Income From Business Chapter- 09
N- 1 Condition of payment through cross cheques is not applicable on the said transactions.
N- 2 Although single transaction exceeding Rs.25, 000 but as the total under single head of account
is not more than Rs. 2 50,000 therefore on the said transactions the provisions of section 21 are
not applicable.
N- 3 Wages less than Rs. 2 5,000 per month are not required to be paid through banking channel.
N- 4 These expenses are required to be paid through banking channel.
N- 5 It has been assumed that other month’s payment against rent was made through banking
channels.
Important notes on section 2111.1 Tax, Charge or levy paid to the government [U/s 21(a)]
Although any cess (charge on the profit), rate or tax paid or payable in Pakistan or a foreign
country that is levied or assessed as percentage on the business profits is not admissible.
However Workers’ Welfare Fund and Workers’ Profit Participation Fund are payable on profit but the
same are specifically allowed as deductible allowances u/s 60A and 60B.11.2 Penalty or Fine [U/s 21(g)]
Any fine or penalty for the violation of any law, rule or regulation is not admissible. However certain
payments are allowable as tax expenses which are not for the violation of any law, rule or regulation
e.g.- Compensation for late repayment of loan instalment
- Demurrage to custom authorities
- Compensation / interest for breach of a contract in the ordinary course of business
Example: Profit before tax of Beta (Pvt.) Ltd. is Rs.1,000,000. Following items have been included in
the computation of profit.
(a) Income tax paid Rs. 40,000
(b) WWF paid Rs. 25,000
(c) Penalty for late filing of sales tax returns Rs. 15,000
(d) Penalty for late repayment of loan instalment Rs. 2,000
Required: Compute taxable profit according to the provisions of Income Tax Ordinance, 2001.
Solution:
Taxable profit: Rs.
Profit before tax 1,000,000
Add: deductions not admissible:
Tax paid or deducted at source 40,000
Penalty for late filing of sales tax returns 15,000
55,000
Taxable profit 1,055,00011.3 Certain Payments to a member by an Association of Persons [U/s 21(j)]
Profit on debt, brokerage, commission, salary or other remuneration by an AOP to its members is not
admissible for tax purposes.
However rent paid by a firm to partner for his residence is a part of salary expense of the firm and
therefore not admissible for tax purpose. However, if a partner's premises are used by the firm and
rent is paid to the partner then the same shall be treated as rent allowable tax expense and need not
be added back in the income of the AOP.
Example on determination of share from AOP:
XYZ is an AOP with two partners Mr. Ajmal and Mr. Khan with ratio of sharing 40:60.