Tax Book 2023

Chapter 30 Solved Past Papers Income Tax Numericals of ICMAP Stage IV - (2003 to 2018)

ANSWER Starlight Limited

Tax Year 2023

One of the Tax Advisors of the company raised objection that the company did not pay value addition

sales tax at the rate of 3% on import of chemicals in finished state and discharged only the sales tax

obligation at 17% under section 3(1) of the Sales Tax Act, 1990, which contravened the provisions of the

Thirteenth Schedule of the Sales Tax Act, 1990. Therefore, SL has to pay default surcharge and penalty

under relevant provisions of the Sale Tax Act, 1990 due to short-payment of sales tax.

Required

:^

(a) In the light of the Income Tax Ordinance, 2001 , compute the taxable income of

Starling Limited for the tax year 2023 , giving clear reasons/ explanation for the inclusion

(b) Calculate the net income tax liability of Starlight Limited for the tax year 2023. (^)
(c) Based on the computation of tax liability in (b) above, briefly explain whether the
paid^ quarterly^ by^ SL^ under^ section^147 could^ result^ in^ any^ further^ tax^ liability^ to^ the
company.
(d) As a Sales Tax Consultant how would you justify that value addition sales tax at the
has^ rightly^ not^ paid^ by^ Starlight^ Limited^ on^ the^ import^ of^ chemicals^ in^ finished^ state?^
764 Conceptual Approach to Taxes
Tax Year 2023
Computation of Taxable Income and Tax Liability
Rs.
Profit as per Profit & Loss account 223,450
Add: Penalty imposed by sales tax authroities N - 1 1,000
Accounting depreciation (63,000 / 10) N - 2 6,300
Cost of computer software N - 3 4,000
Donation to university N - 4 10,000
Repair and maintenance 500 21,800
Less: Consultany income N - 6 35,000
AmortizatIon of software N - 3 268
Tax depreciation (22,838 + 50) N - 2 & 12 22,888 (58,156)
187,094
Income for the year
(19,800)
167,294
Less: Unabsorbed depreciation/ amortization (13,000 + 6,800) N-8
N-2 Accounting depreciation is inadmissible. Whereas the tax depreciation is allowed as
Taxable income for the year
N-1 Penaltiespaidunderthe SalesTax Act, 1990 arenot availableasadmissiblededuction
under The Income Tax Law.
Plant & machinery
15,750
7,088
22,838
Addition in
Building
N-2 Accounting depreciation is inadmissible. Whereas the tax depreciation is allowed as
deduction, which is computed as below:
Initial allowance (63,000 x 25%)
Normal depreciation 15% x (63,000 - 15,750)
Total
764 Conceptual Approach to Taxes