2. Definitions.
(1) "Accumulated profits"
In relation to distribution or payment of a dividend, it means,
(a) any reserve made up wholly or partly of any allowance, deduction, or exemption admissible under this Ordinance;
(b) all profits of the company including income and gains of a trust up to the date of such distribution or such payment and
(c) all profits of the company including income and gains of a trust up to the date of its liquidation;
Explanation:
(2) Income Tax Appellate Tribunal [ITAT]
Income Tax Appellate Tribunal is the highest appellate authority under the Income Tax Ordinance, 2001.The Income Tax Appellate Tribunal (ITAT) is appointed by the Federal Government. If a taxpayer or Commissioner Inland Revenue is not satisfied with the decision of the Commissioner's (Appeals). The un-satisfied party may appeal to the appellate tribunal. The basic function of the tribunal is to hear the appeals against the decisions of the Commissioner (Appeals) .The decision of ITAT on point of fact is final. However, in case of point of law the matter may be referred to high court. Head of the appellate tribunal is called Chairman. Chairman is appointed by the Federal Government, generally, out of the judicial members of the tribunal. There are two types of the Income Tax Appellate Tribunal (ITAT) members:
i) Judicial members ii) Accountant members
“Approved gratuity fund” means a gratuity fund approved by the Commissioner in accordance with Part III of the Sixth Schedule;
Explanation:
Gratuity is one of three prevalent retirement benefits in the private sector employment. It is a "lump-sum" amount of money payable to a worker on leaving service (through retirement, death or termination of service) based on salary (highest or the final salary) and period of service (over and above six months). Gratuity is actually a benefit for services rendered in the past. It is a reward of good, efficient and faithful service for a substantial period of time. The employer gets a lot of benefits if the gratuity fund is approved by the income tax authorities.
[(3A) “Approved Annuity Plan” means an Annuity Plan approved by Securities and Exchange Commission of Pakistan (SECP) under Voluntary Pension System Rules, 2005 and offered by a Life Insurance Company registered with the SECP under Insurance Ordinance,
(3D) “Approved Employment Pension or Annuity Scheme”
\ means any employment related retirement scheme approved under this Ordinance, which makes periodical payment to a beneficiary i.e. pension or annuity such as approved superannuation fund, public sector pension scheme and Employees Old-Age Benefit Scheme;]
(4) “approved superannuation fund
means a superannuation fund, or any part of a superannuation fund, approved by the Commissioner in accordance with Part II of the Sixth Schedule;
Purpose; Organizations maintain SF to provide benefits to employees. These amounts are contributed by employers and paid to employees as annuities or pensions after retirement or to their families in case of death or disability.
Approval; The commissioner may accord approval to any SF that complies with the requirements.
Benefits to employer; Contribution to ASF is considered as business expenditure that results a decrease in tax payable.
(5) “Assessment”
Assessment includes provisional assessment, re-assessment and amended assessment and the cognate expressions shall be construed accordingly.
Explanation:
Assessment is the process through which the taxable income, the tax liability or the amount of refund is determined. The whole process which enables the tax department to finalize an assessment is termed as Assessment Procedure. This procedure involves the following steps;
1-filing of return of total income,
2-examining the return and documents in order to form an opinion,
3-issuance of assessment order
4-payment of the amount of tax payable, if any.
a – Provisional assessment.
If a concealed asset of person is impounded by tax department, the commissioner may issue a provisional order. In such provisional order the value of the asset will be treated as income for the last tax year.
a- Amended Assessment.
If commissioner feels that there are errors and omissions in the return filed, it is necessary to modify the assessment to correct it. This correction is termed as amended assessment.
c- Re-Assessment.
- Re-Assessment is a separate concept and does not existed in income tax ordinance 2001.Now any type of assessment after original assessment is called reassessment.
[(5A) “assessment year”
means assessment year as defined in the repealed Ordinance;]
“association of persons”
“association of persons” includes a firm, a Hindu undivided family, any artificial juridical person and any body of persons formed under a foreign law, but does not include a company;
(7) “banking company”
means a banking company as defined in the Banking Companies Ordinance, 1962 (LVII of 1962) and includes any body corporate which transacts the business of banking in Pakistan;
“Banking company‖ means any company which transacts the business of banking in Pakistan and includes their branches and subsidiaries functioning outside Pakistan of banking companies incorporated in Pakistan.”
Explanation.— Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of banking company.
(9) “Business”
includes any trade, commerce, manufacture, profession, vocation or adventure or concern in the nature of trade, commerce, manufacture, profession or vocation, but does not include employment;
(10) “Capital asset” ,
“capital asset” means property of any kind held by a person, whether or not connected with a business, but does not include —
(a) any stock-in-trade , consumable stores or raw materials held for the purpose of business;]
(b) any property with respect to which the person is entitled to a depreciation deduction under section 22 or amortisation deduction under section 24; [or]
(d) any movable property [excluding capital assets specified in sub-section (5) of section 38] held for personal use by the person or any member of the person’s family dependent on the person
[(11) “Board” means the Central Board of Revenue established under the Central Board of Revenue Act, 1924 (IV of 1924), and on the commencement of Federal Board of Revenue Act, 2007, the Federal Board of Revenue established under section 3 thereof;]
[(11A) “charitable purpose” includes relief of the poor, education, medical relief and the advancement of any other object of general public utility;]
(12) “company” means —
(i) a company as defined in the Companies Ordinance, 1984.
(ii) a body corporate formed by or under any law in force in Pakistan;
(iii) a modaraba;
(iv) a body incorporated by or under the law of a country outside Pakistan relating to incorporation of companies;
[(v) a co-operative society, a finance society or any other society;]
[(va) a non-profit organization;]
[(vb) a trust, an entity or a body of persons established or constituted by or under any law for the time being in force;]
(vi) a foreign association, whether incorporated or not, which the [Board] has, by general or special order, declared to be a company for the purposes of this Ordinance;
(vii) a Provincial Government; [ ]
(viii) a [Local Government] in Pakistan; [or]
Explnation.A Company is a voluntary association of person formed for the purpose of doing some business. A company is a juristic person (in the eyes of law it is a person). The company can sue and it can be sued. It has its own name and a separate legal entity, distinct from its members who constitute it. A company is a legal person but it is not a citizen. The liability of the members (shareholders) of the company is limited to the amount of shares they hold.
(14) “co-operative society” means a co-operative society registered under the Co-operative Societies Act, 1925 (VII of 1925) or under any other law for the time being in force in Pakistan for the registration of co-operative societies;
Explanation:
A co-operative society is an autonomous association of persons who voluntarily cooperate for their mutual, social, economic, and cultural benefit. Cooperatives include non-profit community organizations and businesses that are owned and managed by the people who use its services (a consumer cooperative) or by the people who work there (a worker cooperative) or by the people who live there (a housing cooperative), hybrids such as worker cooperatives that are also consumer cooperatives or credit unions, multi-stakeholder cooperatives such as those that bring together civil society and local actors to deliver community needs, and second and third tier cooperatives whose members are other cooperatives
(15) “debt” means any amount owing, including accounts payable and the amounts owing under promissory notes, bills of exchange, debentures, securities, bonds or other financial instruments;
(16) “deductible allowance” means an allowance that is deductible from total income under Part IX of Chapter III;
(17) “depreciable asset” means a depreciable asset as defined in section 22;
(
(19) “dividend” includes —
(a) any distribution by a company of accumulated profits to its shareholders, whether capitalised or not,
(b) any distribution by a company, to its shareholders of debentures, debenture-stock or deposit certificate in any form,
(c) any distribution made to the shareholders of a company on its liquidation,out of the accumulated profits of the company immediately before its liquidation, whether capitalised or not;
(d) any distribution by a company to its shareholders on the reduction of its capital, to the extent to which the company possesses accumulated profits, whether such accumulated profits have been capitalised or not;
any payment by a private company or trust of any sum by way of advance or loan to a shareholder or any payment by any company or trust on behalf, or for the individual benefit, of any such shareholder, upto possesses accumulated profits; or
[(f) remittance of after tax profit of a branch of a foreign company operating in Pakistan;
but does not include —
(i) a distribution made in accordance with [sub-clause] (c) or (d) in respect of any share for full cash consideration, or redemption of debentures or debenture stock, where the holder of the share or debenture is not entitled in the event of liquidation to participate in the surplus assets;
any advance or loan made to a shareholder by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company
(iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of [sub-clause] (e) to the extent to which it is so set off; [and]
[(iv) remittance of after tax profit by a branch of Petroleum Exploration and Production (E&P) foreign company, operating in Pakistan.]
[(19A) “Eligible Person”, for the purpose of Voluntary Pension System Rules, 2005, means an individual Pakistani who [holds] a valid National Tax Number [or Computerized National Identity Card [or National Identity Card for Overseas Pakistanis] issued by the National Database and Registration Authority] [ ] [:]]
[Provided that the total tax credit available for the contribution made to approved employment pension or annuity scheme and approved pension fund under Voluntary Pension System Rules, 2005, should not exceed the limit prescribed or specified in section 63.]
[(19C) “electronic record” includes the contents of communications, transactions and procedures under this Ordinance, including attachments, annexes, enclosures, accounts, returns, statements, certificates, applications, forms, receipts, acknowledgements, notices, orders, judgments, approvals, notifications, circulars, rulings, documents and any other information associated with such communications, transactions and procedures, created, sent, forwarded, replied to, transmitted, distributed, broadcast, stored, held, copied, downloaded, displayed, viewed, read, or printed, by one or several electronic resources and any other information in electronic form;]
[(19D) “electronic resource” includes telecommunication systems, transmission devices, electronic video or audio equipment, encoding or decoding equipment, input, output or connecting devices, data processing or storage systems, computer systems, servers, networks and related computer programs, applications and software including databases, data warehouses and web portals as may be prescribed by the Board from time to time, for the purpose of creating electronic record;]
(22) “employment” includes –
(a) a directorship or any other office involved in the management of a company;
(b) a position entitling the holder to a fixed or ascertainable remuneration; or
(c) the holding or acting in any public office;
(23) “fee for technical services” means any consideration, whether periodical or lump sum, for the rendering of any managerial, technical or consultancy services including the services of technical or other personnel, but does not include —
(a) consideration for services rendered in relation to a construction, assembly or like project undertaken by the recipient; or
(b) consideration which would be income of the recipient chargeable under the head “Salary”;
(25) “finance society” includes a co-operative society which accepts money on deposit or otherwise for the purposes of advancing loans or making investments in the ordinary course of business;
(26) “firm” means a firm as defined in section 80;
(27) “foreign-source income” means foreign-source income as defined in sub-section (16) of section 101.
(29) “income”
1.Income includes any amount chargeable to tax under this Ordinance.
Explanation- Any income, profit or gain chargeable to ax under any provision of income tax ordinance 2001. Income shall be classified under any of following heads:
a- Income from salary
b- Income from property
c- Capital gains
d- Income from business and profession
e- Income from other sources
2. Any amount subject to collection or deduction of tax under section
148 (importers)
150(dividend)
152(royalty)
153(payment for supply of goods and services)
154(exporters)
156(prize and winnings)
233(payment of brokerage and commission)
234(motor vehicle tax by excise department)
3.Any amount treated as income under any provision of this Ordinance
4.Any loss of income
Note: Income does not include the amount representing the face value of any bonus share or the amount of any bonus declared, issued or paid by the company to the shareholders with a view to increasing its paid up share capital.
[(29A) “income year” means income year as defined in the repealed Ordinance;]
[(29C)“Industrial undertaking” means —
(a) an undertaking which is set up in Pakistan and which employs,—
ten or more persons in Pakistan and involves the use of electrical energy or any other form of energy which is mechanically transmitted and is not generated by human or animal energy; or
twenty or more persons in Pakistan and does not involve the use of electrical energy or any other form of energy which is mechanically transmitted and is not generated by human or animal energy:
and which is engaged in,—
the manufacture of goods or materials or the subjection of goods or materials to any process which substantially changes their original condition; or
ship-building; or
generation, conversion, transmission or distribution of electrical energy, or the supply of hydraulic power; or
the working of any mine, oil-well or any other source of mineral deposits; and
(b) any other industrial undertaking which the Board may by notification in the official gazette, specify.]
(30A) “investment company”
means an investment company as defined in the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003;]
(30AA) KIBOR
means Karachi Inter Bank Offered Rate prevalent on the first day of each quarter of the financial year;]
(30B) “leasing company”
means a leasing company as defined in the Non-Banking Finance Companies and Notified Entities Regulation, 2007;]
(34) “modaraba”
means a modaraba as defined in the Modaraba Companies and Modarabas (Floatation and Control) Ordinance, 1980 (XXXI of 1980);
(35) “modaraba certificate”
means a modaraba certificate as defined in the Modaraba Companies and Modarabas (Floatation and Control) Ordinance, 1980 (XXXI of 1980);
(35A) “Mutual Fund”
means a mutual fund [registered or approved by the Securities and Exchange Commission of Pakistan];]
(35B) “non-banking finance company”
means an NBFC as defined in the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003;]
[(36) “non-profit organization”
means any person other than an individual, which is —
(a) established for religious, educational, charitable, welfare or development purposes, or for the promotion of an amateur sport;
(b) formed and registered under any law as a non-profit organization;
(c) approved by the Commissioner for specified period, on an application made by such person in the prescribed form and manner, accompanied by the prescribed documents and, on requisition, such other documents as may be required by the Commissioner;
and none of the assets of such person confers, or may confer, a private benefit to any other person;]
(37) “non-resident person” means a non-resident person as defined in Section 81;
(38) “non-resident taxpayer” means a taxpayer who is a non-resident person;
[(38A) “Officer of Inland Revenue” means any Additional Commissioner Inland Revenue, Deputy Commissioner Inland Revenue, Assistant Commissioner Inland Revenue, Inland Revenue Officer, Inland Revenue Audit Officer or any other officer however designated or appointed by the Board for the purposes of this Ordinance;]
(40) “Pakistan-source income” means Pakistan-source income as defined in section 101;
[(40A) “Pension Fund Manager” means an asset management company registered under the Non-Banking Finance Companies (Establishment and Regulations) Rules, 2003, or a life insurance company registered under Insurance Ordinance, 2000 (XXXIX of 2000), duly authorized by the Securities and Exchange Commission of Pakistan and approved under the Voluntary Pension System Rules, 2005, to manage the Approved Pension Fund;]
(41) “permanent establishment” in relation to a person, means a [fixed] place of business through which the business of the person is wholly or partly carried on, and includes –
(a) a place of management, branch, office, factory or workshop, [premises for soliciting orders, warehouse, permanent sales exhibition or sales outlet,] other than a liaison office except where the office engages in the negotiation of contracts (other than contracts of purchase);
a mine, oil or gas well, quarry or any other place of extraction of natural resources;
[(ba) an agricultural, pastoral or forestry property;]
(c) a building site, a construction, assembly or installation project or supervisory activities [connected] with such site or project [but only where such site, project and its [connected] supervisory activities continue for a period or periods aggregating more than ninety days within any twelve-months period] ;
(d) the furnishing of services, including consultancy services, by any person through employees or other personnel engaged by the person for such purpose [ ];
(e) a person acting in Pakistan on behalf of the person (hereinafter referred to as the “agent[”),] other than an agent of independent status acting in the ordinary course of business as such, if the agent –
(i) has and habitually exercises an authority to conclude contracts on behalf of the other person;
(ii) has no such authority, but habitually maintains a stock-in-trade or other merchandise from which the agent regularly delivers goods or merchandise on behalf of the other person; or
(f) any substantial equipment installed, or other asset or property capable of activity giving rise to income;
(42) “person” means a person as defined in section 80;
The following shall be treated as persons for the purposes of this Ordinance, namely:
(a) An individual;
(b) a company or association of persons incorporated, formed, organised or established in Pakistan or elsewhere;
(c) the Federal Government, a foreign government, a political sub-Division of a foreign government, or public international organisation.
(43) “pre-commencement expenditure” means a pre-commencement expenditure as defined in section 25;
;
[(44A) “principal officer” used with reference to a company or association of persons includes –
a director, a manager, secretary, agent, accountant or any similar officer; and
any person connected with the management or administration of the company or association of persons upon whom the Commissioner has served a notice of treating him as the principal officer thereof;]
(45) “private company”
means a company that is not a public company;
EXPLANATION
The major ownership restrictions are:
3. the number of shareholders cannot exceed a fixed figure (commonly 50).
(46) “profit on a debt” [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;
(47) “public company” means —
a company in which not less than fifty per cent of the shares are held by the Federal Government [or Provincial Government];
[(ab) a company in which [not less than fifty per cent of the] shares are held by a foreign Government, or a foreign company owned by a foreign Government [;]]
(b) a company whose shares were traded on a registered stock exchange in Pakistan at any time in the tax year and which remained listed on that exchange [50][ ] at the end of that year; or
[(c) a unit trust whose units are widely available to the public and any other trust as defined in the Trusts Act, 1882 (II of 1882);]
(49) “rent” means rent as defined in sub-section (2) of section 15 and includes an amount treated as rent under section 16;
(50) “resident company” means a resident company as defined in section 83;
A company shall be a resident company for a tax year if —
(a) it is incorporated or formed by or under any law in force in Pakistan;
(b) the control and management of the affairs of the company is situated wholly [ ] in Pakistan at any time in the year; or
(c) it is a Provincial Government or [Local Government] in Pakistan.
(51) “resident individual”
means a resident individual as defined in section 82;
An individual shall be a resident individual for a tax year if the individual —
(a) is present in Pakistan for a period of, or periods amounting in aggregate to, one hundred and [eighty-three] days or more in the tax year; [or]
(c) is an employee or official of the Federal Government or a Provincial Government posted abroad in the tax year.
(52) “resident person” means a resident person as defined in section 81;
(1) A person shall be a resident person for a tax year if the person is —
(a) a resident individual, resident company or resident association of persons for the year; or
(b) the Federal Government.
(2) A person shall be a non-resident person for a tax year if the person is not a resident person for that year.
means any amount paid or payable, however described or computed, whether periodical or a lump sum, as consideration for —
(a) the use of, or right to use any patent, invention, design or model, secret formula or process, trademark or other like property or right;
(b) the use of, or right to use any copyright of a literary, artistic or scientific work, including films or video tapes for use in connection with television or tapes in connection with radio broadcasting, but shall not include consideration for the sale, distribution or exhibition of cinematograph films;
(c) the receipt of, or right to receive, any visual images or sounds, or both, transmitted by satellite, cable, optic fibre or similar technology in connection with television, radio or internet broadcasting;
(d) the supply of any technical, industrial, commercial or scientific knowledge, experience or skill;
(e) the use of or right to use any industrial, commercial or scientific equipment;
(f) the supply of any assistance that is ancillary and subsidiary to, and is furnished as a means of enabling the application or enjoyment of, any such property or right as mentioned in [sub-clauses] (a) through (e); [and]
(g) the disposal of any property or right referred to in [sub-clauses] (a) through (e);
“salary”
means salary as defined in section 12;
Salary means any amount received by an employee from any employment, whether of a revenue or capital nature, including —
(a) any pay, wages or other remuneration provided to an employee, including leave pay, payment in lieu of leave, overtime payment, bonus, commission, fees, gratuity.
(b) any perquisite, whether convertible to money or not;
(c) the amount of any allowance provided by an employer to an employee including a cost of living, subsistence, rent, utilities, education, entertainment or travel allowance
(d) the amount of any expenditure incurred by an employee that is paid or reimbursed by the employer.
(e) the amount of any profits in lieu of, or in addition to, salary or wages
(f) any pension or annuity, or any supplement to a pension or annuity; and
(g) any amount chargeable to tax as “Salary” under section 14. EMPLOYEE SHARE SCHEME.
(58) “share” in relation to a company, includes a modaraba certificate and the interest of a beneficiary in a trust (including units in a trust);
(59) “shareholder” in relation to a company, includes a modaraba certificate holder, [60][a unit holder of a unit trust] and a beneficiary of a trust;
[(59A) “Small Company” means a company registered on or after the first day of July, 2005, under the Companies Ordinance, 1984 (XLVII) of 1984, which,—
(i) has paid up capital plus undistributed reserves not exceeding twenty-five million rupees;
[(ia) has employees not exceeding two hundred and fifty any time during the year;]
(ii) has annual turnover not exceeding two hundred [and fifty] million rupees; and
(iii) is not formed by the splitting up or the reconstitution of company already in existence;]
(61) “speculation business” means a speculation business as defined in section 19;
(62) “stock-in-trade” means stock-in-trade as defined in section 35;
(63) “tax” means any tax imposed under Chapter II, and includes any penalty, fee or other charge or any sum or amount leviable or payable under this Ordinance;
(64) “taxable income” means taxable income as defined in section 9;
(66) “taxpayer” means any person who derives an amount chargeable to tax under this Ordinance, and includes —
(a) any representative of a person who derives an amount chargeable to tax under this Ordinance;
(b) any person who is required to deduct or collect tax under Part V of Chapter X [65][and Chapter XII;] or
(c) any person required to furnish a return of income or pay tax under this Ordinance;
(67) “tax treaty” means an agreement referred to in section 107;
(68) “tax year” means the tax year as defined in sub-section (1) of section 74 and, in relation to a person, includes a special year or a transitional year that the person is permitted to use under section 74;
(69) “total income” means total income as defined in section 10;
(70) “trust” means a “trust” as defined in section 80;
[(70A) “turnover” means turnover as defined in sub-section (3) of section 113;]
(73) “unit trust”
means a unit trust as defined in section 80; and
[(74) “Venture Capital Company” and “Venture Capital Fund”
shall have the same meanings as are assigned to them under the [Non-Banking Finance [Companies] (Establishment and Regulation) Rules, 2003];
