Tax Book 2023

Chapter 21 ___ Solved Past Papers Income Tax Numericals of CA Module C - (2001 to 2022)

6. Golden handshake

Q.5 Autumn 2011

As peq question the last three years' average rate of tax for golden handshake is 13% and further it is more

beneficial for the taxpayer to opt for taxation of taxable gratuity and golden handshake at last three year's

average rate as compared to this to include the same in the current year's income.

Mr.FerozhasbeentheCEOofAzizFoodsPakistanLimited(AFPL)forseveralyears.Hewasgiven 2000

shareson 1 June 2021 byAzizAG,Germany(theparentcompanyofAFPL)atapriceof$2.5pershare.The

marketpriceonthatdatewas€8.2pershare.Thesharesweretransferableoncompletionofoneyearof

(^538) ____ ___ _Conceptual Approach to Taxes
The relevant exchange rates are as follows:
1 June 2021 $1 = Rs. 118.10
1 June 2022 $1 = Rs. 121.40
10 April 2023 $1 = Rs. 123.90
Solution
Themarketpriceofthesharesason 1 June 2021 was$12.5pershare.On 10 April2023,Mr.Ferozsoldall
shares at $13 per share. He paid a commission of $ 50 to the brokerage house.
marketpriceonthatdatewas€8.2pershare.Thesharesweretransferableoncompletionofoneyearof
service, from the date of issue of shares.
Required:ComputetheamounttobeincludedinthetaxableincomeofMr.Ferozfortaxyears2021, 2022 and
2023 and specify the head of income under which the income would be classified.
Mr. Feroz
Computation of taxable income
Tax year 2021 Rs.
Tax year 2022
Income from salary
Market value of shares on 1 June, 2021 (12.5 x 2,000 x 121.40) 3,035,000
Less: cost of shares (2.5 x 2,000 x 118.10) 590,500
2,444,500
Tax year 2023
Shares were issued in tax year 2021, however, transferability of the shares is restricted in tax year 2021 hence
nothing is taxable in tax year 2021.
Tax year 2023
Consideration received (13 x 2,000 x 123.90) 3,221,400
Less:Cost
Cost of shares after acquisition of the same (including salary income) 3,035,000
Commission expense (50 x 123.90) 6,195
3,041,195
Capital gain 180,205
Q. NO. 3 Spring 2011

1. Profit on debt of Rs. 500,000 paid on a working capital loan obtained from a foreign bank.CL did not deduct

Carrot Ltd (CL) is engaged in the manufacture, import and sale of electronic appliances for the past twenty

years. When reviewing the company's tax provisions, you noticed the following amounts appearing in the tax

calculation for the year ended June 30, 2023.

3. Bad debt in respect of a staff loan, Rs. 25,000.


4. Initial allowance of Rs. 4,000,000 on a used equipment acquired locally from MSD Limited.

Required:

1. Profit on debt of Rs. 500,000 paid on a working capital loan obtained from a foreign bank.CL did not deduct
   withholding tax while paying profit on debt considering the bank does not have a Permanent Establishment in
   Pakistan.


2. Expenditure of Rs. 450,000 on promotion of a product which is expected to generate revenue for twelve
   years.


3. Reimbursement of expenses of Rs. 300.000 to CL by the parent company- This amount was incurred by
   CL in 2022 on marketing a new product imported from Dubai.


4. Financial charges amounting to Rs. 100,000 and depreciation amounting to Rs. 300,000 on a vehicle
   acquired on finance lease from Radish Leasing. Lease rentals paid during the year amounted to Rs. 400,000.

(^538) ____ ___ _Conceptual Approach to Taxes