Tax Book 2023

Common Rules Chapter- 16

3. Fair market value (Section 68):

(a) Fair market value (rent) means the value of any property, rent, asset, service, benefit or

perquisite at a particular time shall ordinarily fetch on sale or supply in the open market.

(b) FMV other than the price of immoveable property shall be determined by CIR even where it is not

determinable for income tax purposes.

(c) Notwithstanding anything contained in this section, the fair market value of immovable property

shall be determined on the basis of valuation made by the Board and notified in the official

Gazette from time to time.

Example:

Mr. Kaleem purchased a car from Bright Paint (AOP). The cost of the car is Rs. 750,000 in the books

of Bright paint whereas written down value of the car is Rs. 400,000. One of the car dealer told the

company that the value of the said car in the market is Rs. 375,000. Both parties are interested to

know what would be the value of this car according to tax rules.

Solution: Fair market value is Rs. 375,000.

4. Receipt of income (section 69):

A person shall be treated as having received an amount, benefit, or perquisite if it is

(a) actually received by him;

(b) applied on his behalf at his instruction or under any law; or

(c) made available to him.

Example: M/s. Nitro Chemicals has received the following information from his clients:

(a) Crook Ltd paid him a sum of Rs. 120,625 after deducting a tax of Rs. 4,375.

(b) IT international paid a sum of Rs.40,000 on behalf of Nitro to Cooker Man.

(c) Nitro Chemicals purchased medicines from Green pharmacy of Rs. 20,000 which are adjusted

against the balance of Green pharmacy and received the remaining amount of Rs.30,000.

You are required to record the receipts which are taxable for the tax year.

Client Taxable Receipt Comments

Crook Ltd. 125,000 Amount received and tax thereon.

IT International 40,000 Paid on behalf of company

Green pharmacy 50,000 Actual balance include Rs. 20,000

Total 215,000

5. Recouped expenditure (Section 70)

Where a person has been allowed a deduction for any expenditure or loss incurred in a tax year and

subsequently he receives in cash or in kind any amount in respect of such expenditure or loss then

the amount so received shall be included in the income chargeable under that head for the tax year in

which it is received.

Example: Asif Health Business has incurred loss and unable to pay the financial charges of the bank

and claimed deduction of finance charges against the income of preceding years as follows:

Year 20 22 Rs. 100,000 Year 20 21 Rs. 85,000 Year 20 20 Rs. 60,000

On 20 May 20 23 , the bank agreed to waive off mark up to the extent of Rs. 200,000 under a

rescheduling agreement. You are required to explain the tax exposure on such waiver of finance

charges.

Solution: The waived amount of Rs. 200,000 is taxable in the hands of Asif Health in the year of

Waiver (20 23 ) and it will not be included in the preceding years.