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GOVERNMENT OF PAKISTAN
REVENUE DIVISION
CENTRAL BOARD OF REVENUE
*****
No.F.4(1)ITP/2003-EC
Islamabad, the July 11, 2003
Circular No. 07 of 2003
(Income Tax)
Subject: FINANCE ACT, 2003 EXPLANATION OF IMPORTANT PROVISIONS RELATING TO INCOME TAX.
The important amendments made in the Income Tax Ordinance, 2001 and Schedules thereto, through
the Finance Act, 2003 are explained as under:1.
Limitation upto 30th June, 2004 has now been provided by amending section 2(1A) of the Income Tax 0rdinance
2001 to avail the aforesaid incentives.
2.
DEFINITION OF INCOME.
In order to remove anomalies in the earlier definition of "income", sub-clause (29) of section 2 has been
amended to include any amount treated as income under any provisions of Income Tax Ordinance 2001, in the
definition of "income".
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6.
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PROPERTY INCOME.
The text of subsection (1) of section 15 of Income Tax Ordinance, 2001 would imply that advance received by a
taxpayer would be chargeable to tax in the year of receipt. Subsection (1) has been amended to remove the
anomaly whereby income from property including advance receipt would be charged to tax in the tax year to
which the income pertain.
Sub-section (3A) has also been added in section 15 by virtue of which rent received in respect of provision of
amenities, utilities or any other service connected with the renting of the building shall be chargeable to tax under
the head Income from Other Sources instead of Income from Property. Corresponding amendment to this
effect has also been made in section 39. The amendment is applicable prospectively.
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Sub-section (1) of section 26 has been amended to restrict the admissibility of scientific research expenditure in
respect of research, which has been undertaken in Pakistan.
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18.
WITHHOLDING TAX ON PRIZE WINNING IN QUIZ AND PRIZES RELATING TO PROMOTION OF SALES.
Section 39(1)(h) has been amended to include prize on winning a quiz or prize offered for promotion of sales to be
chargeable to tax under the head Income from Other Sources. Where the prize is not paid in cash amendment
has been made in section 68, by adding sub-section (3) providing for the determination of fair market value of the
prize by the Commissioner. As per amended section 156 the tax withheld @ 10% on the amount of prize on winning
a quiz or prize offered for promotion of sales or fair market value thereof as the case may, would constitute the final
discharge of tax liability.
19.
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sub-section (2) to section 51 has been added to exempt from tax the salary income earned by Pakistanis
outside Pakistan during the tax year they went abroad for the said tax year.
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LIMITATION PERIOD FOR SET OFF AND CARRY FORWARD OF LOSSES RELATING TO AOPs.
Section 59A has been added to determine the limitation period for set off and carry forward of losses in respect
of AOP and its members.
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26.
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ENHANCING THE LIMIT OF INTEREST PAID ON HOUSING LOANS FOR TAX CREDIT.
The scope of the provision of section 64 has been widened to include all loans by scheduled banks or
non-banking financial institutions (NBFIs) regulated by Securities and Exchange Commission of Pakistan.
Advance by Government or a local authority or HBFC are already included for the purpose of tax credit in
respect of any profit or share in rent, where the loan is utilized for construction or acquisition of a house. To
encourage and facilitate housing the limit for tax credit has also been enhanced to Rs.500,000 or 40% of the
income whichever is less. Enhanced limit would be applicable in respect of tax year commencing on or after
July 1, 2003.
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32.
RETURN OF INCOME.
An amendment in sub-section (2) of section 114 has been made to state that return is to be filed on prescribed
form alongwith applicable prescribed statements/annexes and filling in all the relevant columns with declaration
of maintenance of books of accounts. In case of complete returns only an assessment u/s 120 of the Income
Tax Ordinance 2001 shall be taken to have been made. Where returns are not complete as provided in section
114(2), the taxpayers would be provided an opportunity through a notice by the Commissioner to remove the
deficiencies specified in the notice. Non-compliance of the notice would render the return invalid, meaning
thereby that a complete return shall be required to be filed. In case the requirements of the notice are met, the
assessment in such return shall be taken to have been made on the date it was originally filed.
33.
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a taxpayer to rectify any omission or wrong statement contained in the original wealth statement but before an
assessment under sub-section (1) or sub-section (4) of section 122 is made, and without prejudice to any liability
incurred by him under any other provision of the Ordinance 2001.
34.
35.
It has been made obligatory on the Commissioner to obtain taxpayer's explanation on all the issues raised in any
audit before passing an order amending the assessment under section 122 of the Income Tax Ordinance, 2001.
36.
AMENDMENT OF ASSESSMENT.
Sub-section (5A) has been inserted to section 122. It empowers the Commissioner to amend an assessment
order if the said order is erroneous in so far as it is prejudicial to the interest of the revenue. Such action,
however, is to be completed within the time limit specified in sub-section (2) or sub-section (4) of section 122.
However, where an assessment order was earlier passed under section 65 of the repealed Ordinance, the
limitation contained in the section shall neither be curtailed nor extended by the provisions of sub-section (2) or
sub-section (4) of section 122.
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The payment made by the Federal Govt., a Provincial Govt. or a local authority to a contractor for construction
material supplied to the contractor by the Govt. or the local authority, as the case may be, was not subjected to
withholding tax through circular instructions issued by CBR. A specific provision under clause (ba) to sub-section
(5) of section 153 has been provided to exclude such payments, from deduction of tax.
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ALLOWING THE COMMISSIONER TO RECTIFY ORDERS PASSED UNDER THE REPEALED ORDINANCE.
The Commissioner has been empowered to rectify mistake apparent from record where an order under the
repealed Ordinance was passed by the Deputy Commissioner of Income Tax or the Income Tax Panels. For this
purpose sub-section (1A) has been inserted in section 221 restricting powers to rectify the order on account of a
mistake apparent from the record within the period specified in the said section and requirement of issuing a
notice where rectification is to result in increase of assessment, reduction in refund or otherwise applies
adversely to the taxpayer.
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47.
WITHDRAWAL OF EXEMPTIONS.
The government is following a conscious policy of reducing the number of exemptions, rebates and concessions
available and the Second Schedule. The following exemptions, rebates and concessions have been omitted
with effect from tax year 2004.
PART I
Clauses (1), (33), (34), (36), (41), (50), (87), (108), (109), (115), (121), (129), (134) and (137);
PART II
Clause (4), and.
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PART IV
Clauses (1), (4), (6), (9), (43B), (43C), (43D), (43E), (48), (49), (50) and (51).
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52.
Amendments relating to withholding provisions of the Income Tax Ordinance 2001 brought through Finance Act
2003 have been separately explained through circular No.06 of 2003 issued vide C.No.1(5)WHT/97 dated July 9,
2003.
(Abdul Hamid)
Secretary (Income Tax Policy)
Ph: 9205561
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