II of the Fifth Schedule :
Provided that nothing contained in this
clause shall apply in the case of an assessee whose income has at any time been exempt
from tax under clause (123A) of Part I of the Second Schedule.
27. Capital gains.- (1) Any profits or gains arising from the
transfer of a capital asset shall be chargeable under the head "Capital gains"
and shall be deemed to be income of the income year in which the transfer took place.
(2) For the purposes of sub-section (1) and section 28 and 29,-
(a) "capital asset" does not include-
(i) any asset or class of assets in respect of which the assessee is entitled to an
allowance for depreciation under the Third Schedule; and
(ii) any immovable property; and
(b) "transfer" includes the sale, disposition, exchange or relinquishment of the
asset, or the extinguishment of any rights therein, but does not include-
(i) any transfer by reason of the compulsory acquisition of any capital asset under any
law for the time being in force;
(ii) any transfer of a capital asset under a gift, bequest or will or an irrevocable
trust;
(iii) any distribution of the assets of a company to its shareholders on its liquidation;
and
(iv) any distribution of capital assets on the dissolution of a firm or other association
of persons or the partition of a Hindu undivided family.
28. Computation of capital gains.- (1) In computing the income
under the head "Capital gains", the cost of acquisition of the capital asset and
any expenditure incurred wholly and exclusively in connection with the transfer thereof
shall be deducted.
(2) 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".
29. Cost of acquisition, and consideration for transfer, how determined.-
(1) Where the capital asset became the property of the assessee-
(a) under a gift, bequest or will; or
(b) by succession, inheritance or devolution; or
(c) on any distribution of assets on the dissolution of a firm or other association of
persons or the partition of a Hindu undivided family; or
(d) on any distribution of assets on the liquidation of a company; or
(e) under a transfer to a revocable or an irrevocable trust, the fair market value of the
asset, as on the date on which it became the property of the assessee, shall, for the
purposes of sub-section (1) of section 28, be deemed to be the cost of acquisition.
(2) Where the person who acquires a capital asset from an assessee is
directly or indirectly connected with him and the Deputy
Commissioner has reason to believe that the transfer was effected with the object of
avoiding or reducing the liability of the assessee, the fair market value of the capital
asset, as on the date of the transfer, shall be deemed to be the consideration received by
the assessee for its transfer.
(3) For the purposes of sub-section (1) and (2) and sub-section (12) of section 12,
"fair market value" means-
(a) the price which the capital asset would ordinarily fetch on sale in the open market on
the relevant date; and
(b) where the price referred to in clause (a) is not ascertainable, such
price as may be determined by the Deputy Commissioner
after obtaining the approval of the Inspecting Additional
Commissioner in writing.
30. Income from other sources.- (1) Income of every kind which
may be included in the total income of an assessee under this Ordinance shall be
chargeable under the head "Income from other sources", if it is not included in
his total income under any other head.
(2) In particular, and without prejudice to the generality of the provisions of
sub-section (1), the following incomes shall, save as otherwise provided in this
Ordinance, be chargeable under the head "Income from other sources", namely:-
(a) dividend;
(b) interest, royalties and fees for technical services;
(c) ground rent;
(d) income from the hire of machinery, plant or furniture belonging to the assessee and
also of buildings belonging to him if the letting of the buildings is inseparable from the
letting of the said machinery, plant or furniture; and
(e) any income to which sub-section (12) of section 12 or section 13 applies.
31. Deductions.- (1) In computing the income under the head
"Income from other sources", the following allowances and deductions shall be
made, namely:-
(a) in the case of dividends, any sum paid by way of commission to a banking company
realising such dividends on behalf of the assessee; [ ]
(b) 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 earning such income ; and
(c) in the case of income to which clause
(d) of sub-section (2) of section 30 applies, any allowance or deduction computed in
accordance with the provisions of clauses (iii), (iv) and (v) of sub-section (1) of
section 23.
(2) Nothing contained in sub-section (1) shall apply-
(a) to any such sum paid or expenditure laid out or expended which is allocable to any
income exempt from tax under this Ordinance;
(b) in computing the income by way of dividends in the case of an assessee, being a
foreign company.
(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) Notwithstanding anything contained in sub-section (1) or sections 22
and 23, in the case of an assessee, being a foreign company
or a foreign association , the income by way of royalty [ ]
received from a Pakistani concern in pursuance of any agreement made by the foreign
company or the foreign association, as the case may be, with
the Pakistani concern shall be computed in such manner as may be prescribed.
32. Method of accounting.-(1) Income, profits
and gains except income from dividends, shall be computed for
purposes of sections 17, 19, 22, 27 and 30 in accordance with the method of accounting
regularly employed by the assessee.
(2) Notwithstanding anything contained in sub-section (1), the Central Board of Revenue
may, in the case of any business or profession, or class of business, or profession, or
any other source of income or any class of persons,-
(a) require, by a general or special order published in the official Gazette that the
accounts shall be maintained in such form and in such manner as may be prescribed; and
(b) prescribe the manner in which payments of commercial nature shall be made or
commercial transactions recorded, and thereupon, the income, profits and gains of the
assessee shall be computed on the basis of the accounts or records maintained or payments
made accordingly.
(3) Where no method of accounting has been regularly employed, or if the
method employed is such that, in the opinion of the Deputy
Commissioner, the income, profits and gains cannot be properly deduced therefrom, or
where, in any case to which sub-section (2) applies, the assessee fails to maintain
accounts, make payments or record transactions in the form or manner, as the case may be,
prescribed under the said sub-section, then, the income, profits and gains of the assessee
shall be computed on such basis and in such manner as the Deputy
Commissioner thinks fit.
(4) For the purpose of sub-section (3),
where the Central Board of Revenue deems necessary, it may, by a general or special order
in writing, prescribe rates of net profit or gross profit and conditions of their
applicability in respect of any trade, business or profession for any assessment year or
years:
Provided that such rates shall be applicable in ,case of an assessee at his option to be
exercised in writing before finalisation of assessment proceedings for an
assessment year [ . ]
[ ]
32A. Documents,
certificates, etc., to be furnished by certain companies.- (1) Every private
company as defined in the Companies Act, 1913 (VII of 1913), whose paid up capital on the
last day of any income year is five hundred
thousand rupees or more shall, with the return of total income for that
year, furnish a copy of the balance sheet and profit and loss account for that year and an auditors report for that year, in Form 35A of the Companies
(General Provisions and Forms) Rules 1985, prepared and signed by a person who is a
Chartered Accountant within the meaning of the Chartered Accountants Ordinance, 1961 (X of
1961), or a cost and management accountant within the meaning of the Cost and Management
Accountants Act, 1966 (XIV of 1966).
(2) Where a company has not complied with the requirements of sub-section (1), its income,
profits and gains shall be computed upon such basis and in such manner as
the Deputy Commissioner may determine.
33. Assessment of royalties or copy-right fees for literary or artistic
work.- Where the time taken by the author of a literary or artistic work in the
making thereof exceeds twenty-four months, the amount received by him during any income
year in lump-sum on account of any royalties or copy-right fees in respect of that work,
shall, if he so claims, be deemed to be the income of the income year in which it is
received and the two immediately preceding income years and shall be allocated thereto in
equal proportions and all the provisions of this Ordinance shall apply accordingly.
34. Set-off of losses.- Where an assessee sustains a loss (not
being a loss to which section 36 or section 37 applies) in any assessment year
under any head of income specified in section 15, he shall ,
subject to clause (v) of sub-section (1) of section 23 be entitled to have the amount
of the loss set-off against his income (other than income to which sub-section (7) or (9)
of section 12 applies), if any, under any other head assessable for that assessment year.
34A. Set-off of losses of certain
companies.- (1) Where an assessee, being a company listed on a
registered stock exchange in Pakistan, owns the entire share capital of another company
(hereinafter called the ‘subsidiary company’) in any income year, being an
income year relevant to the assessment year ending on the thirtieth day of June, 1982, or
any assessment year thereafter, the loss of the subsidiary company under the head 'Income
from business or profession' (not being a loss on account of depreciation allowed under
clause (v) of sub-section (1) of section 23 or a loss to which section 36 applies) in
respect of the said assessment year as has been determined by an order under section 62,
63 or 65 and as had not been set-off under section 34 shall, at the option of the assessee
and subject to the provisions of sub-section (2), be set-off against the income, if any,
of the assessee in respect of the said assessment year, and where the said loss cannot
wholly be so set-off, so much of the loss as had not been set-off, or the whole of the
loss where the assessee has no income chargeable to tax in that year, shall be carried
forward by the subsidiary company in accordance with the provisions of section 35; and the
said loss of the subsidiary company in respect of the two assessment years immediately
succeeding the said assessment year shall, at the option of the assessee, be set-off and
carried forward in the manner as aforesaid:
Provided that nothing contained in this sub-section shall prevent the asse-ssee from
claiming set-off of the said loss of the subsidiary company in respect of the said
assessment year or years if it has not been determined as aforesaid at the time of filling
of return or returns of income by the assessee in respect of the said assessment year or
years.
(2) Nothing contained in sub-section (1) shall apply unless-
(a) income of the subsidiary company under the head 'Income from business or profession'
is liable to tax under this Ordinance in the income year in which it has sustained loss
under that head;
(b) a scheme for the profitable operation of the business of the subsidiary company
submitted by the assessee has been approved, before the commencement of the income year
referred to in sub-section (1), by-
(i) the Pakistan Industrial Credit and Investment Corporation Limited;
(ii) the Industrial Development Bank of Pakistan;
(iii) the National Development Finance Corporation; or
(iv) the Bankers Equity Limited; and
(c) the assessee has, by the first day of October of the assessment year or years referred
to in sub-section (1), submitted to the institution to which the said scheme was submitted
by the assessee a report on the implementation of the scheme referred to in clause (b).
35. Carry forward of business losses.- Where an assessee sustains a
loss in any assessment year under the head 'Income from business or profession' (not
being a loss to which section 36 applies) and the loss cannot be wholly set-off under
section 34, so much of the loss as has not been set-off, or the whole of
the loss where the assessee has no income under any other head, shall be carried forward , sub-ject to clause (v) of sub-section (1) of section 23, to
the following assessment year and set-off against the profits and gains, if any, of such
business or profession assessable for that year if such business or profession continues
to be carried on by the assessee for that assessment year; and if the loss cannot be
wholly set-off in this manner, the amount of the loss not so set-off shall be carried
forward to the following assessment year, and so on, but no loss shall be carried forward
to more than six assessment years immediately succeeding the assessment year
for which the loss was first computed :
Provided that, where the said loss relates
to an assessment year commencing on or after the first day of July, 1976, and is sustained
by any such assessee, being the owner of an industrial unit which is declared sick and is
being rehabilitated under a scheme approved by the Federal Government, as may be notified
by the Central Board of Revenue in the official Gazette, this section shall have effect as
if for the words "six assessment years" the words "ten assessment
years" were substituted.
36. Speculation losses.- (1) Where an assessee sustains a loss in
any assessment year in respect of any speculation business carried on by him, it shall not
be set-off, except against profits or gains, if any, of another speculation business
carried on by him and assessable for that assessment year.
(2) Where, for any assessment year, any loss computed in respect of a speculation business
has not been wholly set-off under sub-section (1), so much of the loss as is not so
set-off, or the whole of the loss where the assessee has no income from any other
speculation business, shall be carried forward to the following assessment year and
set-off against the profits and gains, if any, of speculation business carried on by him
and assessable for that assessment year; and if the loss cannot be wholly set-off in this
manner, the amount of the loss not so set-off shall be carried forward to the following
assessment year and so on, but no loss shall be carried forward for more than six
assessment years immediately succeeding the assessment year for which the loss was first
computed.
Explanation.-The expression "speculation business", as used in this section and
section 22, means business in which a contract for the purchase and sale of any commodity
(including stocks and shares) is periodically or ultimately settled otherwise than by the
actual delivery or transfer of the commodity or scripts, but does not include business in
which-
(a) a contract in respect of raw materials or merchandise is entered into by a person in
the course of his manufacturing or mercantile business to guard against loss through
future price fluctuations for the purpose of fulfilling his other contracts for the actual
delivery of the goods to be manufactured or the merchandise to be sold by him;
(b) a contract in respect of stocks and shares is entered into by a dealer or investor
therein to guard against loss in his holdings of stocks and shares through price
fluctuations; and
(c) a contract is entered into by a member of a forward market or a stock exchange in the
course of any transaction in the nature of jobbing or arbitrage to guard against loss
which may arise in the ordinary course of his business as such member.
37. Capital losses.- Where an assessee sustains a loss in any
assessment year under the head "Capital gains", such loss shall be carried forward
to the following assessment year and set-off against the capital gains chargeable for that
assessment year under the said head, and if it cannot be set-off in this manner, the
amount of the loss not so set-off shall be carried forward to the following assessment
year, and so on, but no loss shall be carried forward for more than six assessment years
immediately succeeding the assessment year for which the loss was first computed:
Provided that where the loss sustained by any assessee in any income year does not exceed
five thousand rupees, it shall not be carried forward and, where it exceeds five thousand
rupees, only so much of such loss shall be carried forward as exceeds five thousand
rupees:
Provided further that as respects the assessments for the years beginning on the first day
of July, 1975 and ending on the thirtieth day of June, 1984, this section shall have effect as if the assessment year
beginning on the first day of July, 1984
were the next following assessment year to any assessment year ending at any time between
the thirtieth day of June, 1975, and the thirtieth day of June, 1983 and the first proviso were omitted :
Provided further that as respect the
assessments, in respect of loss arising from sale of shares of a public company (as
defined in the First Schedule), for the years beginning on the first day of July, 1984,
and ending on the thirtieth day of June, 1989, this section shall have effect as if the
assessment year beginning on the first day of July, 1989, were the next following
assessment year to any assessment year ending at any time between the thirtieth day of
June, 1984, and the thirtieth day of June, 1988, and the first proviso were omitted.
38. Limitations as to set-off and carry forward of losses in the case of
firms, partners, etc.- (1) Where the assessee is a registered firm, any loss which
cannot be set-off against any other income of the firm shall be apportioned among the
partners of the firm and they alone shall be entitled to have the amount of the loss
set-off and carried forward for set-off under sections 34, 35, 36 and 37.
(2) Nothing contained in section 35, sub-section (2) of section 36 or section 37 shall
entitle any assessee, being a registered firm, to have its loss carried forward and
set-off under the provisions of the aforesaid sections.
(3) In the case of an unregistered firm assessed as a registered firm under the provisions
of sub-clause (ii) of clause (b) of sub-section (1) of section 69 in respect of any
assessment year, its losses for that assessment year shall be dealt with as if it were a
registered firm.
(4) Where the assessee is an unregistered firm which has not been assessed as a registered
firm under the provisions of sub-clause (ii) of clause (b) of sub-section (1) of section
69, any loss of the firm shall be set-off or carried forward and set-off only against the
income of the firm.
(5) Nothing contained in sections 34, 35, 36 and 37 and sub-sections (1), (2), (3) and (4)
of this section shall entitle-
(a) any partner of an unregistered firm which has not been assessed as a registered firm
under the provisions of sub-clause (ii) of clause (b) of sub-section (1) of section 69, or
any member of an association of persons to set-off any loss sustained by such firm or
association of persons, as the case may be, or have it carried forward and set-off,
against his income; or
(b) any firm in the constitution of which any change has occurred to have carried forward
and set-off so much of the loss proportionate to the share of a retired or deceased
partner computed in accordance with the provisions of sub-section (4) of section 69 as
exceed his share of profits if any, of the income year in the firm, or entitle any partner
to the benefit of any portion of the said loss which is not apportion-able to him under
section 69; or
(c) any person who has succeeded, in such capacity, any other person carrying on any
business or profession, otherwise than by inheritance, to carry forward and set off
against his income, any loss sustained by such other person.
(6) Where, in making an assessment for any year, full effect cannot be given to the
allowances referred to in clause (v) of sub-section (1) of section 23 owing to there being
no profits or gains chargeable for that year or such profits or gains being less than the
allowance, then, subject to clause (v) of
sub-section (1) of section 23 and the provisions of sub-section (7), the allowance or
part of the allowance to which effect has not been given, as the case may be, shall be
added to the amount of the allowance for depreciation for the following year and be deemed
to be part of that allowance, or if there is no such allowance for that year, be deemed to
be the allowance for that year and so on for succeeding years.
(7) Where, under sub-section (6), depreciation allowance is also to be carried forward,
effect shall first be given to the provisions of section 35 and sub-section (2) of section
36.
(8) Notwithstanding anything contained in this Ordinance, no loss which has not been
determined in pursuance of an order made under section 59, 59A, 62, 63 or 65 shall be carried forward and set-off under
section 35, sub-section (2) of section 36 or section 37.
