Taxation System Chapter- 04
(4) No deduction shall be allowed where a deduction has already been allowed under any other section
for the entire amount of the pre-commencement expenditure in the tax year in which it is incurred.
(5) In this section, "pre-commencement expenditure" means any expenditure incurred before the
commencement of a business wholly and exclusively to derive income chargeable to tax, including
the cost of feasibility studies, construction of prototypes, and trial production activities, but shall not
include any expenditure which is incurred in acquiring land, or which is depreciable or amortized.
Explanation: This refers to expenditure referred to in section 25.
Example: A company incurred following expenses before commencement of its commercial activity.
Cost of feasibility study Rs. 40,000
Cost of trial production activities Rs. 20,000
Purchase of fixed assets Rs. 2,500,000Required: Calculate the amount of pre-commencement expenses.
Solution:
Pre-commencement expenses Rs.
Cost of feasibility study 40,000
Cost of trial production 20,000
Total 60,000
"Prescribed" [U/s 2(44)] means prescribed by rules made under this Ordinance;
Explanation: It means as prescribed by the rules made under this Ordinance. The Board enjoys powers to
make rules u/s 237. The rule-making power of the Board is subject to the limitation that any rule made
should not be violative of the statute. If a rule is repugnant to law, it will be ultra vires having no legal effect.
The statements, forms, returns etc. prescribed by rules have legal force and both the taxpayers and
taxation officers are bound to make compliances, wherever required, in the prescribed manner.
"Principal officer" [U/s 2(44A)] used with reference to a company or AOP includes -
(a) a director, a manager, secretary, agent, accountant or any similar officer; and
(b) any person connected with the management or administration of the company or AOP upon whom
the Commissioner Inland Revenue has served a notice of treating him as the principal officer thereof;
Explanation: The concept of Principal Officer is very important with reference to a company or an AOP
against whom any proceeding under the law has to be initiated. The definition covers a director, a manager,
a secretary, an agent, any similar officer as Principal Officer or any person connected with the management
and administration of a company or association of persons as Principal Officer on which the Commissioner
Inland Revenue serves a notice.
"Private company" [U/s 2(45)] means a company that is not a public company;
Explanation: Private company under the Ordinance is defined exhaustively to mean a company that is not
a public company. The term "public company" is denned in section 2(47). So all the companies which are
not covered in clause (47) will automatically fall in the category of private companies. For the purpose of
this Ordinance even the non-listed public companies, which under the Companies Ordinance, 1984 are not
private companies, are to be considered as private.
"Profit on a debt" [U/s 2(46)] whether payable or receivable, means -
(a) any profit, yield, interest, discount, premium or other amount, owing under a debt, other than a return
of capital; or
(b) any service fee or other charge in respect of a debt, including any fee or charge incurred in respect of
a credit facility which has not been utilized;