Question-wise comments are as under:

Q.1

The question pertained to tax on income from property and divided into three parts. Part-wise comments are as under:

(a)

Question related to the term ‘rent’. Majority of the candidates attempted it well.

(b)

Many candidates were unaware of the changes introduced through the Finance Act, 2006. Only few candidates were able to state the required conditions as given in Section 15 (7) of the ITO 2001.

(c)

Majority of candidates attempted it well and secured full marks. However, few candidates wasted lot of time in explaining the provisions of law instead of just specifying the head of income.

Q.2

(a)

Many candidates correctly explained the three types of tax years as defined in Section 74 of the ITO 2001. However, following shortcomings in the answers were observed:

(i)

Many candidates explained normal tax year as the year ending on  30 June without mentioning the point that it shall be  denoted by the calendar year in which the said date falls.

(ii)

As regards special tax year, many candidates gave examples of special tax year i.e. for sugar it is 30 September etc., instead of explaining the requirements of the ITO 2001. Very few students were able to quote all the necessary points as mentioned in Section 74 (2) of ITO 2001.

(iii)

Many candidates had no knowledge of transitional tax year as explained in Section 74 (9) of the ITO 2001.

(b)

This question required computing the amount of tax on salary to be deducted each month for tax year 2007. It was a scoring question and many candidates secured good marks. However, one or more of the following errors were  observed in the most of the scripts:

(i)

Utilities allowance was considered as exempt.

(ii)

Treatment of rent-free accommodation in taxable income was not clear to many candidates. In this case, the amount to be taxed was Rs.540,000 i.e. at 45% of Basic Salary of Rs.1,200,000/-.

Q.3

(a)

The examinees were required to list down the incomes, which are excluded for the purpose of calculating advance tax. The exclusions are given in  Section 147 (1) of the ITO 2001. The performance was below average.

(b)

This was an easy question but it was surprising to see that majority of the candidates were unaware of the treatment of accounting profit on disposal of fixed assets and reversal of provision of doubtful debts which is taught repeatedly at the foundation level. The answers relating to dividends received and profit on debts were however satisfactory.

(c)

The persons who can act as an authorized representative in a proceeding before any income tax authority are given in Section 223 of the ITO 2001. Many candidates got confused and mixed it with the requirement for legal representative of a deceased person as given in Section 87 of the ITO 2001.

Q.4

(a)

The performance of the candidates was average. Many candidates were able to mention that income should be accrued when it become due to the person and expenditure is accrued when it becomes payable by the person. However they didn’t explain further as to when the income becomes due and when the expenditure becomes payable.

(b)

It was a straight forward question and majority of the candidates attempted well. However, most of them failed to specify that consumer loan includes credit card facility and insurance premium financing.

(c)

Most candidates correctly explained how the minimum tax is to be calculated. However very few could identify that the amount paid in excess of actual tax liability can be adjusted from tax liability of the next five tax years.

Q.5

(a)

The examinees were required to mention the exception to the rule whereby income from assets transferred to the spouse is treated as income of the transferor. While quoting the first exception as mentioned in Section 90 of the ITO 2001, most students mentioned “when the transfer is made for adequate consideration” but did not went on to mention the rule given in Section 90 (6) relating to adequate consideration.

(b)

A well attempted question as  majority of the candidates were able to quote the relevant provisions contained in Section 90 of the ITO 2001.

(c)

Most of the candidates mentioned that the author will be deemed to have earned the income in three equal proportions in the relevant tax year and the preceding two tax years. However very few students mentioned that the above was only an option and the author may also opt to allocate the whole of the income to the year in which it had been received.

Q.6

(a)

The performance was very poor in this question. Many students mentioned the condition for filing of an appeal before the ITAT instead of commenting on the provisions regarding the stay of demand. The relevant provisions are explained in Section 131(5) of ITO 2001.

(b)

This portion of the question required to explain the circumstances under which an assessment made can be amended or an amended assessment can be further amended by the Commissioner of Income Tax as described under Section 122 of the ITO 2001. Most candidates were able to secure good marks.

(c)

The criteria for selecting a person for tax audit is given in Section 177 of the ITO 2001. Some students performed very well and secured full marks. However, the majority performed poorly.

Q.7

(a)

Most of the students were able to secure passing marks just by using their general understanding of the design of a debit note.

(b)

Most answers were based on guess work. Some of the situations in which input tax may not be allowed include tax paid on

• goods not used for production/supply of taxable goods
• goods subject to extra tax
• purchases not paid by crossed cheque
• vehicles falling in chapter 87 of Ist Schedule to Customs Act, 1969
• foods, beverages, garments, fabrics etc.
• gifts and give aways
• fake invoices
• any other goods specified for the purpose by the Federal Government

Q.8

(a)

It was an easy question, and was well attempted by majority of the candidates.

(b)

The overall performance of the candidates in this question was below average. Most of the candidates were unaware of the provisions relating to the maintenance of record and could not list down the records that are required to be maintained as given in Section 22 of the Sales Tax Act, 1990.