Icab professional examination i taxation 1 suggested answer may june 2001 to nov dec 2006

ICAB Professional Examination-I

TAXATION -I

SUGGESTED ANSWER (MAY JUNE 2001 TO NOV DEC 2006)

Courtesy by: Saiful Islam Mozumder smozumder@outlook.com ShirazkhanBasak& Co.

Suggested Answers Professional Examination-I Taxation-I May-June-2001 Question solved according to the provision of Finance Act-2017 and law implications of assessment year 2017-18) Q. 1. (a) State the rules governing the residential status of assessees under Bangladesh Tax Laws.: Ans. Question No. 01 (a) Residential Status As per section 2(55) “resident” in respect of any income year, meansa. an individual who has been in Bangladeshi. minimum one hundred and eighty days in the income year, or ii. minimum ninety days in the income year and minimum three hundred sixty-five days in the preceding four years of the income year. b. a Hindu undivided family, firm or other association of persons, the control and management of whose affairs is situated wholly or partially in Bangladesh in the income year: and c. a Bangladeshi company or any other company, the control and management of whose affairs is situated wholly in Bangladesh in the income year.

Q.1.(b) Mr. X, a Bangladesh Citizen, who was appointed as a technical adviser by the Govt. of Nigeria, leaves Bangladesh for the first time on September 26, 1999 for joining his duties in Nigeria. During the previous year 2000-01 he comes to Bangladesh for 176 days. Determine the residential status of Mr. X for the assessment years 2000-01 and 2001-02.

Ans. Question No. 01 (b) Determining residential status of Mr. X for the assessment year 2000-01 & 2001- 2002: Assessment Year 2000-01 Residential Assessment Year 2001-02 Residential Income Year 1999-01 Status Income Year 2000-01 Status Resides in 88 days in the income Non Resident 176 days in the income year Non Resident Bangladesh year & minimum 365 but he did not fulfill the days in the preceding 4 criteria to remain minimum years as Mr. X left 365 days in the preceding 4 Bangladesh for thefirst years as Mr. X left Bangladesh time on Sept. 26, 1999 for the first time on Sept. 26, 1999 and he was out of the c o u nt r y fo r 27 7 in t he preceding year.

Q. 2. (a) Mr. Sunny received 100 bonus shares from Denim Ltd. which is enjoying tax holiday under section 46A of the Income Tax Ordinance, 1984. Do you consider his above receipt as dividend under section 2(26) and income under section 2(34) of the Income Tax Ordinance 1984?

Ans. Question No. 02 (a) According to the section 2(26) and section 2(34) of the Income Tax Ordinance 1984, bonus shares neither be included in the definition of “dividend” nor to be included in the “income”.

Hence, bonus shares received by Mr. Sunny from Denim Ltd., shall be exempted from tax.

Q. 2. (b) Is dividend paid by a tax holiday company taxable in the hands of its shareholders?

Ans. Question No. 02 (b) As per section 2(26), “dividend” and section 2(34), “income”, dividend (except bonus shares) paid by any company whether tax holiday company or not, shall be taxable in the hands of its shareholders.

Q. 2. (c) What are the provisions under paragraph 22 of the Sixth Schedule, Part A of the Income Tax Ordinance, 1984 with regard to the taxability of income from dividend?

Ans. Question No. 02 (c) As per Sixth Schedule, Part A Paragraph 22, any income section 2(26), “dividend” and from dividend is exempted from tax for which dividend distribution tax is payable by the company under section 16D. This section subsequently omitted by the Finance Act 2005.

Hence, cash dividend received from any company shall come under the purview of tax.

Q. 2. (d) Is dividend subject to deduction of tax at source?

Ans. Question No. 02 (d) As per section 54, the payment of dividend to both resident and non-resident assessee is subject to deduction of tax at source: a. In the case of non-resident assessee i)if the shareholder is a company, at the rate applicable to a company; ii) if the shareholder is a person other than company, at the maximum rate i.e. 25%. b. In the case of resident assessee i. if the shareholder is a company, at the rate applicable to a company; ii. if the shareholder is a person other than company, at the maximum rate i.e. 10%.

7 (e) What arc the provisions with regard to furnishing information regarding payment of dividend?

Ans. Question No. 02 (e) Information regarding payment of dividend U/S 110 The principal officer of every company shall, before the first day of September each year, furnish to the authorized officer, a statement prepared in the prescribed form and verified in the prescribed manner, so as to give the following information, namely: a. the name and address of every shareholder, as entered in the register of shareholders, to whom a dividend or the aggregate of dividends has been paid or distributed during the preceding financial year if such payment exceeds Tk. Twenty five thousand as may be prescribed; b. the amount of dividend or dividends so paid or distributed; and c. such other particulars as may be prescribed.

Q.3. The Profit and Loss Account with notes thereon for the year ended December 31, 2000 of Surma Apparels Ltd. is as under: Taka Taka Salaries and Wages

52,500

Gross profit

Printing and Stationery

10,000

Premium on issue of shares.

Rent

50,000

Office expenses

24,000

Motor lorry expenses

36,000

Provision for doubtful debts

16,000

Directors‟ fees

48,000

Audit fees

25,000

Legal expenses

15,000

Fines and Penalties

21,000

Brokerage on loans obtained

10,000

Underwriting Commission

15,000

Cost of issue of debenture

20,000

Interest on Debenture

27,000

Donations

10,000

6,44,750 15,000

Workmenâ€&#x;s Compensation Insurance.

Loss by embezzlement Contribution to P.F. Depreciation Net Profit C/d.

10,000 18,000 5,250 28,000 2,25 ,000

6,59,750 6,59,750 Notes: (1) Donations include Tk. 5,000 paid to a charitable fund established under the Zakat Fund Ordinance, 1982.

(2) The Provident Fund is recognized by the Commissioner of Taxes.

(3) Legal expenses have been incurred in defending an action of evasion of custom duty.

(4) Embezzlement loss is on account of theft committed by an employee who breaks into Cashierâ€&#x;s room after office hours.

You are required to compute total income of the company from the above information. Please give reasons in support of your computation and expenses to be allowed and disallowed by you under the provisions of the Income Tax Law. Ans. Question No. 03 M/s. Surma Apparels Ltd. Computation of Total Income Assessment Year-2001-2002 Income Year-2000-2001 Income from Business or Profession: U/S-28-30 Amount(Tk.) Net income as per Return 225,000/Add: Accounting depreciation (disallowed for separate consideration) 28,000/253,000/Add: Inadmissible expenses: Tk. 16,000/Provision for doubtful debts (Disallowed u/s 29(1), because tax authority allowed only the actual bad debts) Tk. 21,000/Fines & Penalties (Disallowed because it is assumed that the company committed offences beyond the purview of law) Brokerage on loans obtained (Disallowed because it is not allowable u/s.29(1) Donations (Disallowed because it is not allowable u/s.29(1) Legal expenses (Defending an action of evasion of customs duty is not allowable u/s.29(1) Loss by embezzlement (Theft committed by an employee after office Hours is not allowable u/s.29(1)

Tk. 10,000/Tk.

5,000/-

Tk. 15,000/-

Tk. 18,000/Tk. 85,000/Tk. 338,000/-

Less: Admissible expenses: Tax Depreciation (Assumed same as per 3rd Schedule) Premium on issue of shares (It is not business income as per section 28)

Tk. 28,000/Tk. 15,000/-

Total Income

Tk. 43,000/Tk. 295,000/-

Notes: 1) The total income of M/s. Surma Appeals Ltd., has been computed in accordance with the provision of Finance Act-2006 and law implication of assessment year 2006-2007 for the sake of avoiding complexity.

2) Premium on issue of shares is not a part of total income of the assessee.

3) Directors Fees: It is assumed that VAT has been deducted at the time of payment and deposited into Govt.

Treasury.

4) Audit Fees: It is assumed that exemption for tax deduction certificate has been obtained from the auditors.

4. (a) A refund of tax becomes due to an assessee on reduction of total income in appeal filed by him, but the Deputy Commissioner of Taxes does not take any action to make the refund. What are the remedies open to the assessee?

Ans. Question No. 04 (a) As per section 151, where a refund due to the assessee is not paid within two months from the date of return, or refund becoming due consequent upon any order passed in appeal or other proceeding under this Ordinance, interest @ 7.5% per annum shall be payable to the assessee on the amount of refund from the end of the said two months upto the date of refund.

On the other hand as per section 152, the assessee may set off the refundable amount against the tax payable by that person under this Ordinance or treated, at the option in writing of that person, as payment of tax payable under section 64 or section 74 thereof. (b) Discuss the modes of recovery by the Tax Recovery Officer.

Ans. Question No. 04 (b) 1. As per section 139 of Income Tax Ordinance 1984, the Tax Recovery Officer, upon receipt of a certificate forwarded by the DCT, shall notwithstanding anything contained in any other law for the time being in force, take one or more of the following modes to recover amount as stated in the certificated: a. attachment and sales, or sale without attachment, of any movable or immovable property of the assessee: b. arrest of the assessee and his detention in prison; c. appointment of a receiver for the management of the movable and immovable properties of the assessee.

2. Tax Recovery Officer may also recover the following in addition to the amount stated in the certificate: a. the interest for which the assessee is liable under section 136; and b. any cost and charges, including expenses of the service of any notice or warrant, incurred in the proceedings for the recovery of the tax in arrears.

3. If the Tax Recovery Officer is not able to recover entire amount of the certificate, he may send the certificate to the other Tax Recovery Officer, where he has the information that the assessee has property or resides.

Q. 4. (c) A private limited company is wound up but tax assessed on the company remains unpaid.

Discuss the personal liability of the Directors of the Company in respect of the unpaid tax of the company.

Ans. Question No. 04 (c) 1. As per section 100 of Income Tax Ordinance, 1984, where any private limited company is wound up and any tax assessed on the company, whether before, or in the course of, or after its liquidation, in respect of any income of any income year cannot be recovered, every person who was, at any time during the relevant income year, a director of that co mpany, shall, notwithstanding anything contained in the Companies Act, 1913 or Companies Act 1994, be jointly and severally liable to pay the said tax and shall, for the purposes of recovery thereof be deemed to be an assessee in respect of such tax; and the provisions of this Ordinance shall apply accordingly.

2. But the liability of the director(s) of a private company shall cease if he proves to the DCT that nonrecovery of tax from the company cannot be attributed to any gross negligence, misfeasance or breach of any duty on his part in relation to affairs of the company.

Q.5. Mr.Amin owns a house in Chittagong, municipal value of which is Tk. 48,000 per annum. The house was used by him throughout previous year 1999-2000 for his residential purposes. He m a k e s t h e following expenditure in respect of the house : Taka Municipal Taxes

6,000

Repairs

8,000

Fire Insurance

2,500

Land Revenue

3,000

Interest on borrowed capital for the year 1999-2000 Tk. 25,000 (Tk.1,60,000 was borrowed on July 3, 1995 @ 15% p.a, construction of the house was completed on July 5, 1998). The house was never let out.

Assuming that income of Mr. Amin from other sources is Tk. 2,16,000, determine his taxable income for the assessment year 2000-2001.

Ans. Question No. 05 Mr. Amin Computation of Total Income Assessment Year-2000-2001 Income Year-1999-2000 Income from House Property: U/S-24-25 Amount Annual value: (Self occupied) Less:- Allowable Expenses: (Since the house is self occupied, no income to be included and the same time no expenditure can be charged against the said self occupied house.)

Income from Other Sources: U/S-33-34 Income from other sources 216,000.00 Total Income (taxable) 216,000.00 Notes: 1) The total income (taxable) of Mr. Amin has been computed in accordance with the provision of Finance Act2006 and law implication of assessment year 2006-2007 for the sake of avoiding complexity.

Q.6.(a) Discuss the provisions under the Value Added Tax Act,1991 with regard to refund: Ans. Question No. 06 (a) As per section 67 of VAT Act 1991, when any excess amount paid on account of VAT or VAT and supplementary duty or turnover tax where applicable, due to carelessness, mistake, wrong explanation or other reason can be claimed as refund subject to the following conditions:  refund application shall be filed in form TR 31;  refund shall be claimed within 6 months of such tax payment;  refund will be adjusted against input tax rebate, if there is any scope for adjustment.

The application for refund shall be disposed off by the concerned VAT authority within 90 days from the date of application.

Q.6.(b) What are the conditions to be satisfied for drawback of Value Added Tax paid on goods or services used for manufacturing goods to be exported? Discuss the procedure of drawback of VAT paid on the goods or services.

Ans. Question No. 06 (b) Drawback facility is applicable on VAT, supplementary duty, import duty and any other duties and taxes paid except advance taxes and supplementary duty on natural gas subject to fulfillment of certain conditions and procedures:  is used to produce or manufacture exported goods or services;  is deemed as exported goods or services;  is used in foods or any goods mentioned in section 3(2);  drawn back claim in each challan is not less than Tk. 100;  carrier of goods crossed Bangladesh border;  exported goods have not been returned to Bangladesh;  foreign currency is remitted to Bangladesh.

Provided thatThe drawback shall be claimed within six months from the date of export or deemed to be exported in issuing of shipping bill, bill of exports, Mushak challan of final shipment when partial shipment is allowed in the L/C.

Q.6.(c) Mr. X, a manufacturer of iron rod in a local town with aturnover exceeding Tk. 40 lacs annually wants to egister for VAT purposes. Advise him about the documents he must keep ready before applying for such egistration Ans. Question No. 06 (c) Since, the annual turnover of Mr. X exceeding Tk. 40 lakhs, he shall register his business under VAT and the following documents he must keep ready for registration:  Trade License;  TIN Certificate (if applicable);  IRC/ERC Certificate (where applicable);  List of all sales centers when applied for central registration;  List of goods produced or procured;  A declaration in form „Mushak-7‟ regarding place of production or business, plant, machinery, fittings, goods to be produced or purchased or stock of goods and its inputs.

Q.6. (d ) State the benefits of VAT registration that may accrue to Mr. X. Ans. Question No. 06 (d) Benefits of VAT registration for Mr. X are enumerated below:  It is the compliance of legal obligation which is compulsory under VAT Act 1991  

Without VAT registration goods can be forfeited. VAT registration will help to avoid such forfeiture of goods; VAT registration will protect the business to be sealed off in the wake of non-registration;



Penalty (minimum Tk. 10,000 and maximum Tk. 50,000) may be avoided upon registration of business under VAT Act.

Suggested Answers Taxation-I Professional Examination-I November-December, 2001 Q. 1. Mr. Iqbal is a salaried employee of a private company. His salaries and allowances are as follows: (a) (b) (c) (d) (e) (f)

Salary Tk. 30,000 per month; House rent allowance Tk. 20,000 per months: Conveyance allowance Tk. 2,000 per month; Entertainment allowance Tk. 1,000 per month; Two month’s salary paid as bonus for the relevant income year; He contributes Tk. 3,000 to his provident fund while his employer contributes as equal amount.

Mr. Iqbal constructed a two-storied building at Baridhara, which he has let out to a Foreign Mission, which is using the same as office. The rent he gets is Tk. 75,000 per month. The building was constructed between 1-7-1999 and 30-06-2000.

He has sold one vacant plot of land at Tk. 30,000, which he purchased seven years back at Tk. 15,00,000.

The gain derived from this property has been invested in (lie purchase of shares of a public limited company.

He also sold another building and land appurtenant thereto at Tk. 40,00,000. This property was acquired in 1983 at Tk. 20,00,000. He informed the DCT that another house property will be purchased for office like the old one in about a year’s time.

He sold Saving Certificates purchased two year’s back at Tk. 50,000. He purchased 5 years Sanchoy Patra during the same relevant accounting year worth Tk. 1,50,000.

You are required to compute the total income of Mr. Iqbal and the tax for the income year ended June 30,2001.

Answer No. 1 A.

1.

Computation of total income of Mr. Iqbal.

Accounting year ended June 30, 2001 Assessment year 2001-2002

Income from Salary:

a. b.

Salary 30,000x12 House Rent Allowance 20,000 x 12 Less: Statutory Expended

360,000 240,000 120,000 120,000

c.

d. e. f.

2.

Conveyance Allowance 2,000 x 12 Less: Statutory Expended considered that the Assessee does not any other conveyance facility

24,000 12,000 12,000 12,000 60,000 36,000 600,000

Entertainment 1,000x12 Bonus 30,000 x 2 Employers Contribution of P.E. 3,000 x 12 Sub total (a to f)

Income from House Property: House Rent 75,000 x 12 Less: Statutory deduction % of total receipt

900,000 225,000

Sub total 3.

675,000

Income from capital Gain: a.

Vacant plot: Sales Value Less: Original Cost (The assessee would not entitle to claim any exemption as the gain was arised out of the sale of a vacant plot through invested in the purchase of share a public Ltd. Co.) b.

Building and Land: Sales Less: Original Cost

3,000,000 1,500,000 1,500,000

4,000,000 2,000,000

(The assessee is not entitled to get any exemption as the gain has been invested in a building to be used for commercial purpose) Sub total (a + b)

2,000,000

3,500,000

Income from sale of saving certificate: Assume that this savings certificate sold by him are100% Tax Free Savings Certificate.

The amount of 5 years Sanchaypattra will be Considered for investment purpose.

Total Income (1 to 4) 4.

Summary of Total Income; i.

Salary Income

600,000

ii.

Income from House Property

675,000

iii.

Income from Capital Gain (Tax will be calculated separately) Income from sale of Saving, Certificate

3,500,000

Total income

4,775,000

Calculation of Tax on Salary & House Property Income (Excluding income of Capital Gain to be Calculated separately)

1,275,000

iv.

First Next Next Next

1,275,000

Nil

1,000,00 50,000 1,50,000 9,75,000

10% 18% 25%

Nil 5,000 27,000 2 43,750 2,75,750 22,500 253,250

Less: Tax Rebate on Investment of 1,50,000 @ 15% Tax comes other than Capital Gain Calculation of Tax on Capital Gain at Tk. 3,500,000/Tax payable on the capital gain at the rate applicable to his total income including the said capital gain or tax @ 15% of the amount of the capital gain whichever is lower. In this case rate of tax will be 15% of the capital gain. So total capital gain is Tk. 35,00,000/- and

Tax comes @ 15% 525,000 Assume that tax has been deducted at the time of registration on the registration value of Tk. 7,000,000 @ 10% 70,0000 Refundable (175,000) Since the assessee did not re-invest the capital gain properly no refund will be allowed. So it will be considered as final payment u/s 82C of I.T.O.-1984.

B. Total tax liability 253,250 Simple interest @ 12% for 5 month 12,663 Total Tax liability 265 ,911 Question No. 2: Mr. Amin has prepared the following profit and loss account for the year ending on 30 June, 2000: Taka Taka Salary 80,000 Gross Profit 3,23,000 Advertisement 40,000 Rental income (50% portion 1,65,000 for months @ Tk. 15,000 pm Sundry expense

45,000

Interest on own capital

20,000

Fire insurance 1/3 relates to house property

30,000

Income tax Household expenses Bad debts written of Provision for bad debt (General provision) Repairs of house property Municipal tax of house property Insurance premium on own life (sum assured Tk. 4 Lacs) Donation to PM Relief Fund Depreciation allowable Net Profit

70,000 Lottery winings 25,000 Interest on Non-govt. securities 10,000 5,000 10,000 36,000

Dividends from a Bangladesh listed, company

2,00,000

40,000 9,20,000

60,000 20,000 37,000 11,60,000 16,48,000 16,48,000 Mr. Amin own a house property which is being used by him for the following purposes: (a) 25% carpet area for business purpose; (b) 25% carpet area for self-residence; (c) 50% is let out for residential purpose (this portion was however remained vacant for a month during the year and was self-occupied): (i) Determine the income of Mr. Amin for the assessment year, 2000-01 (ii) Calculate income tax payable by him assuming that he has also made investment in saving certificates for Tk. 3 lac during the year.

Answer No. 2 i. .

Computation of total Income of Mr. Amin.

Accounting year ended June 30, 2000 Assessment year 2000-2001 01. Net Profit as per P/L Account Less: Other Income for separate Consideration: Rental Income Dividend Income Lottery Winnings Interest on non-Government Securities

1,160,000 165,000 200,000 40,000 920,000

1,325,000

(165,000) Add: Other Expenses including depreciation for separate Considerat ion: Depreciation Municipality Tax Repairs of House Property Income Tax Interest on own capital Fire insurance relating to house property (1/3rd ) House Expenses Provision for Bad Debts Insurance Premium for own life

37,000 36,000 10,000 70,000 20,000 10,000 25,000 5,000 60,000

Less: Allowance deduction: Depreciation allowable as per income rule House rent for 25% use for business purpose (30,000x12) = @ 25%

37,000 90,000

Business Income /(Loss) of Mr. Amin

273,000 108,000

127,000 (19,000)

Note:-1:Advertisement, Sundry Expenses, Bad debts written off. 2/3 of fire insurance and Donation to P.M. Relief fund are considered to be the business expenses to Mr. Amin.

Note:-2:Interest as own capital, Income Tax, House expenses arc considered to be the personal expenses of Mr. Amin.

Note:-3:Provision for Bad debts will be considered as business expenses as and when the same will he considered as real bad Debts.

Note:-4:1/3rd of Fire Insurance relating to House property, repairs, of H.P. Municipality tax will be considered while computing the total income of House property.

Note:-5:Insurance Premium will be considered while calculating the Investment of Mr. Amin.

Note:-6:Since the 25% of the area of house properly has been used for his business purpose, the same percentage of the house property has been considered as business expenses against house rent.

02. Rental Income of Mr. Amin: i. 50% portion for 11 months 11x15,000 165,000 ii. House rent received from business 90,000 iii. Vacant portion of the house used by the assessee for personal use 15,000 270,000 Less: Statutory deduction: i. Repairing expenses 25% of total rental annual value 30,000 x 12=360,000 90,000 ii. Municipalit y Tax 36,000 iii. Fire Insurance 1/3 rd of total Premium (30,000 /3 ) 10,000 1,36,000 Total Rental Income of Mr. Amin.

1,34,000 3. Dividend Income of Mr. Amin: Income as per Accounts 2,00,000 Less: Statutory Exempted 40,000 1,60,000 4. Income from Lottery Winnings:

As per Accounts 5. Income from Non-Govt. Securities: As per Accounts Total Income of Mr, Amin

40,000 9,20,000 12,35,000

(ii) Tax Calculation on Tk. 1195000 excluding lottery winnings income: 1,00,000

Nil

50,000 1,50,000 8,95,000

10% 18% 25%

\

5,000 27.000 2,23,750 2,55.750

Add: Tax payable for lottery winning @ 20% because last slab of income tax against total income including income of lottery winnings.

The normal rate is higher than @ 20% so on Tk. 40,000 @ 20%

8,000 263,750

Less: Tax Rebate on Investment: He will entitle to have investment to maximum of Tk. 2,00,000 though he has invested more that those @ 30% Tax Payable Less: Tax already paid Net Tax Payable

30,000 2,33,750 70,000 1,63,750

Q. 3. What are the incomes subject to deduction of tax at source? Are such incomes of a company enjoying tax holiday also liable to deduction of tax at source? If so, how such tax would be adjusted?

What are the provisions with regard to deduction of tax at source from commission o r f e e s p a y a b l e b y a c o m p an y o r c o rp o ra t i o n o r a n y ot h e r e n t e rp ri s e ?

Ans. Question No. 03 The following are the specified item of income, which are under the I.T.O. of 1984 subject to deductible or collectable of tax at source u/s 48 and 49. a. Income classifiable as “Salaries”. aa. Income from discount on the real value of Bangladesh Bank bills; b. Interest on securit ies c. Income derived on account of supply of goods, execution of contractors or services rendered; d. Income derived by the importers and exporters on account of import and export of goods; e. Income derived on account of indenting commission; f. Income derived on account of winnings from lottery or cross word puzzles; g. Any income chargeable under this Ordinance, which is paid or payable to non-resident; h. Income from house propert y; i. Income derived on account of export or manpower; j. Income derived on account of purchase by public auction; k. Income derived on account of acting in films; 1. Income derived on account of shipping agency commission; m. Income derived from commission discount or fees payable to distributors for distribution of marketing of manufactured goods; n. Income derived on account of interest on saving deposits, fixed deposits or term deposits and share of profit on term deposits; o. Income derived on account of insurance commission; p. Income classifiable as “Capital gains”, q. Fees for professional or technical services; r. Income derived on account of manufacture of cigarettes manually without any mechanical aid whatsoever; s. Income derived from compensation against acquisitions of property; t. Income derived on account of interest on savings instruments; u. Income derived on account of running of brickfield; v. Income derived on account of services rendered by the doctors; w. Income derived on account of survey by a surveyor of general insurance company; x. Income derived on account of survey by a surveyor of general insurance company;

y. Income derived on account of commission, remuneration, or charges as a foreign buyer’s agent. z. Income from dividend s.

Yes, the companies who are enjoying tax holiday are liable to deduction at source wherever applicable unless exemption certificate is obtained from NBR. The tax deducted at source if deducted from the tax holiday company will be refundable or other will be adjusted if there is any tax is leviable on “Other Income�.

Deduction or collection from commission or fees: Section 53E. Any corporation, statutory body including its company or enterprise owned, controlled or managed by it or any company registered under the Companies Act, 1913 or the Companies Act. 1994 shall deduct or collect tax at the rate of 5% of commission, discount or allows any discount or fees payable by it to any distribution or any person on account of distribution or marketing of goods manufactured by it shall deduct of collect at the time of credit of such commission or fees or at the time of payment there of, whichever is earlier or at the time of allowing discount, as advance tax an amount at the rate five per cent of commission or fees payable or discount allowed.

Q. 4. State briefly how the assessment in respect of the following is made: (i) In case of Succession to business, otherwise than on death: (ii) Discont inued business; (iii) Assessment under simplified procedure; (iv) Spot assessment.

Ans. Question No. 4 i) In case of succession to Business, otherwise than or death.(1) Where, a person, carrying on any business or profession (in this section. referred to as the predecessor), has been succeeded therein otherwise than on death by another person (in this section, referred to as the successor) in any income year, and the successor continues to carry on that business or profession. (a) the predecessor shall be assessed, in respect of the income of the year in which the succession took place, for the period up to the date of succession, and (b) the successor shall be assessed, in respect of the income of the income year, for the period after the date of succession. ii) Income received from discontinued business: Section 19(6) Income received during any income year from discontinued business is income of the said income year as income from business of profession.

Assessment in the case of discontinued business: Section 89 When any business or profession is discontinued a notice of such discontinuance, must be given to the Deputy Commission of Taxes. concerned within 15 days of the discontinuance of the business of profession accompanied by a return of total income for the period between the end of the income year and the date of such discontinuance. If the person discontinuing such business or profession fails to give such notice, the Deputy Commissioner of Taxes may recover from him by way of penalty a sum not exceeding the amount of tax assessed on him in respect of the business or profession upto the date of its discontinuance.

In case of discontinuance of any business or profession, the law provides that two separate assessments he made at the same time, one on the basis of the income of the completed income year if assessment is pending for the income year and an additional one on the basis of the income of the of the income of the broken period. Here is a departure from the usual procedure of assessment as the assessment for the broken period may he made for the relevant assessment year during the income year. iii) Assessment under simplified procedure.

Where, an assessee other than a public company as defined as defined in Companies Act, 1913 (VII of 1913) or Companies Act 1994 (Act. 18 of 1994), who has previously been assessed for any assessment year ended on or before the thirtieth day of June, 1995, files a return showing income for the income year relevant to the assessment year commencing on or after the first day of July, 1995 and ending on or before the thirtieth day of June 1997 and the income shown in such return is higher by not less than ten per cent. Over the last assessed income and has also increased by at least further sum of ten per cent for each preceding assessment year in respect of which the assessment is pending, the return filed by the assessee shall be deemed to be correct and complete, and the Deputy Commissioner of Taxes shall assess the total income of the assessee on the basis of

such return and determine the tax payable by him [on the basis of such assessment, and communicate the assessment order to the assessee within thirty days next following, provided(a) he has, at the time of filing such return, made payment of the tax on the basis of the return, or take twelve hundred, whichever is higher, and the assessment on the basis of such return shall not result in any refund; and (b) the net accretion of his wealth, if he is not required to submit statement of assets and liabilities under section 75(2) (d), along with his disclosed family expenses and taxes paid during the year, shall not exceed the income disclosed for the year and the income or receipt, if any, exempted from tax. iv) Spot Assessment: Section 82D and Rule 38B This section provides for making assessment on an assessee who is not a company and who is not a company and who has not been previously assessed and who carries on any business or profession in any shopping centre or commercial market or having a small establishment. The Deputy Commissioner of Taxes may fix the tax payable by such assessee in the prescribed manner and at the prescribed rate.

An assessee who claims adjustment of tax deducted or collected at sources or having wholesale business or having initial capital investment exceeding taka ten lakhs shall not be eligible for spot assessment u/s. 82D read with rule-38B. Rates of tax in the case of spot assessments are the following: (a) An assessee carrying on business within the limits of any City Corporation shall pay tax at the following rates:Rate of tax per annum (i) Where the initial capital does not exceed Tk. 500,000/Tk. 1,000 (ii) If the initial capital exceeds Tk.500,000/-but does not exceed Tk.10,00,000 Tk. 3,500 (b) An assessee carrying on business within the limits of a paroushava of Any Divisional Headquarter shall pay tax at the following rates:(i) If the initial capital investment does not exceed Tk. 500,000/Tk. 1,000 (ii) If the initial capital exceeds Tk, 500,000/-but does not exceed Tk. 10,00,000 Tk. 2,500 (c) An assessee carrying on profession as lawyer or a doctor for a period exceeding five years but not exceeding 10 years shall pay tax at the following rates: (i) Where profession is carried on within the limits of any City Corporation Tk. 2,000 (ii) Where profession is carried on in any other area.

Tk. 1,000 Tax as fixed above shall remain in force for two subsequent assessment years and receipt of the payment of such tax shall be deemed to be an order of assessment u/s. 82 of the Ordinance.

Q. 5.Brietly describe the following: (a) Under what Section(s) of ITO, 1984 and corresponding SRO Numbers) and date(s) under following area(s) are either entitled to tax-holiday or tax exemption- indicate so, as the case may be: i. Income from Farming of Fish, Poultry, Duckery, Cattle, Dairy, Frog, Horticulture, Mulberry,Cocoon, Mushroom, Floriculture and production of Pelleted Poultry-feed. Seed, etc. ii. Income earned from business of loan financing for house building. iii. Industrial undertaking. iv. Physical infrastructure facility. v. Enterprise(s) in Bangladesh Export Processing Zone(s). vi. Private (sector) Power Generating Company. vii. Royalty and/or Technical know-how fee received by any off-shore beneficiary. viii. Foreign Technicians, ix. Newly established hospital in private sector. (b) Indicate the salient conditionalities for each of the above ten cases. (c) Name the Sectors/Enterprise(s) in spite of having income are not required to submit Annual IT return Ans. Question No. 05 (a) & (b) (i) EXEMPTION ON INCOME FROM FISH FARMING, POULTY FARMING. DUCKERY, CATTEL. FARMING FROG FARMING, HORTICULTURE, CULTIATION OF MULBERRY, COCOON, MUSHROOM AND FLORICULTURE: S.R.O. 309-1/91 DATED 9TH OCTOBER,1991.S.R.O NO.207-U93 DATED18TH OCTOBER, 1993 AND S.R.O.127-L/2000 DATED 11 MAY, 2000.

Incomes from fish farming, poultry farming, duckery, cattle farming, dairy farming, frog farming, horticulture, cultivation of mulberry, cocoon, mushroom and from floriculture, have been exempted from income tax up to 30th June, 2000 subject to the following conditions:(1 ) When the exempted income from the above sources exceeds Tk.100,000/- a minimum of 10% of The exempted income has to be invested in the purchase of Government Bond or Security within nine months from the expiry of the concerned income year.

(2) The assessee availing of the exemption must the income tax return for the relevant income years up to the exemption period before the concerned Deputy Commissioner of Taxes.

If the above conditions are not fulfilled, the exemption granted will be liable to be withdrawn. ii) Income earned from business of loan financing for house building: As per SRO No. 128-law/2QOO-dated 11,05,2000 and clause(b) of sub-section-4 of section-44, the income from above business will be exempted for 5 years w.e.f. 15 day July 2000, subject to the fulfillment of the following conditions: 1. The establishment must be a company under the companies Act, 1994.

2. The company must have the licence from Bangladesh Bank under the Finance Act. 1993 3. Certification from NBR mentioning that the income was earned from loan financing for house building.

4. That 1.T. Return must be submitted to the DCT on the income of the tax exemption period. iii), iv) and v) tax holiday for newly established industrial under-taking. tourist industry AND PHYSICAL INFRASTRUCTURE FACILITY SECTION 46A. A. CONDITIONS FOR TAX HOLIDAY: Under section 46A, period of tax holiday has further extended for 5 years in respect of industrial undertaking, Tourist industry or physical infrastructure facility (hereinafter referred to as the said undertaking) subject to the following conditions: (1) That the undertaking is set up in Bangladesh between the 1 st day of July, 1995 and the 30 th day of June, 2005 (both days inclusive).

(2) That the said undertaking is owned and managed by(i) a body corporate established by or under on Act of Parliament with its head office in Bangladesh; or (ii) a company as defined in the Companies Act, 1913 or the Companies Act, 1994 with its registered office in Bangladesh and having a subscribed and paid up capital of not less than Tk. 100,000/-on the date of commencement of commercial production or operation.

(3) That the said undertaking is engaged in (i) the manufacture of goods or materials or the subsection of goods or materials to any such process or the exploration and extraction of mineral resources and processing of agricultural products; Providing, on commercial basis, physical infrastructure facility; Tourist industry as defined in the Explanation to section 46 of the Income Tax Ordinance 1984.

For the purpose of this section, “Physical infrastructure facility� means generation, transformation, conversion, transmission and distribution or supply or electrical energy or hydraulic power, or rod, highway, bridge, airport, or the system of railway or telecommunication, or such other public facility of similar nature as may be specified by the Board in this behalf by notification in the official Gazette.

(4) that 30% of the exempted income is invested during the period of the exemption or within one year from the end of the exemption period in the said undertaking or in any new industrial undertaking or in stocks and shares of a public company or in Government Boards of securities. Quantum of investment shall be reduced by the amount of dividend if any, declared by the company enjoying tax-exemption.

(5) that the undertaking is not formed by splitting up or by reconstruction or reconstitution of an existing business or by transfer to a new business of any machinery or plant used in Bangladesh at any time before the commencement of the new business.

(6) That the undertaking must be approved by the Board.

An application in the prescribed from for approval of the undertaking should be filed to the Board within six months from the end of the month of commencement of commercial production or operation.

The Board shall give its decision within three month from the date of receipt of the application failing which the undertaking shall be deemed to have been approved for tax-holiday.

If any person is aggrieved by the Board’s decision, an application may be made within four months from the date of receipt of the Board’s decision for revision of its previous decision or order. The Board may pass such order in relation thereto as it thanks fit.

B. PERIOD OF EXEMPTION; (i) For undertaking set up in Dhaka and For a period of five years beginning with the Chittagong Division excluding the Hill Districts month of commencement of commercial production of Rangamati, Bandarban and Khagrachari of operation. (ii) For undertaking set up in Rajshahi, Khulna, For a period of seven year beginning with the month of Sylhet And Barisal Divisions and the Hill commencement of commercial production of District of Rangamati, Bandarban and operation.

Khagrachari. vi) Enterprise(s) in Bangladesh Export processing zone(s}: The concessions have been granted to the industries set up in any Export Processing Zone under the following Notifications issued by the Ministry of Finance (Internal Resources Division)1) S.R.O No. 266-U86 dated 1 July 1986 2) S.R.O No. 267-L/83 dated 15 th July 1986 3) S.R.O No. 268-L/86 dat ed 1 st July 1986 4) S.R.O No. 2G9-L/86 dated lst July 1986 st (1) Exemption of pioneering industries : S.R.O No. 266-L-86 dated 1 July, 1986 Income of pioneering industries as specified by the Board and set up in any Export processing Zone is exempt from income tax for a period of 10 years beginning with month in which the commercial production commences.

(2) Exemption of 50% of tax on export sales of Industries: S.R.O No.267-L/86 dated 1 st July,1986 Any industry set up in any Export Processing Zone shall enjoy concession of 50% of income tax attributable to the export sales after the expiry of the tax exemption period of five years under the Notification No. 149-L/81 dated 12th May, 1981 or 10 years under the Notification No. S.R.O No. 266-L/86 dated 1st July 1986 as the case may be.

(3) Dividend income of non-resident shareholders of companies having industries set up in any export processing Zone S.R.O No. 268-L86 dated 1st July 1986.

Dividend income of non-resident shareholders of company paid out of its profits from any industry set up in any Export Processing Zone is exempt from income tax for the period for which the industry enjoys tax exemption period if the dividend shall continue to enjoy exemption after the tax exemption period if the dividend income is reinvested in the Same project by the non-resident shareholders in the prescribed manner.

(4) Accelerated depreciation up to 100% for plant or machinery used in specified hi-tech electronic Industry S.R.O No. 269-L/86 dated 1st July 1986 Machinery or plant other than office appliances and road transport vehicles (Not having been previously used in Bangladesh) used in the specified hi-tech electronic industry set up in any Export Processing Zone shall be allowed of 5 or 10 years as the case may be.

An application for accelerated depreciation has to be made to the National Board of Revenue within four months from the end of the month of the installation of machinery or plant. vii) Private Sector Power Generation: As per S.R.O. No. 114 -Law/99 dated 20.05.99 Private Sector power policy of Bangladesh, all the income of private sector power Generating Company will get income tax exemption for 15 years from the date of commercial production and they are not required to submit. I.T. return for income of above years. viii) Technical Fees Section-Part-A of the sixth schedule Any income by way of fees for technical services payable by the Government or by a resident person except where the fees are payable in respect of the services utilized in a business outside Bangladesh. or by a nonresident person in respect of services utilized in his business or profession carried on in Bangladesh or for making or earning any income from any source in Bangladesh.

Royalty section-Part-A of the sixth schedule- Any income by way of Royalty payable by the Government or by a resident person except where the royalty is payable in respect of any right, property or information used or services utilized in a business carried on outside Bangladesh or for making or earning income from any source outside Bangladesh or by a non-residence utilized person in respect of any right, property or information used

or services utilized for the purpose of his business or profession carried on in Bangladesh or for the purpose of making or earning any income from any source in Bangladesh. ix) Salary of foreign technicians (Paragraph)-15) part-A of the Sixth Schedule-Any salary income received by or due to any foreign technician who was not resident in Bangladesh in any of the four years immediately preceding the year in which he arrived in Bangladesh under contract of service approved by the National Board of Revenue for a period not exceeding three years from the date of his arrival in Bangladesh. x) “Tax Holiday for Hospital: S.R.O No.180-U99 dated 1 st July 1999.

A newly established private hospital will be eligible for exemption from income tax for five years subject to the following conditions: 1. The hospital is owned by a company registered under the Companies Act 1913 or the Companies Act 1994 2. The Hospital is established between the period from 1st July 1999 to 30th June 2005 3. The hospital is housed in a building constructed on the company’s own land.

4. The hospital has number of beds as mentioned below: a. 200 beds in the case of general hospital b. 50 beds in the case of specialized hospital for heart, kidney and cancer patients.

5. 10% of the beds must be kept reserved for treatment of poor patients free of charge.

The owner of the hospital enjoying exemption from tax shall file return income to the concerned Deputy Commissioner of Taxes along with statement of accounts and relevant documents & evidences in respect of the concerned year of exemption and the Deputy commissioner or Taxes will determine the income u/s 28 and 29 along with the owner’s income from other sources if any and make the income-tax assessment accordingly.

C) Corporation, Bangladesh Railway, Bangladesh Biman, Government Hospit al. Port Authority, BIWTA, BIWTC and Autonomous body are not required to submit I.T. Return inspite of having income.

Q. 6. (a) Enumerate the incomes which are included in the total income of the assessee for rate purpose but are otherwise exempt from tax.

Ans. Question No. 06 (a) INCLUSION OF INCOME FOR RATE PURPOSE (PARAGRAPH 15 AND 16). (i) Share of income from an association of persons (other than a Hindu undivided family, a company or a firm) on which tax has been paid by the association. (ii) Share of income from a firm on which tax has been paid by the firm.

Q. 6. (h) What are perquisites and how are they treated for income tax of the employer?

Ans. Question No. 06 (b) Perquisite: Section 2(45) The definition is not exhaustive it includes the following: a. the value of rent-free accommodation. b. The value of any concession in the matter of rent respecting any accommodation. e. Any sum payable by the employer, whether directly or indirectly, to effect an Insurance on the life of or to effect a contract for an annuity for the benefit of, the assessee or his spouse or any of his dependent child. d. the value of any benefit provided free of cost or at a concessionary rate; and e. any sum paid by the an employer in respect of any obligation of an employee.

Perquisites are calculated as per I.T.O. 1984 as amended time to time by Finance Act u/s 30(e) and are considered for income tax purpose of the employer.

Suggest ed Answers Taxation-I Professional Examination-I May-June 2002 Q. 1. Define in relation to Income Tax Ordinance, 1984 the following: i. Assessment year and Income year; ii. Total Income; iii. Dividend; iv. Perquisit es; v. C o m p a n y .

Answer No. 1 (i) Assessment year and Income Year Assessment year: Assessment year means the period of twelve months commencing on the first day of July every year; and includes any such period which is deemed, under the provisions of the Income Tax Ordinance, 1984 to be assessment year in respect of any income for any period.

Income year: Income year in respect of any separate source of income, means the financial year immediately preceding the assessment; or where the accounts of the assesses have been made up to a date within the said financial year and the assessee so opts, the twelve months ending on such date. In the case of a business or profession newly set up in the said financial year, the period beginning with the date of the setting up of the business or profession and ending with the said financial year; or such other date opted by the assessee. The National Board of Revenue may, however, determine any other period other than the financial year to be the income year in the case of any person or class of person or any business or profession or class of business or profession. Once an income year for any source of income has been opted by the assessee, the same cannot be changed without the permission of the Deputy Commissioner of Taxes who may accord permission under such terms and condition as he deems lit.

Answer No. 1 (ii) Total Income: Total Income means the total amount of income which in relation to a person resident or non-resident all income from whatever source derived which is received or deemed to be received or accrues or arises or is deemed to accrue or arise to him in Bangladesh and in relation to a resident also all income from whatever source derived which accrues or arises out side Bangladesh computed in the manner laid down in Income Tax Ordinance, 1984 and also includes any income which, under any provision of the Income Tax Ordinance, 1984 is to be included in the total income of an assessee.

Answer No. 1 (iii) Dividend: Dividend means any distribution of profit by any company to its shareholders whether capitalised or not. It also includes any loan or advance by a private company to its shareholder to the extend to which the company possesses accumulated profit. Up to assessment year 2001-2002, bonus share was treated as dividend. From assessment year 2002-2003 bonus share is not to be treated as dividend.

Answer No. 1 (iv) Perquisites: Perquisites means any addit ional benefit provided in kind in addit ion to salary and allowances paid in cash and includes, inter alia, value of rent free accommodation, concession of rent of accommodation, any sum paid to effect an insurance on life of the employee or his spouse or dependent child. It also includes any benefit provided free of cost or any sum paid by the employer in respect of any obligation of an employee.

Answer No. 1 (v) Company: Company means a Company as defined in the Companies Act 1913 or Companies Act 1994 and includes a body corporate established or constituted by or under any law, any nationalised banking, or other financial institution, insurance body, industrial or business enterprise, an association or combination of persons, if any of such person is a Company as defined in Companies Act 1913 or Companies Act 1994, any person or body incorporated by or under the laws or a country outside Bangladesh and any foreign association or body not incorporated by or under any law which the National Board of Revenue may. by a general or special order, declare to be a Company for the purpose of Income Tax Ordinance. 1984.

Q.2.(a).What are the provisions of Income Tax law for set off of losses?

Ans. Question No. 02 (a) Provisions of Income Tax law for set off of losses.

As per provision of section 37 of Income Tax Ordinance. 1984 where in any assessment year an assessee incurs, any loss under any head of income he can set off the same loss with any income under any other head or heads of income, if any. of the same assessment year. This provision does not apply to the case of any loss incurred in Speculation Business or any loss under the head Capital Gain.

Q. 2. (b) What are the provisions of law (or carry forward of losses under the head “Income from Agriculture and Capital Gains�?

Ans. Question No. 02 (b) (1) Where any assessee incurs any loss under the head agriculture income and the same have not been set off with other income u/s 37 of Income Tax Ordinance, 1984 the same loss shall be carried forward to the next assessment year for set off against income from agriculture of that successive assessment year and so on for not more than six successive assessment years. (ii) Where any assessee incurs any loss under the head Capital Gains so much of the such loss as exceeds five thousand Taka shall be carried forward to the next assessment year for set off with income from Capital Gains of that successive assessment year and so on for not more than six successive assessment years. If the loss computed under the head Capital Gains does not exceeds five thousand Taka it shall not he carried forward.

Q. 2. (c) State the provisions of law for availing tax holiday by an existing company for its BMRE unit mentioning at least six documents that are required to be submitted along with application for tax holiday.

Ans. Question No. 02 (c) The provisions of law for availing tax holiday of a new industry established by a new company or by an existing company are the same except that an existing company is required to maintain separate books of account for BMRE Unit for which tax holiday is allowed. The conditions are as follows: i. That the existing company must be a company registered under the Companies Act 1913 or The Companies Act 1994 with its registered office in Bangladesh and having a subscribed and paid up capital of not less than Tk.1,00,000 on the commencement of commercial production. ii. The said undertaking must belong to such class of industry as the National Board of Revenue may be notification in the official gazette specify for the purpose of tax holiday. iii. That a part (not less than 30%) of the income exempted under tax holiday shall be invested within the period or within one year of the end of the period of exemption in the same undertaking or in any new industrial undertaking or any productive assets being stock and shares of a public company or bonds or securities issued by the Government. iv. An application to the National Board of Revenue (hereinafter NBR) is required to be filed in the form prescribed by rule 59 of Income Tax Rules 1984 within six months from the end of the month in which commercial production is started. v. On receipt of the application the NBR will give its decision within 3 (three) months from the date of receipt of the application by the NBR failing which the tax holiday shall be deemed to have been approved by the NBR. vi. The income, profits and gains of the industrial undertaking availing tax holiday shall be computed in accordance with the provision of section 28 and 29 of Income Tax Ordinance. 1984. vii. The profits and gains of the industrial undertaking availing tax holiday shall be separately computed from other income, profits and gains of the assessee. If any loss is sustain by an industrial undertaking enjoying tax holiday it shall be carried forward and set off against profits and gains of the said undertaking for the following successive year and so on but no loss of tax holiday period can be carried beyond the period of tax holiday. However. unabsorbed depreciation of tax holiday period can be carried forward beyond tax holiday period. viii. The tax holiday shall not apply to dividends paid to its shareholders while computing total income of the shareholders.

ix. Any income classified under the head Capital Gain earned by a company enjoying tax holiday shall not be

eligible for tax holiday. x. Tax holiday allowed can be cancelled by the Deputy Commissioner of Taxes if it is found that any of the

conditions specified for availing tax holiday was not fulfilled by the company. xi. The NBR may, for the public interest, cancel or suspend fully or partly any tax holiday allowed.

The following documents are required to be submitted along with application for tax holiday: 1. An attested copy of certificate of incorporation.

2. An attested copy of the certificate of Commencement of business.

3. An attested copy of the Memorandum and Articles of Association of the Company.

4. Certified copy of the Balance Sheet and Profit & Loss Account for the three latest completed years or lesser period for which the accounts have been prepared.

5. An attested copy of the complete scheme of the unit as submitted to the Government at the time of obtaining the sanction.

6. A certified copy of the blue print of the building where the industrial undertaking for which exemption of income sought is located, showing the installed position of the machinery.

Q. 3. XYZ Ltd., a Private Limited Company, filed its income-tax return showing the net income of Tk.6,75,300 for the year ended June 30, 2001. On examination of papers submitted at the time of hearing, the Deputy Commissioner of Taxes comes across the following information:

(i) Salary claimed Tk.20.00 lakh includes an amount paid to production manager Tk.4.00 lakh against

which no tax has been deducted. (ii) An amount of private loan Tk.2.00 lakh which was added to income in the assessment of the

immediate preceding year on the ground of the same being not paid within three years has been paid in the Income Year. (iii)Tk.2.00 lakh for staff welfare fund, Tk.75,000 for sinking fund and Tk.3,30.000 for taxation reserve fund debited to Profit & Loss Account. (iv) Bank charges claimed Tk.76,306 includes Tk. 10,000 in respect of expenditure for loan procurement, (v) Amount of depreciation charged to the accounts Tk.256,700. whereas amount allowable against depreciation Tk.4,70,900. (vi) Entertainment expenses claimed Tk.7.00 lakh.

From the above, compute the total income of the company.

Answer No. 3 XYZ Limited Assessment Year 2001-2002 Taka Taka 675,300 Net Income: Salary-(Note-1) 400,000 Welfare Fund - (Note-2) 200,000 Sinking Fund - (Note-3) 75,000 Taxation Reserve Fund - (Note-3) 330,000 Bank Charges - (Note-4) Depreciation-Accounting - (Note-5) 256,700 Entertainment - (Note-6) 700,000 1,961,700 2,637,000 Less: Depreciation - allowable - (Note-5) 470,900 2,166,100 Less: Entertainment: (Note-6) On Tk. 10,00,000 @4% 40,000 OnTk.11,66,100@2% 23,322 63,322

Less: Liabilities Repaid - (Note-7)

2,102,778 200,000 Total Income: Taka 1,902,778 Note-1: Salary paid to production manager being above taxable limit has been disallowed of section 30(a) of Income Tax Ordinance, 1984 for non-deduction of taxes at source.

Note-2: In the absence of any information as to the actual nature of the Welfare Fund and also in the absence of any information as to whether the payment was made as per contract with the employees or whether the fund is recognized or not, the amount has been disallowed.

Note-3: Sinking Fund and Taxation Reserve Fund arc items of appropriation account and are not allowable deduction.

Note-4: In the absence of any information as to the nature of the loan it is assumed that the loan was for working capital and as such the expenses incidental to loan is an allowable expenditure.

Note-5: Depreciation charged in the account at rates different from the rates prescribed by taxes law has been written back. Depreciation allowable as per law has been deducted.

Note-6: Entertainment is allowable as per Rule 65 of Income Tax Rule 1984 and as such the entire amount has been added hack and the amount allowable as per taxes law has been deducted from the computation of Total Income.

Note-7: It is assumed that in the immediate preceding year the private loan of Tk.2,00,000 was added under sub-section 15(c) of section 19 of Income Tax Ordinance, 1984 and as such the amount of Tk.2,00.000 has been deducted as per provisio of said sub-section.

Q.4.(a) Who are required to file Income Tax return?

Ans. Question No. 04 (a) The following persons arc required to file income tax return: i. Any person whose total income during the income year exceeded the maximum amount which is not chargeable to tax under Income Tax Ordinance. 1984. ii. Any person who was assessed to tax for any one of the immediately preceding three income years. iii. Any person residing within the limits of a City Corporation or of paurashaba of a divisional head quarter or a district head quarter and owned a building which consists of more than one storey and the plinth are of which exceeds 1,600 sft. or owns a motor car or owns a member ship of a club registered with VAT Act, 1991. iv. Every limited company irrespective of having taxable income or non-taxable income except the industries established in export processing zones and enjoying tax exemptions as per SRO No.289- L/98 dated 17-08-1999.

Q.4.(b) Under what circumstances and within what time a revised return of income can he filed?

Ans. Question No. 04 (b) If any person having filed a return discovers any omission or incorrect statement therein, may, file a revised return at any time before the assessment is made, Q . 4 . (c) Can an appeal be preferred against the provisional assessment under section 81?

Ans. Question No. 04 (c) As per sub-section (7) of section 81 no appeal against a provisional assessment made under section 81 can be filed.

Q.4. (d) When an assessee who has not previously been assessed should pay advance tax?

Ans. Question No. 04 (d) Any person who has not previously been assessed by way of regular assessment shall before the 15th day of June in each financial year pay advance tax if he estimates his income to exceed Tk.2,00,000 Q.4.(e) Under what circumstances an assessee paying advance tax will pay simple interest?

Ans. Question No. 04 (e)

An assessee shall pay Simple Interest if the advance tax paid together with the tax deducted at source from him falls short of the 75% of the assessed tax payable by him on the basis of regular assessment.

Q.5.(a) State the power and authority of a Commissioner of Taxes (Appeals). Can he enhance an assessment? If so, state the procedure of enhancing an assessment.

Ans. Question No. 05 (a) The Commissioner of Taxes (Appeals) may: i. In the case of an order of assessment confirm, reduce, enhance, set aside or annual the assessment; ii. In the case of an order imposing a penalty, confirm, set aside or cancel such order or vary it so as either to enhance or to reduce the penalty; iii. And in any other case pass such order as he thinks fit.

Yes, a Commissioner of Taxes (Appeals) can enhance an assessment by giving the appellant a reasonable opportunity of being heard against such enhancement.

Q. 5. (b) Can a Taxes Appellate Tribunal enhance an assessment?

Ans. Question No. 05 (b) A Taxes Appellate Tribunal cannot enhance an assessment.

Q. 5. (c) Can a ground which was not agitated before the Commissioner of Taxes (Appeals) be taken and argued before the tribunal for the first time?

Ans. Question No. 05 (c) A ground which was not agitated before the Commissioner of Taxes (Appeals) can not be taken and argued before the Tribunal for the first time unless it is a question of law. A question of law can be agitated before the Tribunal for the first time. Similarly a mixed question of law and fact may also be taken and argued before the Tribunal for the first time.

Q.6. Mr. Akram, a resident top executive of a Bangladeshi Company, has furnished the following information and particulars of his income, perquisites and benefits received or enjoyed for the income year ended 30-06- 2001.

Compute his total income and tax payable for the assessment year 2001-2002: (a) Basic salary received Tk.50,000 p.m. (b) Entertainment allowance received @5% of the basic salary. (c) Bonus equal to two months basic. (d) Whole time use of a car for both business and private purpose and the company has incurred expenses of Tk.60,000 for the upkeep of car during the year. (e) Advance salary Tk. 1,00,000. (f) Leave fare assistance received Tk.50,000 for traveling within Bangladesh as part of his agreement. His actual expenses were Tk.45,000.

He has purchased shares of a listed company for Tk.3,00,000 and Tk. 1,00,000 paid to Zakat Fund. Contributed Tk.50,000 to a benevolent fund in order to make provision for his dependents.

He received dividend of Tk.1,70,000 from shares purchased during the last year of a listed company.

Mr. Akram has 3-storied house at Eskaton. One floor he used for his own residential purpose. Rent two floors were let out at Tk. 12,000 per month for each floor. Municipal tax paid for the house was Tk.23,000 collection charge was Tk.23,000 and salary for electrician was Tk.12,000. He has also paid Tk.55,000 for the interest of loan taken for construction of the house.

Answer No.6 MR. AKRAM Assessment Year 2001 -2002 Computation of Total Income and Taxes Payable Taka Income form Salary Basic Salary Entertainment allowances @5% Bonus Whole time use of Car- Note-1 Advance Salary-Note-2

Taka 600,000 30,000 100,000 30,000 100,000

Taka

Leave fare assistance - Note-2

5,000

Income from House Property: ALV Tk.12,000 x 12 x 2 Repair allowance 1/4th - Note-4 Municipal Tax 2/3rd of Tk.23,000 - Note-5 Interest on loan 2/3rd of Tk.55,000 - Note-5

72,000 15,333 36,667

Income from other Source: Dividend - Note-6 Less: Exempted

170,000 100,000

8,65,000

288,000

Total Income: Taka Investment: Purchased of Shares of a listed company Payments to Zakat Fund Contribution to a benevolent fund Total Investment Restricted to 20% of Total Income - Note-7 Calculation of Tax Total Income Tax on Tax on Tax on Tax on

300,000 100,000 50,000 450,000 219,800 Taka 1,099,000 100,000 999,000 50,000 949,000 150,000 799,000

124,000

164,000 1,029,000

70,000 1,099,000

Rat e

T aka

Nil

Nil

10%

5,000

18% 25%

27,000 199,750

231,750 32,970 Less: Rebate @15% of Tk.219,800 being less than Tk.2,25,000 - Note-7 198,780 Income tax payable 29,817 Surcharge @15% 228,597 Total Tax Payable Including Surcharge Assumptions: 1. It has been assumed that the investment in shares of listed company have been made in primary shares and not acquired from previous shareholders.

2. Mr. Akram’s net wealth is assumed to be above Tk.30,00,000 considering the fact that 2/3rd of the house is let out and as such he will get exemption for 1/3rd of the value of his residential building.

Notes: 1. As per Rule 33D of Income Tax Rules 1984 an amount equal to 5% of the basic salary has been included in the income of Mr. Akram.

2. As per section 21 (1) (b) advance salary of Tk.1,00,000 has been included in the total income of Mr. Akram for the assessment year 2001-2002. This amount will not be included in his total income in any other year as per provision of section 21 (2).

3. As per provision of Rule 33G of Income Tax Rules 1984 the amount equal to the sum by which the cash payment exceed the actual expenditures Tk.5,000 (i.e. Tk.50,000-Tk.45,000) has been included in the total income of Mr. Akram.

4. This has been calculated as per provision of section 25(1)(h) of Income Tax Ordinance, 1984. No further deduction for collection charges (Tk.23,000) and salary for electrician (Tk.20,000) are allowable.

5. Municipal Tax and Interest on Loan have been allocated on the basis of self-occupancy and let out

portion of the building.

6. Dividend of Tk. 1,70,000 is considered to be Gross Dividend before deduction of taxes at source.

7. As per provision of section 44(3) of Income Tax Ordinance, 1984 exemption in respect of investment

is restricted to 20% of Total Income or Tk.2,25,000 as Mr. Akram has invested in primary shares of listed company. Otherwise the maximum invested limit is Tk.2,00,000.

Suggested Answers Professional Examination -I Taxation-1 November-December-2002 Question solved according to the provision of Finance Act-2006 and law implications of assessment year 2006-07) Q.1. Define as per section 2 of Income Tax Ordinance, 1984 the following : (a) Annual Value Ans. Question No. 01 (a) Annual Value As per section 2(3) of the Income Tax Ordinance 1984, “annual value” shall be deemed to bea. in relation to any property let out,-i. the sum for which property might reasonably be expected to let from year to year: or ii. where the annual rent in respect thereof is in excess of the sum referred to in paragraph (i), the amount of the annual rent. (b) Capital Assets; Ans. Question No. 01 (b) Capital Assets (Section 2(15) “Capital assets” means property of any kind held by an assessee, whether or not connected with his business or profession, but does not includea. any stock-in-trade (not being stocks and share), consumable stores or raw materials held for the purposes of his business or professions; b. personal effects, that is to say, movable property (including wearing appeals, jewellery, furniture, fixtures, equipments and vehicles), which are held exclusively for personal use by, and are not used for the purposes of the business or profession of the assessee or any member of his family dependent on him; and c. agricultural land in Bangladesh, not being land situatei. in any area which is comprised within the jurisdiction of Municipality (whether known as a Municipality, Municipal Corporation, Town, or by any other name) or a Cantonment Board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the income year; or ii. in any area within such distance not been more than 5 miles from the local limits of any Municipality or Cantonment Board.

Q.1.(c) Dividend: Ans. Question No. 01 (c) (c) Dividend As per section 2(26) of the ITO 1984, “dividend” includesa. any distribution by a company of accumulated profits. whether capitalized or not, if such distribution entails the release by the company to its shareholders of all or any part of its assets or reserves; b. any distribution by a company, to the extent to which the company possesses accumulated profits, whether capitalized or not, to its shareholders of debentures, debenture-stock or deposit certificates in any form whether, with or without interest; c. any distribution made to the shareholder of a company on its liquidation to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalized 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 capitalized or not; dd. any profit remitted outside Bangladesh by a company not incorporated in Bangladesh under the Companies Act, 1994;

c. any payment by a private company of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder or any payment by any such company on behalf, or for the individual benefits, or any such shareholder, to the extent to which the company, in either case, possesses accumulated profit; But does not includei. a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share including preference shares for full cash consideration, or redemption of debentures or debenturesstock, where the holder of the share or the debentures is not entitled in the event of liquidation to participate in the surplus assets; ii. any advance or loan made to a shareholder in the ordinary course of its business where the landing 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 dividend within the meaning of sub-clause (e)-to the extent to which it is so set off; iiia) any bonus share issued by a company.

Q.1. (d) Perquisite; Ans. Question No. 01 (d) Perquisite As per section 2(45) of the Income Tax Ordinance 1984. “Perquisite” means i) any payment made to an employee by an employer in the form of cash or any other form excluding basic salary, festival bonus, incentive bonus not exceeding 10% of disclosed profit of relevant income year, arrear salary, advance salary. leave encashment or leave fair assistance and overtime , and ii) any benefit, whether convertible into money or not, provided to an employee by an employer. called by whatever name, other than contribution to a recognized provident fund. approved pension fund, approved gratuity fund and approved superannuation fund.

Q.1.(e ) R o y a l t y ; Ans. Question No. 01 (e) Royalty As per section 2(56) of the ITO 1984, “royalty" means consideration (including any lump sum consideration but excluding any consideration which is classifiable as income of the recipient under the head “Capital Gains”) for — a) transfer of all or any rights, including the granting of a license in respect of a patent, invention. model, design, secret process or formula, or trade mark or similar property; b) the imparting of any information concerning the working of, or the use of a patent, invention, model, design, secret process or formula, or trade mark or similar property; c) the use of any patent. invention, model, design, secret process or formula, or trade mark or similar property; d) the imparting of any information concerning technical. industrial, commercial, or scientific knowledge or experience or skill; e) the transfer of all or any rights, including granting of a license, in respect of any copy right. literary, artistic or scientific work, including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for sales, distribution or exhibition of cinematograph films; or f) the rendering of any services in connection with any of the aforesaid activities.

Q.2.(a) What are the remedies available to an assessee if he is aggrieved by an order under section 120 of the Income Tax Ordinance, 1984; Ans. Question No. 02 (a) If any person aggrieved by the order of Inspecting Joint Commissioner of Taxes under section 120 of the Income Tax Ordinance, 1984, he may prefer an appeal U/S 153 to the Commissioner of Taxes (Appeal) within 45 days from the date of received of the assessment order along with fee of Tk. 200.00 and shall pay tax u/s 74 on the basis of return;

Alternatively, the aggrieved person may file petition for revision by the Commissioner U/S 121, within 60 days from the date on which the concerned order is communicated to the assessee accompanied with fee of Tk. 200.00 and also upon payment of the undisputed portion of tax. It may be mentioned, in case of revision, assessee shall have to waive the right of further appeal to the Appellate Additional/Joint Commissioner of Taxes or to the Commissioner (Appeal) or to the Appellate Tribunal as the case may be.

Q.2. (b) What qualifications are required of a person for appointment as a Member of Taxes Appellate Tribunal?; Ans. Question No. 02 (b) As per section 11, a person shall not be appointed as a member of the Taxes Appellate Tribunal unlessi. he was a member of the Board; or ii. he was a Commissioner of Taxes; or iii. he is a Commissioner of Taxes; or iv. he is a chartered accountant and practiced professionally for a period not less than eight years; or v. he is a cost and management accountant and practiced professionally for a period not less than eight years; or vi. he is an income tax practitioner within the meaning of section 174(2)(f) and practiced professionally for a period not less than twenty years; or vii. he is a professional legislative expert having not less than eight years experience in the process of drafting and making financial and tax laws; or viii. he is an advocate and practiced professionally for not less than ten years in any income tax office.

Q.3. Mr. Flower, a retired Government Officer, has the following income for the year ended on 30 June, 2002: (a) On his retirement from services he formed a private limited company with one of his friend and during the income year ended on 30-06-2002 he received a director’s remuneration Tk. 3,60,000 including a House Rent Allowance of Tk. 1,20,000. The Company has deducted an amount of Tk. 36,000 from his remuneration as taxes, which has been deposited with the Government. (b) The Company has provided him a fully furnished house for which on deduction was made for rent. (c) He has got 15 acres agricultural land at village from which he got a net income of Tk. 72,000 after paying land revenue of Tk. 3,000 (d) He received Tk. 84,000 as pension form the Government. (e) He has got a two acre area tank at his village home which was let out for fish farming for a rent of Tk. 30,000 per year. (f) He purchased a flat in the name of his wife, which has been let out at the rate of Tk. 9,000 per month. (g) He received a net dividend of Tk. 72,000 from a public limited company listed with Stock Exchange.

Considering the foregoing information you are required to compute the following of Mr. Flower: (i) Total income; (ii) Taxes payable.

Ans. Question No. 03 Mr. Flower Computation of Total Income Assessment Year-2002-2003 Income Year-2001-2002 Income from Salary: U/S-21 a) Director's remuneration (360,000 -120,000) b)House Rent : a) cash allowance b) Provided fully furnished house {(25% of 240,000 (360,000-120,000)}

Amount 2,40,000 1,20,000 60,000

c)Pension Less: Exemption as per sixth schedule, part, A para 8)

84,000 84,000

Income from House Property: U/S-24-25 (Note - 2) Annual value: (9,000 X 12) Less:- Allowable Expenses: Repairs & maintenance: 1/4th of annual value

---------

108,000 27,000 81,000

Agricultural Income: U/S-26-27 (Note — 4) Net received from agriculture Income from Other Sources: U/S-33-34 a)Rent income from letting out tank Dividend income (72,000 X 100/90) (Note — 3)

72,000

30,000 80,000 110,000 683,000

Total Income Calculation of tax liability: On 1st Tk. 120,000 Next Tk. 250,000 @10% Next Tk. 300,000 @15% Bal. Tk. 13,000 @ 20% Total income Tk. 683,000 Less:- Rebate on investment allowance (no information is available)

Tax Nil 25,000 45,000 2,600 72,600 -----72,600 44,000 28,600

Less: Tax deducted at sources (36,000 + 8,000) Tax Payable Notes: 1. The total income & tax payable of Mr. Flower has been computed in accordance with the provision of Finance Act-2006 and law implication of assessment year 2006-2007 for the sake of avoiding complexity.

2. It is assumed that wife of Mr. Flower does not have separate income tax file and dependent on Mr. Flower. That is way income from flat rent is included in the total income of Mr. Flower.

3. It is assumed the dividend received from a public limited company after deduction of tax @ 10%. So, it is grossed up in total income calculation.

4. It is assumed that Mr. Flower maintains books of accounts for his agricultural income and income show is net off after deduction of related agricultural expenditure.

Q.4 (a) ―It is not the domicile or nationality of the tax payer but his residential status which determines the scope of his income liable to tax.‖ –Explain.

Ans. Question No. 04 (a) A person is not chargeable to tax on the basis of his domicile or nationality rather tax shall be charged according to the residential status stated in Section 2(55) of the Income Tax Ordinance, 1984: Residential Status As per section 2(55) “resident” in respect of any income year, meansa. an individual who has been in Bangladeshi. minimum one hundred and eighty days in the income year, or ii. minimum ninety days in the income year and minimum three hundred sixty-five days in the preceding four years of the income year. b. a Hindu undivided family, firm or other association of persons, the control and management of whose affairs is situated wholly or partially in Bangladesh in the income year; and c. a Bangladeshi company or any other company the control and management of whose affairs is situated wholly in Bangladesh in the income year.

Total income of tax payer is depended on the residential status, and the residential status determines the total income calculation which is shown in the following paragraphs: Scope of Total Income: As per section 17 of Income Tax Ordinance, 1984, the total income of a person who is resident shall be included all income from whatever source derived, whichi. is received or deemed to be received in Bangladesh in the income year; ii. accrues or arises, or is deemed to accrue or arise to him in Bangladesh during the income year, or iii. accrues or arises to him outside Bangladesh during that year: and In case of non-resident total income of a person shall be included all income from whatever source derived, whichi. is received or deemed to be received in Bangladesh in the income year; ii. accrues or arises, or is deemed to accrue or arise to him in Bangladesh during the income year, Q.4.(b) List the inadmissible expenses under section 30 of the Income Tax Ordinance,1984 Ans. Question No. 04 (b) The inadmissible expenses on account of allowance from business or profession under section 30 of the ITO 1984 are listed below: a. any payment which is an income of the payee classifiable under the head “salaries” if tax thereon has not been paid in accordance with provisions of Chapter VII; aa. any payment made by an assessee to any person if tax thereon has not been deducted and credited in accordance with the provisions of Chapter VII and Value Added Tax thereon has not been collected or deducted and credited in accordance with the provisions of VAT Act. 1991; b. any payment by way of interest, salary, commission or remuneration made by a firm or an association of persons to any partner of the firm or any member of the association, as the case may be; c. any payment by way of brokerage or commission made to a person who is not a resident in Bangladesh unless tax has been deducted there from under section 56; d. any payment to a provident fund or any other fund established for the benefit of employees unless tax has been deducted which are taxable under the head “salaries”; e. so much of the expenditure by an assessee on the provision of perquisites, as defined in section 2(45) to any employee as exceeds taka two lakhs (except the recommendation of a Wage Board constituted by the Govt.) f. any expenditure in excess of the rate prescribed in respect of the following cases: i. entertainment ii. foreign travels of employees and their dependents for holidaying and recreation; iii. publicity and advertisement; and iv. distribution of free samples. g. any expenditure exceeding ten percent of the profit under the head of Head Office expenses by a company, not incorporated in Bangladesh under the Companies Act 1994; h. any payment by way of royalty, technical services fee, technical know how fee or technical assistance fee exceeding two and one-half percent of the profit: i. any payment by way of salary or remuneration made otherwise than by crossed cheque or bank transfer by a person to any employee having gross monthly salary of taka fifteen thousand or more: g. any expenditure by way of incentive bonus exceeding ten percent of the disclosed net profit; k. any expenditure by way of overseas traveling exceeding one percent of the disclosed turnover.

Q. 4. (c) State the new provisions of Finance Act, 2002 regards section 30A of the Income Tax Ordinance Ans. Question No. 04 (c) Section 30A (Provision for Disallowance) of ITO 1984, describes below: Notwithstanding anything contained in section 28, 29, and 30 the Deputy Commissioner of Taxes shall not make any disallowance or deduction for any year from any claim made by an assessee in the trading account or profit or loss account without specifying reason for such disallowance or deduction.

Q.5.(a) State the provisions of law for payment of advance tax by a new company which has not been previously assessed to tax and by an existing company.

Ans. Question No. 05 (a)

As per section 64, advance tax shall be paid by an existing assessec in accordance with the provisions of the Ordinance, if the total income of the assessee for the latest income year in respect of which he has been assessed by way of regular assessment, or has been provisionally assessed under this Ordinance, or the Income Tax Act, 1922 exceeds taka two lakhs.

As per section 68, any person who has not been previously been assessed by way of regular assessment, shall before the fifteenth day of June in each financial year, if his total income (except agricultural income and capital gains) of the period which would be the income year for the immediately following assessment year is likely to exceed taka two lakhs, send to the DCT an estimate of his total income and advance tax payable by him calculated in the manner laid down in section 65 and shall pay such amount on such dates specified in section 66 as have not expired by installments which may be revised according to section 67(2).

Under both the circumstances, advance tax shall be payable in four equal installments on the fifteenth day of September, December, March and June of the financial year for which the tax is payable.

Q.5.(b) What are the consequence of non-payment of advance tax?

Ans. Question No. 05 (b) Consequences of non-payment of advance tax are stated below: As per section 69, where, an assessee who is required to pay advance tax fails to pay any installment of such tax, as originally computed or, as the case may be, estimated, on the due date, he shall be deemed to be an assessee in default in respect of such installment.

As per section 70, where, in respect of an assessee who is required to pay advance tax, it is found in the course of regular assessment that advance tax has not been paid in accordance with the provision of the Chapter VII, simple interest shall be imposed at the rate and for the period specified in section 73.

Q. 5. (c) State the provisions of law for availing tax holiday by a tourist industry mentioning at least five documents that are required to be submitted along with application for tax holiday.

Ans. Question No. 05 (c) (c) (1) As per section 46A of the Income Tax Ordinance 1984, the profits and gains under section 28 from an industrial undertaking, tourist industry or physical infrastructure facility (herein after referred to as the said undertaking) setup in Bangladesh between the first day of July, 1995 and the thirty day of June 2008 shall be exempt from tax payable under this Ordinance for the period specified below-. a. if the said undertaking is set-up in Dhaka and Chittagong divisions, excluding the hill districts of Rangamati, Bandarban and Khagrachari, for a period of four years beginning with the month of commencement of commercial production or operation of the said undertaking; b. if the said undertaking is set-up in Rajshahi. Khulna, Sylhet and Barisal division and the hill districts of Rangamati, Bandarban and Khagrachari, for a period of six years beginning with the month of commencement of commercial production or operation of the said undertaking.

2. The Tax Holiday benefits shall apply to the said undertaking if it fulfills the following conditions namely:a. that the said undertaking is owned and managed byi. a body corporate established by or under an Act of Parliament with its head office in Bangladesh; or ii. a company as defined in the Companies Act, 1913 or the Companies Act 1994 with its registered office in Bangladesh and having a subscribed and paid up capital of not less than one lakhs taka on the date of commencement of commercial production or operation: h. that 30% of the exempted income invested during the period of exemption or within one yea r from the end of the exemption period in the said undertaking or in any new industrial undertaking and in addition to that another 10% of the exempted income is invested in each year before the expiry of 3 months from the end of the income year in the purchase of shares of a company listed with any stock exchanges, failing which the income so exempted shall, notwithstanding the provisions of this Ordinance, be subject to tax in the assessment year for which the exemption was allowed: Provided that the quantum of investment referred to in this clause shall he reduced by the amount of dividend, if any, declared by the company enjoying tax exemption under this section.

c. that the said undertaking is not formed by splitting up or by reconstruction or reconstitution of business

already in existence or by transfer to a new business of any machinery or plant used in business which was being carried on in Bangladesh at any time before the commencement of the new business; d. that the said undertaking is approved by the Board; e. an application in the prescribed form is to be made to the Board within 6 months from the end of the month of commencement of commercial production or operation: f. notwithstanding anything contained in this sectioni. where a said undertaking enjoying exemption of tax under this section is engaged in any commercial transaction with another undertaking or company having one or more common sponsor directors, and ii. during the course of making an assessment of the said undert aking if the Deputy commissioner of Taxes is satisfied that the said undertaking has purchased or sold goods at higher or lower price in comparison to the market price with intent to reduce the income of another undertaking or companythe exemption of tax of that said undertaking shall be deemed to have been withdrawn for that assessment year in which such transaction is made.

5x3=15 3) The Board shall give its decision within 45 days from the date of receipt of the application, failing which the undertaking shall be deemed to have been approved for the purpose of this section.

4) If any person is aggrieved by the Board’s decision, an application may be made within 4 months from the date of receipt of the Board’s decision. The Board may pass such order in relation thereto as it thinks fit.

A tourist industry shall require to submit the following documents along with the application for tax holiday: i. an attested copy of certificate of incorporation; ii. a certificate of commencement of business; iii. an attested copy of the memorandum and articles of association of the company; iv. in case the company has commenced business, certified copy of the audited balance sheet and profit and loss accounts for the period for which accounts have been prepared (for an incomplete year trial balance may be submitted); v. in case of tourist industry for which approval is sought has been acquired for another party, an attested copy of the agreement between the applicant company and the seller enter into for the acquisition of the tourist industry with list and value of assets acquire; vi. a certificate to the effect that the tourist industry has not applied or shall not apply for accelerated depreciation allowance.

Q.6.(a) Discuss the provisions of the I.T. Ordinance relating to: (a) Self-assessment for private limited companies u/s 83AA. Ans. Question No. 06 (a) Self Assessment for Private Limited Companies (Section 83AA) Where, an assessee being a private limited company files: a return on or before the date specified in section 75(2)(C); shows income at least 5% higher than last the assessed income and has also increased by at least a further sum of 5% on pending assessment; The return filed by the assessee shall be deemed to be correct and complete and the DCT shall assess total income of the assessee on the basis of such return and communicate the assessment order to the assessee within 30 days next following: Provided thata. such return shall be accompanied by a copy of the accounts of the company audited by a chartered accountant; b. tax payable shall be paid on or before the date on which the return is filed; c. the assessment on the basis of such return shall not result any refund.

Q.6.(b)Assessment on the basis of report of a chartered Accountants u/s 83AAA Ans. Question No. 06 (b) Assessment on the basis of report of a chartered accountant (Section 83AAA)

1. Where a return or revised return is filed under Chapter- VIII by an assessee being a company and the Board has reasonable cause to believe that the return or revised return is incorrect or incomplete, the Board may appoint a registered chartered accountant to examine the accounts of that assessee.

2. The chartered accountant appointed under sub-section (1) shall exercise the powers and functions, of the Deputy Commission of Taxes as referred to in section 79 and clauses (a), (b), (c), (d) and (e) of section 113.

3. The chartered accountant, after examination of the accounts of that assessee. shall submit a report in writing to the Board along with findings within a time as may be specified by the board; 4. On receipt of the report referred to in sub-section (3), the Board shall forthwith forward the report to the concerned Deputy Commissioner of Taxes for consideration; 5. On receipt of the report, the DCT shall serve a notice upon the assessee under section 83(1); 6. The DCT shall, after hearing the person appearing and considering the evidence produced and other evidences assess the total income and tax liability within 30 days after the hearing and communicate the assessment order by another 30 days.

Q.6.(c).Assessment in case of change in the constitution of a firm u/s 86 Ans. Question No. 06 (c) Assessment in case of change in the constitution of a firm (Section 86) 1. Where, at the time of assessment of a firm, it is found that a change has occurred in the constitution of the firm, the assessment shall be made on the firm as constituted at the time of making the assessment— Provided that— a. the income of the year shall, for the purpose of inclusion in the total income of the partners, be apportioned between the partners who, in such income year, were entitled to receive the same; and b. when the tax assessed upon a partner cannot be recovered from him, it shall be recovered from the firm as constituted at the time of making the assessment.

2. For the purposes of this section, there is a change in the constitution of a firma. where all the partners continue with a change in their respective shares or in the shares of some of them, or b. where one or more persons who were partners continue to be so with a change by cessation of one or more partners or addition of one or more new partners;

Suggested Answers Professional Examination I -

Taxation I -

May-June 2003 Q.1.Define the following as per ITO-1984: (a) Salary; Answer to the Question No. 01 (a) Salary The term “Salary” from the point of view of Income Tax, has been defined u/s-2(58) of Income Tax Ordinance, 1984.

Salary means any amount received by an employee from his employer in consideration of services rendered in cash, or kinds. It may be advances or outstanding. It includes (a) Wages (b) Annuity, pension or gratuity (c) Fees, Commissions, allowances, perquisites or profit received in lieu of, or in addition to salary or wages (d) advance salary or (e) leave encashment. (b) Income year; Answer to the Question No. 01 (b) Income year : The Income of an Income year is taxed in assessment year. Normally, the income year commence from 1st July to next 30th June. where no account is maintained.

According to section 2(35) of Income Tax ordinance 1984, Income year means : 1. The Financial year immediately preceding the assessment year. For example, if assessment year is 2003-2004 then 2002-2003 (i.e. 1st July 2002 to 30th June, 2003) will be the income year where no account is maintained.

2. Where the accounts arc maintained and with the option of the assessee, the twelve months ended upto the date within the said financial year.

Examples : i. Say, an assessee maintains his accounts in “Bangla year” i.e. 15th April to next 14th April.

In this case of Bangla year (say, 15.04.2002 to 14.04.2003), two financial years fall in one year i.e. 2001-2002 & 2002-2003. Here, the financial year 2002-2003 (i.e. 12 months ended on 14.04.2003) will be the income year. ii. Say, an assessee closes its accounts on 31st July in every year In this case, for the year ended 31st July, 2003, the financial year 2003-2004 (i.e. 12 months ended on 31.07.2003 i.e on 2003-2004) is the income year.

3. In the case of business or profession newly setup : i)Where there is no option of the assesse, the period beginning with the date of setting up of the business and ending with the said financial year.

Example : Say, an assessee started business on 1st August, 2003, the date of closing must be 30.06.2004 as there is no option of the assessee. Hence, the financial year 2003-2004, is the income year. ii)Where there is option of the assessee Say, an assessee started business on 1st August, 2003 and closed its account on next 31st July, 2004. Here, two financial years are related i.e. 2003-2004 & 2004-2005 and as the 12 months ended on 31.07.2004 i.e. during the financial year 2004-2005, the income year will be 2004-2005. iii)First year’s closing of accounts cannot exceed 12 (Twelve) months.

Say, an assessee started business on 01.12.2002 and closed 1 st accounts on 31.12.2003 i.e. he closed accounts for a period more than 12 months. Here, as per law, the said assessee cannot close accounts beyond 31.11.2003 i.e. more than 12 months. He should close his business accounts at his option at any day before 01.12.2003.

4. National Board of Revenue may determine the income year in respect of an assessee.

5. In respect of share of Income of a firm. Firm's Income year will be the Income year of the partner.

It may be mentioned here that where an assessee has once been assessed in respect of any particular source of any income or where he has exercised his option in respect of newly set-up business, he shall not be entitled to change the Income year except with the consent of DCT upon such conditions as may be imposed by the Deputy Commissioner of Taxes.

Q.1.(c)Non-resident assessee; Answer to the Question No. 01 (c) Non-resident assessee : 1.In the case of Individual : a)If he did not stay in Bangladesh for a period amounting in all to 182 days or more in the income year or

b)If he did not Stay in Bangladesh for a period of or for periods amounting in all to ninety days or more in the income year having previously been in Bangladesh for a period of or for periods amounting in all to three hundred sixty five days or more during four years preceding the income year.

2. In case of a Hindu undivided family, firm or other association of persons.

The control and management of whose affairs is not situated wholly or partly in Bangladesh in the income year.

3. In Case of a Company A Bangladeshi Company or any other Company, the control and management of whose affairs is not situated wholly in Bangladesh in the income year.

Q.1.(d) Cost of acquisition of capital assets; Answer to the Question No. 01 (d) Cost of acquisition of capital assets : It includes the invoice value of assets, L/C charges, bank charges, duties, installation charges and all other related charges required to pay for the acquisition of the capital assets. The “capital assets” is defined U/S-2(15) of I.T.O-1984. Some guidelines for computation of actual cost of assets are given in the Para 11(5) & (6) of the Third Schedule of Income Tax Ordinance 1984 which includes amongst others : i. Cost of motor vehicle not plying for hire shall not exceed Tk. 10 lakh. ii. Grant, subsidy, rebate or commission received against acquisition of assets shall be deducted from cost of assets. iii. Cost of assets used before acquisition shall not exceed fair market value. iv. Exchange difference on conversion of foreign currency loan related to import of plant & machinery shall be added or deducted from cost of assets.

Q. 1. (e) House rent under section 53A Answer to the Question No. 01 (e) House Rent under Sec. 53A : As per section 53A of I.T.O.1984 the “House Rent” means any payment, by whatever name called, under any lease, tenancy or any other agreement or arrangement for the use of any building including any furniture, fittings and the land appurtenant thereto.

Q.2.(a) What is meant by recognized provident fund ? What conditions are required to be fulfilled for recognition under Income Tax Ordinance, 1984 as amended by Finance Act time to time?

Answer to the Question No. 02 (a) Recognised provident fund means a provident fund which has been recognised by the Commissioner of Taxes as per provision of part B of the first schedule of I.T.O-1984.

The following conditions are to be fulfilled to get recognition of provident Fund under I.T.O.-1984 : a. The employees shall be employed by the employer whose principal place of business shall be in Bangladesh and the employee shall be employed in Bangladesh. b. A definite portion of salary shall be deducted from the salary of the employee in any year as contribution and shall be credited to the Fund. c. The contribution of employer shall be credited to the individual account of an employee which shall be a definite portion and shall not exceed the contribution made by employee at an intervals not exceeding one year. d. The fund shall consist of the followings : i. Both the contribution of employer and employee and interest earned on investment of fund incomes. ii. D o n a t i o n s iii. Securities purchased iv. Capital gain arising from the sale, exchange or transfer of capital asset of the fund. e. The fund shall be managed by a Trustee Board consists of two or more members. f. The Fund shall be managed by two or more trustees under a trust which is irrevocable save with the consent of all the beneficiaries. g. No amount can be recovered from the Fund by employer except that the employee is dismissed for misconduct or voluntarily leaves his employment otherwise than on account of ill health or other unavoidable cause before the expiration of the term of service specified in this behalf in the regulations of the fund. h. The employer shall pay the accumulated balance due to an employee on the day he ceases to be an employee. i. No portion of the balance to the credit of an employee shall be payable to him save as provided in clause (g) or in accordance with such conditions and restrictions as the Board may prescribed.

Q.2.(b) What do you mean by “Method of Accounting” as per the Income Tax Ordinance, 1984?

Answer to the Question No. 02 (b) “Method of Accounting” means under which method the books of accounts of the assessee will be kept. It is the discretion of the assessee under which method he will follow for maintaining his books of account which are required to maintain regularly

for computing income under the heads “Agricultural Income”, “Income from business or profession” or “Income from other sources”. Section 35 of ITO-1984, deals with method of accounting, which should have to be followed consistently throughout the years. There are 3 methods of accounting these are Cash, Mercantile and Hybrid.

If it is found by the D.C.T. that Income cannot be determined by method of accounts maintained by assessee, he may determine the income on such basis and on such manner as he thinks fit.

Q. 3. Mr. A.B. Siddique is the Finance Manager of a Company. Following is the statement of his income and expenditure for the year ended on 30th June, 2002: (a) Salaries : Basic salary Tk. 35,000 p.m.; House rent allowance Tk. 10,000 p. m; Entertainment allowance Tk. 3,000 p.m. and Medical allowance Tk. 500 p.m. As festival allowance he gets an amount equal to two months basic salary. His contribution to provident fund is 10% of his basic salary. His employer also contributes the same amount. The provident fund is recognized. (b) House Property : Mr. Siddique has a house. Half of it is let out at Tk. 20,000 per month. He resides in the rest half. The expenses of the house are as follows : Municipal tax Tk. 15,000; Repair Tk. 18,000; Collection charge Tk. 2,000; Insurance Tk. 4,000. (c) Agricultural Income : Sale of agri products Tk. 40,000; Cash rentals of agricultural land Tk. 20,000. (d) Business Income: Income of partnership Tk. 60,000: Income from sole tradership Tk. 50,000; last year’s loss Tk. 10,000. (e) Other Income: Interest on Bank Deposit Tk. 26,000 Income from dividend Tk. 35,000 Reward from Prize Bond Tk. 50,000.

Following are his expenditure and investment for the year : Family expenses Tk. 250,000; Premium for life policy Tk. 15,000; Purchase of share Tk. 35,000; Purchase of books Tk. 2,000; Deposit to the Deposit Pension Scheme Tk. 2,000; Donation to Zakat Fund Tk. 15,000 and Donation to Prime Minister’s Relief Fund Tk. 40,000.

Find out total Income and Tax to be paid by Mr. Siddique mentioning the assessment year.

Answer to the Question —03 (a) Mr. A. B. Siddque Finance Manager Income year 2001-2002 (year ended on 30.06.2002) Assessment year 2002-2003 -

1.Computation of Total Income : (a)Income from Salaries : Basic Salary House Rent Allowance (50% of the basic salary or Tk. 15,000/- p.m. whichever is less is exempt)

35,000X12 10,000X12 120,000 15,000X12 180,000

3,000X 12 Entertainment Allowances (Full amount of entertainment allowances shall be included as income. Assumed that this is not included with the value of free Tea coffee or beverage provided at office premise during the course of work)

420,000

36,000

Medical Allowance (Assumed that this was fully spent being an actual medical expenses. Hence, exempt) Festival Allowance Employers Contribution to recognized P.F. (10% of 420,000)

(500X12)

(b)Income of House Property (1/2 let out) B.A.U

20,000X12 240,000 60,000 7,500 2,000 69,500

6,000

35,000X2

70,000 42,000 568,000

170,500

(c ) Agricultural Income : Income from sale of Agricultural Products Less: cost of production 60% (As no Books of accounts maintained)

40,000 24,000 16,000

Rentals of Agricultural Land [(no deduction admissible u/s 27(iii)]

20,000

36,000

d) Income from Business : 60,000

Partnership Sole Tradership

50,000

Less: Carry forward and set off last year’s loss

10,000

40,000

100,000

(d) Other Income : (i) Income from Dividend (Exemption limit is upto Tk. 25,000 but if dividend income is more than Tk. 25,000 then the full amount is taxable, Re: Finance Act, 2002] (ii) Interest on Bank Deposit (It is assumed that the amount is a gross income and 5% tax has been deducted u/s 52D to be considered later on) (iii) Reward from Prize Bond (It is assumed that the amount is a gross income and that 20% has been deducted u/s 55 being tax to be considered u/s 82(C) as final settlement) 111,000 Total Income: 2.Investment Allowance for Tax Rebate : Life Insurance Premium

985,500

15,000

Recognized P.F. Contribution 42,000X2 Investment in shares

84,000

Donation to Zakat Fund (Assumed that the fund is established by Zakat fund ordinance, 1982)

15,000

35,000

Assumed that Donation to P.M. Relief Fund is included to investment allowance as per Government notifications

40,000 1,89,000

Total investment for tax rebate will be 20% of total income or Tk. 200,000 (As no investment was made to primary shares of a listed company) or actual investment whichever is less.

So, 20% of 985,500 Actual Investment 3.Total Income on which Tax to be paid :

= Tk. 197,100 = Tk. 189,000

Total Income - as computed above Less : Reward on Prize Bond (To be considered u/s 82C)

985,500 50,000 935,500

4.Computation of Income Tax on Total Income of Tk. 935,500 (Considering Tax Rates of Finance Act 2002) : 3.

On

Tk.75,000

NIL

On the next

Tk. 150,000

@ 10%

15,000

On the next

Tk. 150,000

@ 15%

22,500

On the next

Tk. 250,000

@ 20%

50,000

On the balance

Tk. 310,500

® 25%

77,625 1,65,125

Less: Tax rebate on Tk. 189,000 @ 15%

(28,350) 1,36,775

Less: Tax Credit on Firm's Income (Note-4) Less: Tax deducted on interest on deposit of Tk. 26,000 @ 5%

9,157 1,300 Tax to be paid:

1,26,318

Notes : a. Assumed that the deposit to the deposit pension scheme of Tk. 2,000 did not fulfilled the condition laid down in clause 11 of part B of 6th schedule of ITO-84 i.e. the scheme is not approved by Govt. b. Purchase of books are not entitled for tax rebate under investment allowance. c. No. of family member not mentioned . Details as per I.T.10BB not available. Hence the disclosed personal expenses appears to be reasonable as the assessee reside in his own house . Assumed that it includes payment of taxes also.Tax on share of profit has already been paid by the firm. As per the clause 16 of Part B of 6th Schedule of Income Tax Ordinance 1984, the said income has been added with total income but tax credit has been allowed at average tax rate as follows : {Total Tax (after investment tax credit) / Total Income} X Share of Profit of Finance (142,775 / 935,500 )X 60,000 = 9,157 Q.4.(a). Discuss the effect of Finance Act, 2002 on the following: (a) Remittance of Profit by a Bangladesh Branch of Foreign Company; Answer to the Question No. 04 (a) Remittance of profit by Bangladesh branch of Foreign company : Remittance of after tax profit by Bangladesh branch of a foreign Company has now been included in the definition of “Dividend” U/S - 2(26). There was no tax on such remittance of profit. Now, by inserting a new clause (“dd”) under section 2(26) i.e. under the definition of “Dividend” by Finance Act 2002, such remittance of profit (without declaration of dividend) will now be treated as dividend paid and tax should be paid at the rate as applicable on dividend payment of non-resident company. (Presently 15%).

4.(b) Excess Profit Tax for Banking Companies; Answer to the Question No. 04 (b) Charge of excess profit tax : A new section i.e section 16C has been inserted by FA. 2002 for charging excess profit tax on Banking Companies.

Such tax has been imposed on excess profit earned by a banking company. If a bank operates under the Banking Companies Act, 1991 and declares in the Income Tax Return any amount of profit which exceeds fifty percent of bank's capital as defined under the said Banking Companies Act of 1991 and the reserve. The excess tax in addition to normal tax should be paid on excess profit of the Bank at the rate of 15% of that excess profit.

Answer to the Question No. 04 (c) Investment from unexplained/untaxed fund : The Finance Act, 2002 has introduced a new section 19AAA w.e.f. 1.7.2002 which provides that if any individual, firm, association of persons or a private limited company invest any amount of money in trade, Commercial or industrial venture, engaged in production of goods or services, the same will be accepted by the taxes department without any question about its source. This systems will be continued upto 30.06.2005.

An Q.4. (d) Additional Tax on Listed Companies.

Answer to the Question No. 04 (d) (d)Charge of additional tax on listed companies : The Finance Act, 2002 inserted a new section 16B which provides a Public Limited Company listed with any stock exchange, in Bangladesh will have to issue or declare or distribute dividend or bonus share equivalent to at least 15% of the paid up capital to its shareholders within 6 months immediately following the income year. If it fails to do so, additional Tax @5% should have to pay on undistributed profit. This provision will not apply to banking or Insurance Companies.

Q. 4. (e) Interest During Construction Period (IDCP) on borrowings for House Property.

Answer to the Question No. 04 (e) Interest during the construction period (IDCP) on borrowings for house properties.

Before 2002, there was no provision for allowing interest paid on money borrowed for construction of house property during the period of construction when no income was earned from the house. By inserting a new clause (gg) in section 25, (by FA 2002) such provision has been made in the Income Tax Ordinance, 1984 and as per said clause, now interest payable during construction period when no income has been earned from the house will be an allowable expenses in subsequent first three years in equal installments on which the Income from the said house property become assessable.

Q. 4. (f) Tax Holiday Scheme.

Answer to the Question No. 04 (f) Tax holiday scheme : The amendments made in tax holiday scheme i.e. in section 46A by FA 2002 are as follows : i. The expansion Unit of an industrial undertaking, tourist industry or physical infrastructure facility will not be eligible for tax holiday. ii. The amendment also provides for reinvestment of 40% of tax holiday profit in place the existing 30% limit.

Besides, tax holiday will not be admissible to any undertaking if it makes any financial or commercial transaction in any manner with another industrial company having one or more sponsor shareholder Common between them. iii. Another amendment is that now, the National Board of Revenue should have to give its decision on the application for tax holiday within 30 days from the date of filing of application in place of 3 months. The Board will also not reject an application for tax holiday without giving the applicant a reasonable opportunity of being heard.

Q.4.(g) Penal Provision for issuing any VAT chargeable goods without issuing VAT challan u/s 38 of the VAT Act, 1991.

Answer to the Question No. 04 (g) Penal Provision for issuing any VAT chargeable goods without issuing VAT challan u/s 38 of the VAT Act, 1991 The penal provision in this respect is that the goods will be confiscated and the registered person or his representative will pay the amount of VAT or supplementary duty as the case may be including the payment of penalty not exceeding two and half times of said amount of VAT or supplementary duty.

Q. 5. Tetley Bangladesh Ltd. has submitted the requisite papers to the Deputy Commissioner, Customs Excise and VAT for approval of price of 5 Nos. products on March 09, 2003. The declared prices of the product were 12% lower than the latest price approved on March 06, 2003 by the Deputy Commissioner. The Deputy Commissioner informed the company that he has objection on the price declared based on the grounds that the declared price is much lower and even in some cases gross loss has been claimed. The Deputy Commissioner asked the Company to explain the reason for lower price on April 30, 2003. The Managing Director of the Company assigns the following Jobs to you being an expert:  To draft the arguments in support of the price declared by Tetley.  What would be the courses of action for the company if the Deputy Commissioner approved some other price in the specified case?  To prepare a gui del ine f or fill ing V AT -1 f orm ( declar ati on of price f or approval) for future reference.  To prepare a guideline for proper compliance to the provisions of withholding VAT. Answer to the Question No. 05 (a) Draft Arguments in support of the price declared by Tetley Bangladesh Ltd. on March 09, 2003.

The company pays/allows trade discount on sales price to its customers. The Clause (5) of section 5 “Price determination for imposing VAT” of VAT Act 1991 provides that the VAT shall be payable on Net sales price after allowing VAT. But in our previous price declaration which was approved by VAT authority on March 06, 2003, we had consider the price before allowing of said trade discount. This is the only reason of lowering of price.

(b) As per the provisions of Rule 3(7) of VAT Rule 1991, an aggrieved person can file an appeal to the Commissioner to reconsider the higher price as determined by any VAT official within 30 working days of such higher price determination. (c) Guideline for filing VAT - 1 Form : i. The basis of cost of the products should be made available. ii. The details of the cost of the products should be made available. iii. The basis of the retail price of goods on which VAT is payable should be made available. iv. In case of Imported materials, the details costing should be made available. v. In case of services, the basis of the rate fixed should be made available. vi. If any discount is allowed, the amount of the discount including the invoice and also the business policy should be made available. (d) VAT shall be liable to deduction at source at the time of one of the following activities whichever occurs first : i. When the goods are delivered or supplied. ii. When an invoice relating to the goods is issued. iii. When any goods are used personally or given for use to another person. iv. When part or full payment is received at the time of one of the following activities whichever occurs first : 1. When the service is provided.

2. When an invoice relating to the service is issued.

3. When part or full payment is received.

6. Discuss the provisions of Value Added Tax Act, 1991 on the following: (a) Registration requirement for Accounting and Audit Firm and rate of VAT on their services.

Answer to the question No. 06 (a) The Accounting and Audit Firm is required to be registered under the VAT Act, 1991 as per normal procedure irrespective of their total income in accordance with the Section 15 “Registration” of the VAT Act, 1991.

They will pay 4.5% VAT (15% on the value addition of 30% of the total service charges) in respect of Accounting / Audit services. (b) Filing of monthly VAT return and the required information thereon.

Answer to the question No. 06 (b) The VAT return will be submitted as per the requirements of Section 35 of the VAT Act 1991 and the Rule 24 of the VAT Rule 1991and in the prescribed “VAT Form 19”. The following important information will be required to disclose in the said form : i. Identification number of the Tax Payer. ii. Name & Addresses of the Tax Payer. iii. Name of the Month (Taxable Period). iv. Area Code. v. Name of Goods/Services. vi. Net Sales of Goods/Services subject to VAT vii. Total VAT payable. viii. Purchase of goods/services from the VAT registered person in Bangladesh. viii. Import of goods subject to VAT. ix. Export & other rebate of VAT x. Opening & closing balance of VAT Account xi. Amount deposited into Treasury.

Q.6. (c) Treating VAT by wholesaler and retailer.

Answer to the question No. 06 (c) The treatment of VAT by wholesaler and retailer are provided in the SRO No. 172/Law/2004/418VAT, dated10.06.2004, which provides as follows :  The value addition of a trade (other than retailer) is 10% which shall be added with his purchase price, and thereafter, he shall determine 1.5% VAT on his sales price. The Trader is required to keep books of accounts for sales, purchases, supplies, current account etc. to avail this benefit. However, he shall not be allowed any input rebate.  The small retailers or shops are required to pay yearly fixed VAT ranges from Tk. 1,200 to 4,200 depending on the location of business establishment and amount of value addition.

Suggested Answers Professional Examination-I Taxation-I November-December -2003 (Question solved according to the provision of Finance Act-2006 and law implications of assessment year 2006-07) Q. 1. Define as per ITO 1984: (a) Assessee; Ans. Question No. 01 (a) Assessee As per section 2(7) of the ITO 1984, “assessee”, means a person by whom any tax or other sum of money is payable under this Ordinance, and includes— a. every person in respect of whom any proceeding under this Ordinance has been taken for the assessment of his income or the income of any other person in respect of which he is assessable, or of the amount of refund due to him or to such other person; b. every person who is required to file a return under section 75, section 89 or section 91; c. every person who desires to be assessed and submits his return of income under this Ordinance; and d. every person who is deemed to be an assessee, or an assessee in default, under any provision of this Ordinance.

Q.1. (b) Income Year; Ans. Question No. 01 (b) Income Year As per section 2(35) of the ITO 1984, “income year”, in respect of any separate source of income, means (a) the financial year immediately preceding the assessment year; or (b) where the accounts of the assesses have been made upto a date within the said financial year and the assesses so opts, the twelve months ending on such date; or (c) in case of business or profession newly set up in the said financial year, the period beginning with the date of the setting up of the business or profession and ending with the said financial year; or such other date opted by the assessee: (d) the National Board of Revenue may, however, determine any other period other than the financial year to be the income year in the case of any person or class of person or any business or profession or class of business or profession. (e) once an income year for any source of income has been opted by the assessee, the same can not be changed without the permission of the Deputy Commissioner of Taxes upon such conditions as the DCT may think fit to impose.

Q.1. (c) Perquisite; Ans. Question No. 01 (c) Perquisite As per section 2(45) of the Income Tax Ordinance 1984, “Perquisite” means: i. any payment made to an employee by an employer in the form of cash or any other form excluding basic salary, festival bonus, incentive bonus not exceeding 10% of disclosed profit of relevant income year, arrear salary, advance salary, leave encashment or leave fair assistance and overtime , and ii. any benefit, whether convertible into money or not, provided to an employee by an employer, called by whatever name, other than contribution to a recognized provident fund, approved pension fund, approved gratuity fund and approved superannuation fund.

Q.1.(d) Written Down Value as per Third Schedule; Ans. Question No. 01 (d) Written Down Value as per Third Schedule As per Third Schedule Para 11(5), “written down value” means— a. where the assets were acquired in the income year, the actual cost thereof to the assessee; b. where the assets were acquired before the income year, the actual cost thereof to the assessee as reduced by the aggregate of the allowances for depreciating allowed under this Ordinance, or the Income-tax Act, 1922(XI of 1922), in respect of the assessment of the earlier year or years.

In-the case of motor vehicles, being passenger vehicles or sedan cars, not playing for hire, the actual cost to the assessee shall be deemed not to exceed Tk. 10 lakhs.

Q.1.(e). Double Taxation Relief Ans. Question No. 01 (e) The Government may enter into an agreement with the Government of any other country for avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income leviable under 1TO, 1984 and under the corresponding law in force in that country.

Where any such agreement made with the Government of any country, they provide fora. relief from the tax payable under this ordinance; b. determining the income accruing or arising, or deemed to be accruing or arising, to non-residents from sources within Bangladesh; c. determining the income attributable to operations carried on in Bangladesh or outside Bangladesh; d. determining income to be attributable to resident in Bangladesh having any special relationship with nonresident; e. recovery of tax leviable under this Ordinance and under the corresponding law in force in that country; f. exchange of information for fiscal evasion and avoidance of tax.

Q.2.Discuss the effect of Finance Act, 2003 on the following items: ( a ) Dividend and withholding tax on Dividend Ans. Question No. 2 (a) The changes made in Finance act, 2003 in respect of the following: (a)Dividend and withholding tax on Dividend; In the Finance Act 2003.a new provision was inserted that where a company is liable to pay dividend distribution tax under section 16D, no deduction shall he made by the company at the time of making payment of dividend to the shareholder.

(But subsequently this provision was omitted by the Finance Act 2005).

Hence, according to the Finance Act 2006, tax shall be withheld by the company at the time of distribution of dividend except bonus shares.

Q.2. (b) Power to verify deduction or collection of tax u/s 117A; Ans. Question No. 2 (b) Power to verify deduction or collection of tax u/s 117A Notwithstanding anything contained in this Ordinance or any other law for the time being in force, the Board or any other authority empowered by the Board in this behalf may enter the premises of a deducting or collecting authority to examine monitor or verify books of accounts and relevant records in relation toa. deduction or collection of tax by the concerned authority in accordance with the provisions of Chapter VII of this Ordinance; and b. deposit of the tax so collected or deducted to the credit of the Government as per rules.

Q.2.(c) Appeal to the Appellate Tribunal; Ans. Question No. 2 (c) Appeal to the Appellate Tribunal In the Finance Act 2003, a new provision was inserted that the Deputy Commissioner of Taxes may, with the prior approval of the Board, prefer an appeal to the Appellate Tribunal against the order of an Appellate Joint Commissioner, or the Commission (Appeal) under section 156.

Q. 2. (d) Dividend Distribution Tax-16D. Ans. Question No. 2 (d) Dividend Distribution Tax-16D Dividend Distribution Tax was inserted by the Finance Act 2003 which was subsequently omitted by the Finance Act 2005.

Q.3.Please describe the procedure for completion of assessment u/s 83(2) with all the alternatives and the circumstances for best judgment assessment.

Ans. Question No. 03 The procedure for completion of assessment u/s 83(2) is enumerated below: 1. Where a return or revised return has been filed under Chapter VIII and the Deputy Commissioner of Taxes (DCT) is not satisfied without requiring the presence of the person who filed the return or the production of evidence that the return is correct and complete, he shall serve on such person a notice requiring him, on a date to be therein specified, to appear before the DCT, or to produce or cause to be produced before him or at his office, any evidence in support of the return.

2. The DCT shall, after hearing the person appearing, or considering the evidence produced in pursuance of the notice under sub-section (1) and also considering such other evidence, if any, as he may require on specified points,

by an order in writing assess, within thirty days after the completion of the hearing or consideration, as the case may be, the total income of the assessee and determine the sum payable by him on the basis of such assessment, and communicate the order to the assessee within thirty days next following.

Alternatively, where a return or revised return has been filed and the Deputy Commissioner of Taxes is satisfied, without requiring the presence of the assessee or the production of any evidence, that the return is correct and complete, he shall assess the total income of the assessee and determine the sum payable by him on the basiS of such return.

Under the following circumstances, the DCT shall, by an order in writing assess the total income of the assessee to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment: Where any person fails— a. to file the return required by a notice under section 77 and has not filed a return or revised return under section 78: or b. to comply with the requirements of a notice under section 79 or 80; or c. to comply with the requirements of a notice under section 83(1).

Q. 4. Procter & Gamble India Ltd. wishes to set up a 100% subsidiary company in Bangladesh which will produce Shampoo for the local market. You are asked by the Chairman of the group to give report providing the information on the following :

a. Scope of Total Income e.

Withholding income tax b. Residential status f.

Maintenance of Books of Accounts for VAT; c. T ax Calendar g.

Supplementary Duty on Shampoo at different level d. Tax Holiday Ans. Question No. 04 Date: The Chairman Procter & Gamble India Ltd. ------------------------------------------------------------------Dear Sir, Re: Setting up a 100% subsidiary company in Bangladesh As desired by you in your letter dated... , we are pleased to submit you a report on the topics below for your kind perusal: a)Scope of Total Income: As per section 17 of Income Tax Ordinance, 1984, the total income of a person who is resident shall be included all income from whatever source derived, whichi. is received or deemed to be received in Bangladesh in the income year: ii. accrues or arises, or is deemed to accrue or arise to him in Bangladesh during the income year, or iii. accrues or arises to him outside Bangladesh during that year; and In case of non-resident total income of a person shall be included all income from whatever source derived, whichi. is received or deemed to be received in Bangladesh in the income year; ii. accrues or arises, or is deemed to accrue or arise to him in Bangladesh during the income year. b) Residential Status According to Income Tax Ordinance, 1984, a person is charged to tax on the basis of his residential status during the relevant income year.

As per section 2(55) “resident” in respect of any income year, means(a)an individual who has been in Bangladeshi. minimum one hundred and eighty days in the income year, or ii. minimum ninety days in the income year and minimum three hundred sixty five days in the preceding four years of the income year. b. a Hindu undivided family, firm or other association of persons, the control and management of whose affairs is situated wholly or partially in Bangladesh in the income year; and c. a Bangladeshi company or any other company, the control and management of whose affairs are situated wholly in Bangladesh in the income year. c)Tax Calendar Tax Calendar is a time schedule in planning ahead which is generally prevents problems giving advance notice of important dates for complying income tax provisions. In the tax calendar, we can incorporate the following check list:  Quarterly Installment of Advance Tax: As per section 66 of ITO, 1984, advance tax shall be payable in four equal installments of the fifteen day of September, December, March and June of the financial year for which the tax is payable.

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 Filling date of Income Tax Return: In case of Company, the Return by the 15th July each year. If the 15th July falls before the expiry of six months from the end of the Income Year, in that case Return shall be filed before the expiry of the said six months.  Filing date of statement U/S 108, 109, 110 : Information regarding the payment of salary, payment of interest and dividend shall be furnished to the concerned tax authority before 1st of September each year. d) Tax Holiday I) As per section 46A of the Income Tax Ordinance 1984, the profits and gains under section 28 from an industrial undertaking, tourist industry or physical infrastructure facility (herein after referred to as the said undertaking) set-up in Bangladesh between the first day of July, 1995 and the thirty day of June 2008 shall be exempt from tax payable under this Ordinance for the period specified belowa. if the said undertaking is set-up in Dhaka and Chittagong divisions, excluding the hill districts of Rangamati, Bandarban and Khagrachari, for a period of four years beginning with the month of commencement of commercial production or operation of the said undertaking; b. if the said undertaking is set-up in Rajshahi, Khulna, Sylhet and Barisal division and the hill districts of Rangamati, Bandarban and Khagrachari, for a period of six years beginning with the month of commencement of commercial production or operation of the said undertaking.

2) The Tax Holiday benefits shall apply to the said undertaking if it fulfils the following conditions namely:a. that the said undertaking is owned and managed byi. a body corporate established by or under an Act of Parliament with its head office in Bangladesh; or ii. a company as defined in the Companies Act, 1913 or the Companies Act 1994 with its registered office in Bangladesh and having a subscribed and paid up capital of not less than one lakhs taka on the date of commencement of commercial production or operation: b. that 30% of the exempted income invested during the period of exemption or within one year from the end of the exemption period in the said undertaking or in any new industrial undertaking and in addition to that another 10% of the exempted income is invested in each year before the expiry of 3 months from the end of the income year in the purchase of shares of a company listed with any stock exchanges, failing which the income so exempted shall, notwithstanding the provisions of this Ordinance, be subject to tax in the assessment year for which the exemption was allowed: Provided that the quantum of investment referred to in this clause shall be reduced by the amount of dividend, if any, declared by the company enjoying tax exemption under this section. c. that the said undertaking is not formed by splitting up or by reconstruction or reconstitution of business already in existence or by transfer to a new business of any machinery or plant used in business which was being carried on in Bangladesh at any time before the commencement of the new business; d. that the said undertaking is approved by the Board; e. an application in the prescribed form is to be made to the Board within 6 months from the end of the month of commencement of commercial production or operation; f. notwithstanding anything contained in this sectioni. where a said undertaking enjoying exemption of tax under this section is engaged in any commercial transaction with another undertaking or company having one or more common sponsor directors, and ii. during the course of making an assessment of the said undertaking if the Deputy commissioner of Taxes is satisfied that the said undertaking has purchased or sold goods at higher or lower price in comparison to the market price with intent to reduce the income of another undertaking or companythe exemption of tax of that said undertaking shall be deemed to have been withdrawn for that assessment year in which such transaction is made.

3) The Board shall give its decision within 45 days from the date of receipt of the application, failing which the undertaking shall be deemed to have been approved for the purpose of this section.

4) If any person is aggrieved by the Board’s decision, an application may be made within 4 months from the date of receipt of the Board’s decision. The Board may pass such order in relation thereto as it thinks fit.

Apart from the above tax holiday benefits, according to S.R.O No. 266-L-86 dated 1st July 1986, income of pioneering industries as specified by the Board and set up in any EPZ is exempted from tax for a period of 10 years beginning with the month in which the commercial production commences. e) Withholding Income Tax Notwithstanding that regular assessment in respect of any income is to be made later in any assessment year, and without prejudice to the charge and recovery of tax under the Income Tax Ordinance 1984 after such assessment,

the tax on income shall be payable by deduction or collection at source or by way of advance payment which is called Withholding Income Tax. Any sum deducted or collected or paid by way of advance payment shall be treated as payment of tax in due time by the assessee. f) Maintenance of Books of Accounts for VAT As per section 31 of VAT Act 1991,every registered person for determining his tax liability in a certain tax period has to maintain, keep in store the following books and records in the form and manner prescribed by the rules related to the goods or services bought sold. supplied or rendered by him or by his agent. a. Statement of purchase together with challans of all taxable and exempted goods or services: b. Statement of supply of all taxable and exempted goods or services together with challans: c. Current account for payment of VAT: d. Statement of money deposited into the treasury through challans or to any bank approved by the Government for this purpose: e. Statement of stock of imports and finished goods; ee. Commercial documents related to taxable or exempted goods or supplies: f. Books and records prescribed by rules: Provided that the Board through official gazette notification can prescribe the manner and the type of books and records to be maintained by registered person. g)Supplementary Duty on Shampoo at different level As per First Schedule of the Customs Act, supplementary duty on shampoo is chargeable 35%.

Hope the aforesaid information will give you clear understanding on your queries. However, please feel free to contact us should you need any further clarification on any point of the matters.

Thanking you, Yours faithfully, Mozumder and Company Chartered Accountants Q. 5. Fujit Vitto Corporation Ltd. incorporated in Japan was awarded a contract by the Chittagong Port Authority for USD 10 Million and, the contractor have the plan for subcontract some works worth USD 5 Million. The Bangladesh Project Manager of the Fujit Vitto Corporation, Mr. Nagamoto come to know that they will be required to deduct VAT from the bill of the sub contractor under the prevailing law, which really make him dizzy.

Corporation Ltd. has a liaison office in Bangladesh.

Please explain to Mr. Nagamoto the following (a) Whether they will be required to deduct VAT from the bill of the subcontractor or not and why?

Ans. Question No. 05 (a) Date: Dear Mr. Nagamoto FujitVitto Corporation Ltd

Re: Deduction of VAT from the bill of the subcontractor We refer to your letter dated... , and as desired we are pleased to submit you the law implication on the topics below for your kind perusal: a) yes. your company is required to deduct VAT from the bill and 1) Goods or services supplied by any registered person against local or international tender in foreign currency. shall be deemed to be export as per section 3(2) of the VAT Act when foreign currency in exchange of goods or services has been remitted through Bangladesh Bank; 2) The registered person paid tax shall be entitled to obtain tax drawback on inputs used in the goods or services supplied against local or international tender in exchange of foreign currency: 3) The subcontractor under the project will be under the purview of the aforesaid conditions and shall be entitled drawback.

However, according to the rule 31 of VAT Act 1991 as described above, you will he required to deduct VAT from bill of subcontractor.

Q.5.(b) If yes then at what rate and how that VAT will be deposited to the Government Treasury?

Ans. Question No. 05 (b) VAT on the subcontractor’s bill shall be deductible @ 2.25% and the deducted amount shall be deposited to the Government Treasury by seven days from the date of deduction.

Hope the aforementioned explanations of your queries in light with the specific law point will give you clear understanding.

However, please don’t hesitate to contact us for further explanation on the topic.

Thanking you.

Truly yours.

Mozumder & Co. Chartered Accountants Q.6. (a) Make a discussion of the Time Limit for submission of application for refund of VAT: Rule 30(1).

Ans. Question No. 06 (a) As per section 67 & Rule 30(1) of VAT Act 1991, when any excess amount paid on account of VAT or VAT and supplementary duty or turnover tax where applicable, due to carelessness, mistake, wrong explanation or other reason can be claimed as refund subject to the following conditions:  refund application shall be filed in form TR 31;  refund shall be claimed within 6 months of such tax payment:  refund will be adjusted against input tax rebate, if there is any scope for adjustment.

The application for refund shall be disposed off by the concerned VAT authority within 90 days from the date of application. (b) How are the values of goods and services determined for, imposition of VAT? Ans. Question No. 06 (b) Computation of Value for charging of VAT In case of Import: The value of imported goods shall be the transaction value as determined under section 25 or 25A of the Customs Act plus import duty, supplementary duty except advance tax.  The value of any imported or exported goods shall be deemed to be the price at which such or like goods are ordinarily sold, for delivery at the time and place of importation or exportation as the case may be:  Notwithstanding anything contained in this section, the Govt., may, by notification in the official Gazette, fix, or the purpose of levying customs duties, tariff values or minimum values for any goods imported or exported as chargeable with customs duty; Provided that in case of any imported or exported goods, the declared value of which is higher than its tariff value fixed under the sub-section, shall be chargeable with customs duties on the basis of its declared value.  Govt., may appoint pre-shipment inspection agencies who may declare the quality, quantity, price, description and customs classification of the goods and may determine the price as per their certification.

In case of goods manufactured: sale price shall be the consideration receivable from buyer by the producer or business person, which include purchase price of materials and all expenditure incurred by the manufacturer and also commission, charges, fees and all supplementary duty excluding VAT. Provided that in order to determine base for computing VAT, the Board can fix through notification in official gazette VAT rate and amount / quantity in respect of certain goods and class of goods.

The Govt., shall, through official gazette notification determine price of the goods. which is sold at retail price.

In case of supplied: VAT shall be charged on the total money received/receivable on the goods in a specific period as determined by the rule.

In case of services: VAT shall be charged on total money receipts. The Board may also determine value or rate for this purpose by notification in official gazette.

Apart from the above, there are truncated rates of VAT on some specific services where value addition is pre-fixed.

VAT shall be charged on the value of goods supplied after deducting trade discount if any, provided that the value for which goods are supplied allowing trade discount has to be mentioned in the challan and the amount of trade discount has to be in line with the general business practice.

Notwithstanding anything contained in this section the Board can determine the tariff value of any taxable goods or service through office gazette notification for the purpose of charging VAT or VAT & supplementary duty, considering public interest and when satisfied after making proper inquiry.

Suggested Answers Professional Examination-I

Taxation-I May — June 2004 Q. 1. I) i the following in relation to Income Tax Ordinance, 1984: ( a)C omp any Ans. to Question. No. 01 (a) Company According to the inclusive definition of “Company” u/s 2(20) of Income Tax Ordinance 1984, company represents a company as defined under Companies Act, 1913 or 1994 and includes : i. a body corporate established under any law of Bangladesh ; ii. a nationalised bank or financial institution, insurance, industrial or business enterprise ; iii. an association of persons, if any of such person is a company as defined in the Companies Act : iv. an association incorporated by any law outside Bangladesh; and v. a foreign association, which the National Board of Revenue declare to be a company for the purpose of this income tax ordinance.

Q.1.(b)Income Ans. to Question. No. 01 (b) Income According to the inclusive definition of “Income” u/s 2(34) of the Income Tax Ordinance 1984, income consists of : i. any income as specified U/s 20 of Income Tax Ordinance, 1984; ii. any loss sustained under the heads of Income as specified u/s 20; iii. any profit of Insurance business carried on by a mutual insurance association computed in accordance with paragraph 8 of the Fourth schedule ; and iv) any sum deemed to be income, or any income accruing or arising or received or deemed to accrue or arise or be received in Bangladesh under any provisions of income tax ordinance. However, bonus shares issued by a company registered in Bangladesh shall not be included as income of the recipient shareholder.

Q.1.(c )Resident Ans. to Question. No. 01 (c) Resident : 1. An individual shall be considered as “Resident” in an income year ; i. if he resides in Bangladesh in the income year, for 182 days or more ; or ii. if he resides in Bangladesh in the income year for 90 days or more and also stayed in the immediate preceding four years in Bangladesh for a period of 365 days or more.

2. A hindu undivided family, firm or other association of persons shall be considered as resident in the income year if its control and management of affairs is situated wholly or partly in Bangladesh in that income year.

3. A Bangladeshi company or any other company shall be considered as resident in Bangladesh if the control & management of affairs is situated wholly in Bangladesh in the income year.

Q.1.(d) Dividend Ans. to Question. No. 01 (d) Dividend : Dividend has been defined u/s 2(26) of Income Tax Ordinance 1984 includes i. any distribution of accumulated profit by a company; ii. any payment by private company by way of advance, loan or other benefit to a share holder out of accumulated profit; iii. any profit remitted outside Bangladesh by a Bangladesh Branch of a foreign company.

However, any advance or loan made to share holders in the ordinary course of the business of the company, where the lending of money is a substantial part of the business of the company or any bonus share issued by a company shall not be considered as dividend.

Q.1.(e) NBR Ans. to Question. No. 01 ( e) i. NBR means the National Board of Revenue which is the highest Authority in Bangladesh in respect of all direct & indirect taxes including income tax, VAT, customs duties etc. ii. It makes rules according to power given by relevant laws & rules. It is under the Internal resources Division of Ministry of Finance and consists of a Chairman and some members.

Q.2. Mr Zeeshan, Finance Manager in multi-national company, had the following income for the assessment year 2003-2004: Basic Pay Tk. 25,000/- per month House Rent @ 60% of the Basic Entertainment allowance @ 10% of the Basic Medical allowance @ 10% of the Basic Employee's contribution to recognized provident fund @ 10% of the Basic pay.

Bonus—Festival and incentive, equivalent to 2 months Basic pay.

He is provided with a servant and mali at monthly salary of Tk. 3,500 each. He is entitled to 1½ Basic Pay as a gratuity at the time of retirement.

His other incomes are as follows: (1) Dividend from Public Ltd. Company Tk. 1,00,000 (ii) Dividend from Private Ltd. Company Tk- 40,000 (iii) Interest from.5 years Sanchaya Patra Tk. 50,000 (iv) Interest from Savings Bank A/c. Tk. 25,000 where tax deducted at source @ 10% He has constructed a house which was let out at a monthly rent of Tk. 50,000/- p.m. He paid Municipal tax @ Tk. 3,500 per quarter. Interest paid to the Bank‟s loan Tk. 1,50,000 per annum.

Mr. Zeeshan contributed Tk. 30,000 to Provident fund. Interest accrued on the P.F balance amounts to Tk. 1,50,000.

He paid L.I. P. at Tk. 50,000. Purchased 5 years‟ Sanchaya Patra of Tk. 1,50,000.

Please compute his total income and tax liabilities thereon for the assessment year 2003-2004.

Ans. to question No. 2 Mr. Zeeshan Finance Manager Assessment year 2003 — 2004 (a) Computation of Total Income : Taka Taka Taka 1. Salary Income :

Basic Salary = 25,000 x 12 Bonus = 25,000 x 2 House Rent - 60% of Basic Less : Exempted (Note - 1) Entertainment - 10% of Basic Medical Allowance - 10% of Basic (Note-2) ---Employer‟s Contribution to P. F. - 10% of Basic

300,000 50,000 180,000 150,000

30,000 30,000 ----30,000 22,500 84,000

Full Time Car Entitlement - 7.5% of Basic (Note-3) Salary of Servant & Mali-3,500 x 2 x 12 (Note-10)

546,500 2.Income from House Property :

Rent — 50,000 x 12 Less : i. Exemption ¼ Repair, ii. Municipal Tax-3,500 x 4 iii. Interest on Bank Loan

600,000 150,000 14,000 150,000 314,000 286,000

3.Income from other Sources:

i.

Dividend from Public Ltd. Company (Note- 6)

ii. Dividend from Private Ltd. Company (Note-6)

100,000 40,000

iii. Interest from 5 years Sanchaya Patra (Note-7) iv. Interest on Savings Bank Account (Note -8) Total Income Less : Interest from 5 years Sanchay-Patra (Note-7) Total Income on which Tax is to be paid

50,000 25,000 .

215,000 1,047,500 50,000 997,500

(b) Tax Liabilities : (As per Tax Rates of. Finance Act — 2003)

On Tk. 90,000 On the next Tk. 1,50,000 @ 10%

Taka NIL 15,000

On the next Tk. 1,50,000 @ 15%

22,500

On the next Tk. 2,50,000 @ 20% On the Balance Tk. 3,47,500 @ 25% Less : Tax rebate on Investment of Tk. 199,500 @ 15% (Note - 9)

50,000 89,375 1,76,875 29,925 1,46,950

Less : 10% tax deducted on Tk. 25,000 i.e. interest on saving Bank Account (Note-8) 2,500 Net Tax Payable 1,44,450 (c) Notes and Assumptions : 1. The limit of house rent allowance is 50% of the Basic Salary or Tk. 15,000/- p.m. whichever is less.

Therefore, excess amount will be included in the total income.

2. It is assumed that medical expenses received is less than the actual expenses. So, nothing will be included in the total income.

3. It is assumed that the car provided by the employer is for the use of Mr. Zeeshan partly or exclusively for his personal use. So, 7.5% of the basic salary will be included in his total income under Rule 33D. 4. Gratuity will be considered when it is received. Moreover, any amount received by an assessee as gratuity is exempted under the present law.

5. Interest accruing to or derived by a recognised provident fund will be exempted from tax. So, the interest accrued on P.F. amounting to Tk. 150,000/- is exempted from tax.

6. The dividend distribution tax u/s 16D is applicable for dividend declared on or after the 1st July. 2003, and therefore, will not be applicable for this assessment year 2003 -2004. Thus the income from dividend will be included in his total income. There is no information about deduction of tax from dividend. So, income tax will be charged on the total income as per normal rate after, inclusion of dividend income. It is to be mentioned here that for the assessment year 2003-2004, any dividend upto the amount of Tk. 25,000/- received from a listed company is exempt, but if it exceeds Tk. 25,000/-, the whole amount will be included in total income. It is also not mentioned whether the shares of the said public company is listed with any stock exchange of Bangladesh. No exemption for dividend from Private Co. 7. It is assumed that said interest income is gross amount on which tax has been deducted @ 5% u/s. 52D which will be treated as final settlement u/s. 82(C) of ITO 1984.

Therefore, this has been included in total income, but not considered for tax computation.

8. Income tax at the rate of 10% deducted at source on interest from savings bank account will be claimed at the time of submitting I.T. Return.

9. Investment allowance is limited to Tk. 200,000/- or 20% of total income whichever is less. Here, his total income is Tk. 997,500 and 20% of this amount will be Tk. 199,500/-. But, his investment is as follows : i.

P.F. Contr ibution T k. 30,000 x 2 60,000 ii.

L.I.P 50,000 iii.

5 year s Sanchaya Patra 150,000 Tk. 260,000 So, his investment allowance is Tk. 199,500/10. The salary of servant and mali will be included to his total income from salary as per the Rule 33 J.

Q.3. (a) What are the provisions of Income tax law forget off of losses?

Ans. to Question No. 03 (a) Section 37 provides that when an assessee sustains a loss in any year under any heads of income, such as income from property, interest on securities, business or profession, agricultural income and other sources, he is entitled to set off the loss so sustained against his income under any other heads in that year. However, any loss on speculative transaction can only be set off against the income from speculative business and any loss on capital gains can be set off only against capital gains.

Q.3. (b) What are the provisions of law for carry forward of loss under the head “Capital Gains”?

Ans. to Question No. 03 (b) Section 40 provides that loss under the head “Capital gains” can be set off against income from the same head during the income year. If the loss cannot be set-off wholly in the above manner, the loss not so set-off can be carried forward to the next assessment year and set-off against income under the same head in that year. The loss can be carry forward upto six successive assessment year. If such loss does not exceeds Tk. 5,000/-, it shall not be carried forward.

Q.3.(c)What are the provisions of law for filing appeal before Taxes Appellate Tribunal by an assessee?

Ans. to Question No. 03 (c) Section 158 provides that an assessee may appeal to the Appellate Tribunal if he is aggrieved by an order of an Appellate Joint Commissioner or the Commissioner (Appeals) under section 128 & 156.

However, no such appeal shall be filed unless the assessee has paid 15% of the difference between tax as per return (u/s 74) and tax as per order of Appellate Joint Commissioner or Commissioner (Appeals).

Such appeal shall be filed within sixty days of the date on which the order sought to be appealed against is communicated to the assessee or to the Commissioner. However, the Tribunal may admit an appeal after the expiry of sixty days if it is satisfied that there was sufficient cause for not presenting the appeal within that period.

Such appeal shall be prepared in a prescribed form and be accompanied by a fee of Five hundred Taka.

Q.3.(d)What are the provisions of law for filing appeal before Taxes Appellate Tribunal by the Deputy Commissioner of Taxes Ans. to Question No. 03 (d) The Deputy Commissioner of Taxes may with the prior approval of the Board, prefer an appeal to the Appellate Tribunal against the order of Appellate Joint Commissioner or the Commissioner (Appeals) under section 156. All provisions as stated in (c) above requires for an assessee shall also be applicable for DCT except no fee will be required to pay for filing an appeal by the DCT (tax department).

Q.4.(a) Mr. John, a foreign national, Stays in Bangladesh for 85 .days during financial year 2003-2004. Determine his residential status for the assessment year 2 004-2005 on the assumption that he stayed in Bangladesh previously as follows: Assessment year 1998-1999 16 days 1999-00 360 days 2000-01 181 days 2001-02 305 days 2002-03 65 days 2003-04 1 0 0 da y s Ans. to question No. 04 (a) To become a „Resident‟ in Bangladesh in any income year, an individual must stay in Bangladesh for periods of 182 days or more in that income year or for a period of 90 days in that income year including 365 days or more during four years preceding that year.

In the income year 2003-2004 i.e. assessment year 2004-2005, Mr. John will be considered “Non-Resident” though he has previously been in Bangladesh for a periods in all more than 365 days during 4 years preceding that year as he stayed 85 days instead of 90 days in that income year.

Q.4.(b)In what ways taxation rates in Bangladesh differ in case of a resident and non- resident?

Ans. to question No. 04 (b) A non-resident individual shall pay tax at maximum rate of 25% an whole income without any deductible allowances but a resident individual shall pay tax at slab rates on total income (computed after deduction of allowances).

Q. 5. (a) Who is to pay VAT u/s 3(3)?

Ans. to question No. 05 (a) U/S 3(3) of VAT Act 1991, Value Added Tax will be paid : i. by the importer, at the import stage on goods imported ;

ii. by the supplier, in the case of goods manufactured or produced in Bangladesh at production stage; iii. by the provider of services, at the time of service provided and iv. by the supplier, in other cases.

Q.5.(b)What is turnover tax? Who is to pay turnover tax?

Ans. to question No. 05 (b) Turnover means all money obtainable or obtained for supply of produced or manufactured taxable services by any person for a particular period. So, Turn-Over Tax (TOT) means tax paid in respect of turnover.

As per section 8 of VAT Act 1991, any provider (manufacture or trader) of taxable goods or services, who is not required to be registered u/s 15 has to pay TOT @ 4% on the basis of annual turnover i.e. if turnover is below Tk. 20 lac, he has to pay TOT@ 4% on goods & services provided as per SRO No. 120 law/2002/345 VAT dated 6th June, 2002. However, he can pay VAT instead of TOT though his annual turnover do not exceed Tk. 20 lac.

Q.5.(c) What is the procedure of payment of turnover tax?

Ans. to question No. 05 (c) The following are the procedures for payment of turnover tax. i. If the yearly turnover is less than 20 lac Taka for a supplier of taxable goods or services, tax must be paid on the yearly turnover at the rate of 4% as turnover tax. ii. If any person is required to pay turnover tax, he shall submit an application for enlistment in Form VAT-6 by its own option or by request in a writing from any value added tax officer. Thereafter, the superintended after taking necessary action, will enlist the applicant and give a certificate to that effect in Form VAT-8. iii. Any person enlisted, will have to pay turnover tax from the date of their enlistment. iv. The enlisted person can pay turnover tax to VAT office and deposit Taka 10,000 (ten thousand) in the treasury within 30 days of their enlistment. v. If the enlisted person want to pay turnover tax quarterly, he must submit a letter to-the local VAT office and deposit 2% tax on three monthâ€&#x;s turnover before expiry of said three months within 15 days from the date of their enlistment. vi. In the case of a failure to pay turnover tax, the superintendent can impose penalty up to a maximum of Taka one thousands and an additional two percent tax on unpaid amount due from the enlisted person. vii. In order to ascertain the actual yearly amount of turnover, the divisional officer will direct any subordinate VAT officer to enter the place of manufacture or production or place of giving service, of the person, at any time to examine related papers and files and complete an evaluation and on the basis of this examination and evaluation of papers and documents, the divisional officer will fix the turnover amount of the person. viii. An enlisted person can file an appeal to the Commissioner (Appeal) against any order of decision of the divisional officer or superintendent. ix. Turnover tax and any other dues will be realised in accordance with section 55 of the Act. x. In the case of excess payment of turnover tax by error or by excess payment or due to any other reason, this shall be refunded in accordance with section 67 of the Act. Q.6.(a)What are the provisions with regard to maintaining the accounts under the Value Added Tax Act. 1991?

Ans. to Question No. 6 (a) The procedure for Maintaining Accounts under VAT Act 1991 are as follows: All registered persons will preserve and keep at their place of business the following records in the forms and according to procedures of supplies or services given by the business or by its representative in order to ascertain the tax liability for any tax period : i. Statement of purchases of taxable or exempted goods or services together with the invoices for the goods or services. ii. Statement of taxable or exempted goods or services supplied or statement of such goods or services exported and copies of the related invoices. iii. Cur r ent Accou nt. iv. Statement of money deposited in the treasury or in any approved bank of the Government for this purpose in payment of any Value Added Tax or Supplementary Duty. v. Statement of stock of received and produced and manufactured goods. vi. Such documents as may be required by the Act. The Board by Government Gazette notification reserves the right to determine the kinds of documents to be preserved by all or any class of importer or exporter. vii. The Board by Notification in Government Gazette, determine the types of books or file are required to be maintained by the exporter and importer.

Q. 6. (b)How are the values of goods and services determined for imposition of VAT? Ans. to Question No. 6 (b) -

The values of goods and services for imposition of VAT are as follows : i. In case of importation of goods, the amount on which the Value Added Tax is payable shall be determined by adding the amount of import duty and supplementary duty along with any other duty and tax (if there is any) except advance income tax. ii. The Value Added Tax which will be payable upon the cost of goods supplied, which is the price of the goods the manufacturer or producer or trader will receive from the buyer, and includes all cost of manufacture or production or, where applicable, any commission paid, charge and supplementary duty along with other duties and rates except Value Added Tax. Provided that, in cases where goods subject to value added tax are manufactured with imported material, input tax credit is taken. iii. Any person who is registered for value added tax, acquires goods in any way from any other person under a contract or sub-contract and sells those goods themselves or sells them through their own sales centre, shall account for value added tax on the basis of the price received from the consumer of such goods. iv. Where Value Added Tax is to be imposed on the basis of the retail price of goods, the Government by Gazette notification will be able to fix the retail price of those goods upon which value added tax will be imposed and this will be calculated by the proper officer which will include all kinds of expenditure, commission charge, duties and taxes and, that commodity after being specially branded or described will be sold at that price to the consumer (the price must be printed clearly and legibly on the surface of the goods, or on their packet, bag etc.) v. In the case of services, Value Added Tax will be imposed on the total receipts.

Provided that, in case of providing any specific service, the Board by order, will be able to determine the amount of Value Added Tax on the basis of a rate fixed for addition of cost or actual addition of cost. vi. In the case of goods on which trade discount is allowed, the amount of value added tax will be based on the cost of the goods after deduction of trade discount.

Provided that. in case where goods are supplied at a discount, the cost and the amount of the discount will be shown on the invoice and the quantity of trade discount must be consistent with the normal business policy. vii. If the Board, on consideration of national interest and after any necessary inquiry, becomes satisfied that the fixation of a tariff value is necessary in order to determine Value Added Tax, or where applicable, Value Added Tax and supplementary duty in case, of taxable goods or services, then the Board will be able to fix a tariff value for the taxable goods or services by an order to be issued in a Gazette notification.

Q.6.(c) What are the procedures and time for payment of VAT? Ans. to Question No. 6 (c) The procedure and Time for Payment of VAT are as follows : a. Value Added Tax on imported goods will be paid at the same time and in the same manner as import duty as per Customs Act. b. Value Added Tax will be payable on goods produced, manufactured or imported or otherwise acquired in any manner by any registered person in the course of supply by that registered person carrying on business at the time of one of the following activities whichever occurs first : i. When the goods are delivered or supplied. ii. When an invoice relating to the goods is issued. iii. When any goods are used personally or given for use to another person. iv. When part or full payment is received at the time of one of the following activities whichever occurs first :  When the service is provided.  When an invoice relating to the service is issued.  When part or full payment is received. c. The Board will be able to fix the time of payment and the procedure to pay Value Added Tax, or where applicable, supplementary duty, on any goods or services.

Suggested Answers Professional Examination-I Taxation-I November-December-2004 (Question solved according to the provision of Finance Act-2006 and law implications of assessment year 2006-07) Q. 1. Define the following in relation to Income Tax Ordinance, 1984: (a) Salary; Ans. Question No. 01 (a) Salaries As per section 21 of the Income Tax Ordinance, 1984: (1) The following income of an assessee shall be classified and computed under the head “Salaries” namely: a. any salary due from an employer to the assessee in the income year, whether paid or not; b. any salary paid or allowed to him in the income year by or on behalf of an employer though not due or before it became due to him; and c. any arrears of salary paid or allowed to him in the income year by or on behalf of an employer, if not charged to income-tax for any earlier income year.

(2) Where any amount of salary of an assessee is once included in his total income of an income year that amount shall not be again be included in his income of any other year Q.1.(b) Non-resident Assessee; Ans. Question No. 01 (b) Non-resident Assessee 1. According to Income Tax Ordinance, 1984, a person regardless of nationality shall be treated non-resident assessee if the following conditions are not fulfilled: As per section 2(55) “resident” in respect of any income year, meansa. an individual who has been in Bangladeshi. minimum one hundred and eighty days in the income year, or ii. minimum ninety days in the income year and minimum three hundred sixty-five days in the preceding four years of the income year. b. a Hindu undivided family, firm or other association of persons, the control and management of whose affairs is situated wholly or partially in Bangladesh in the income year; and c. a Bangladeshi company or any other company the control and management of whose affairs is situated wholly in Bangladesh in the income year.

Q. 1. (c) Perquisite; Ans. Question No. 01 (c) Perquisite As per section 2(45) of the Income Tax Ordinance 1984, “Perquisite” means i. any payment made to an employee by an employer in the form of cash or any other form excluding basic salary, festival bonus, incentive bonus not exceeding 10% of disclosed profit of relevant income year, arrear salary, advance salary, leave encashment or leave fair assistance and overtime, and ii. any benefit, whether convertible into money or not, provided to an employee by an employer, called by whatever name, other than contribution to a recognized provident fund, approved pension fund, approved gratuity fund and approved superannuation fund.

Q.1 . (d) Double Taxation Relief; Ans. Question No. 01 (d) Double Taxation Relief 1. The Government may enter into an agreement with the Government of any other country for avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income leviable under ITO, 1984 and under the corresponding law in force in that country.

2. Where any such agreement made with the Government of any country, they provide fora. relief from the tax payable under this ordinance; b. determining the income accruing or arising, or deemed to be accruing or arising, to nonresidents from sources within Bangladesh; c. determining the income attributable to operations carried on in Bangladesh or outside Bangladesh;

d. determining income to be attributable to resident in Bangladesh having any special relationship with non-resident; e. recovery of tax leviable under this Ordinance and under the corresponding law in force in that country; f. exchange of information for fiscal evasion and avoidance of tax.

Q.1.(e) Annual Value Ans. Question No. 01 (e) Annual Value As per section 2(3) of the Income Tax Ordinance 1984, “annual value� shall be deemed to bea. in r ela t ion t o a ny pr op er t y let out, - b . the sum for which property might reasonably be expected to let from year to year; or c. where the annual rent in respect thereof is in excess of the sum referred to in paragraph (i), the amount of the annual rent.

Q. 2. Discuss briefly the differences between the assessments made under sections : (i) 82 A and 83. (ii) 82 and 82B. (iii) Under what circumstances an assessee shall be prosecuted?

Ans. Question No. 2 (i) The differences & procedures between assessment under simplified procedure (under section 82A and assessment after hearing (under section 83) are described below: Assessment under simplified procedure (u/s 82A): 1. Where, an assessee, other than a public limited company as defined in the Companies Act. 1913 or the Companies Act, 1994, who has previously been assessed for any assessment year ended on or before the thirtieth day of June, 1995, files a return showing income for the income year relevant to the assessment year commencing on or after the first day of July, 1995 and ending on or before the thirtieth day of June 1997 and the income show in such return is higher by not less than ten per cent over the last assessed income and has also increased by at least further sum of ten per cent for each preceding assessment year in respect of which the assessment is pending, the return filed by the assessee shall be deemed to be correct and complete, and the DCT shall assess the total income of the assessee on the basis of such return and determine the tax payable by him on the basis of such assessment, and communicate the assessment order to the assessee within thirty days next following, provideda. he has, at the time of filing such return, made payment of the tax on the basis of the return. or taka twelve hundred, whichever is higher, and the assessment on the basis of such return shall not result in any refund; and b the net accretion of his wealth, if he is not required to submit state ment of assets and liabilities under section 75(2)(d), along with his disclosed family expenses and taxes paid during the year, shall not exceed the income disclosed for the year and the income or receipt, if any exempted from tax.

Assessment after hearing (u/s 83): 1. Where a return or revised return has been filed and the Deputy Commissioner of Taxes( DCT) is not satisfied without requiring the presence of the person who filed the return or the production of evidence that the return is correct and complete, he shall serve on such person a notice requiring him, on a date to be therein specified, to appear before the DCT, or to produce or cause to be produced before him or at his office, any evidence in support of the return.

2. The DCT shall, after hearing the person appearing, or considering the evidence produced in pursuance of the notice under sub-section (1) and also considering such other evidence, if any, as he may require on specified points, by an order in writing assess, within thirty days after the completion of the hearing or consideration, as the case may be, the total income of the assessee and determine the sum payable by him on the basis of such assessment, and communicate the order to the assessee within thirty days next following. (ii) The differences & procedures between assessment on correct return (under section 82) and assessment on the basis of return (under section 82B) are described below: Assessment on correct return (u/s 82): 1. Where a return or revised return has been filed and the Deputy Commissioner of Taxes is satisfied, without requiring the presence of the assessee or the production of any evidence, that the return is correct and complete, he shall assess the total income of the assessee and determine the sum payable by him on the basis of such return and communicate the assessment order to the assessee within thirty days next following: -

Provided that a return filed by an assessee, being.  a company not less than thirty per cent whose paid up capital is owned by persons other than Bangladeshi; or  a company incorporated by or under any law of a country outside Bangladesh; or  a public limited company; or  a body corporate established or constituted by or under any law for the time being in force; or  any nationalized banking, insurance or other financial institution.

Shall be deemed to be correct and complete if the return is accompanied by a certified copy of the accounts of the assessee audited by a Chartered Accountant and a certificate as to the correctness of the total income of the assessee, signed and issued by the Chartered Accountant himself in the prescribed form.

Provided further that such return shall be filed on or before the date specified in section 75(2) (c);  the amount of tax payable shall be paid on or before the date on which the return is filed;  such return does not show any loss or lesser income than that of the last assessed income, or assessment on the basis of such return does not result any refund; 2.Notwithstanding anything contained in sub-section (1) and section 93, the Board or any authori zed subordinate to the Board, if so authorized by the Board in this behalf, may select, in the manner to be determined by the Board, refer the return so selected to the DCT for the purpose of audit and the DCT shall thereupon proceed, if so required, to make the assessment under section 83 or section 84 as the case may be.

Assessment on the basis of return (u/s 82B): 1. Notwithstanding anything contained in the income Tax Ordinance, 1984, the Board may direct that any return of income filed by an assessee or class of assessee or classes of assessee for any income year under any provision of this Ordinance be accepted.

2. Where a return of income for any income year is directed to be accepted under sub-section (1), the DCT shall receive such return himself or cause to be received by any other official authorized by him and issue a receipt of such return with signature and official seal affixed thereon and the said receipt shall be deemed to be an order of assessment under section 82 for the assessment year for which the return is filed.

3. Notwithstanding anything contained in sub-section (1) and section 93, the Board or any authorized subordinate to the Board, if so authorized by the Board in this behalf, may select, in the manner to be determined by the Board, refer the return so selected to the DCT for the purpose of audit and the DCT shall thereupon proceed, if so required, to make the assessment under section 83 or section 84 as the case may be. (iii) Under the following circumstances an assessee shall be prosecuted: Punishment for non-compliance of certain obligations (u/s- 164)A person is guilty of an offence punishable with imprisonment for a term which may extend to one year, or with fine, or with both, if he, without reasonable cause,a. fails to deduct or collect and pay any tax as required under Chapter VII of the Ordinance and fails to deduct and pay tax on attachment notice issued by the DCT under section 143(2): b. fails to produce accounts and evidences and statements as required under Chapter VIII of the ordinance or under section 83; c. fails to furnish return of income as required u/s 75 or 77 or 93: d. refuses to permit inspection etc. as mentioned in section 114; e. fails to afford facilities or furnish information in connection with survey work u/s 115; f. refuses to permit search and seizure u/s 117 or rendering of obstruction therefore.

Punishment for false statement in verification, etc (u/s- 165)A person is guilty of an offence punishable with imprisonment for a term which may extend to three years but shall not be less than three months, or with fine, or with both, if hea. makes false verification in any return or documents furnished under this Ordinance; b. aids or abets etc. to make or submit false return etc; c. submits false certificate issued and signed by a Chartered Accountant as mentioned in the first or second proviso of section 82; d. refuse to furnish information as may be necessary for the purpose of survey u/s 115.

Punishment for concealment of income, etc (u/s- 166)A person is guilty of an offence punishable with imprisonment for a term which may extend to five years but shall not be less than three months, or with fine, or with both, if he conceals the particulars, or deliberately furnishes inaccurate particulars, of his income.

Punishment for disposal of property to prevent attachment, etc (u/s- 167).

The owner of any property, or a person acting on his behalf or claiming under him, is guilty of an offence punishable with imprisonment for a term which may extend to five years or with fine, or with both, if he sells, mortgages, charges, leases or otherwise so deals with the property after the receipt of a notice from the Tax Recovery Officer as to prevent its attachment by that Officer.

Punishment for disclosure of protected information (u/s- 168)A public servant, or any person assisting, or engaged, by any person acting in the execution of this Ordinance, is guilty of an offence punishable with imprisonment for a term which may extend to six months or with fine, if he discloses any particulars or information in contravention of the provision of section 163.

No prosecution shall be instituted except with the prior sanction of the National Board of Revenue.

Q.3.(a)When an assessee who has previously been assessed and who has not been previously assessed should pay advance tax?

Ans. Question No. 03(a) As per section 64, advance tax shall be paid by an existing assessee in accordance with the provisions of the Ordinance, if the total income of the assessee for the latest income year in respect of which he has been assessed by way of regular assessment, or has been provisionally assessed under this O r d i n a n c e, o r t h e I n c o m e T a x A c t , 1 9 2 2 ex c e e d s t a k a t w o l a k h .

As per section 68, any person who has not been previously been assessed by way of regular assessment, shall before the fifteenth day of June in each financial year, if his total income (except agricultural income and capital gains) of the period which would be the income year for the immediately following assessment year is likely to exceed taka two lakh, send to the DCT an estimate of his total income and advance tax payable by him calculated in the manner laid down in section 65 and shall pay such amount on such dates specified in section 66 as have not expired by installments which may be revised according to section 67(2).

Under both the circumstances, advance tax shall be payable in four equal installments on the fifteenth day of September, December, March and June of the financial year for which the tax is payable.

Q.3.(b)Under what circumstances an assessee paying advance tax will pay simple interest and at what rate and for what period?

Ans. Question No. 03 (b) As per section 73, assessee being in default in payment of advance tax shall pay simple interest and the rate including period shall be as under: 1. Where, in any financial year, an assessee has paid advance tax on the basis of his own estimate and the advance tax so paid together with the tax deducted at source, if any, under this Chapter is less than seventy five per cent of the. amount of tax payable by him as determined on regular assessment, the assessee shall pay, in addition to the balance of tax payable by him, simple interest @ 10% per annum on the amount by which the tax so paid and deducted falls short of the 75% of the assessed tax.

2. The period for which interest under sub-section (1) shall be payable shall be the period from the first day of July of the year in which the advance tax was paid to the date of regular assessment in respect of the income of that year or a period of two years from the said first day of July, whichever is shorter.

3. Notwithstanding anything contained in sub-section (1 ) and (2), where— a. Tax is paid under section 74, or b. Provisional assessment has been made u/s 81, but regular assessment has not been made, The simple interest shall be calculated in accordance with the foregoing provisions. i. up to the date on which tax u/s 74 or as provisionally assessed, was paid; ii. thereafter, such simple interest shall be calculated on the amount by which the tax was so paid falls short of the said assessed tax.

4. Where, as a result appeal, revision or reference, the amount on which interest was payable under sub-section (1) has been reduced, the amount of interest payable shall be reduced accordingly and the excess interest paid, if any, shall be refunded together with the amount of tax that is refundable.

Q.3.(c) What are the changes made in Finance Act, 2004 in respect of the following ? (i) Deductions from income from house properties— Section-25 clause (h) of subsection-(1); (ii) Collection of tax from clearing and forwarding agents--Section 52AAA; (iii)Deduction at source from house property—Section 53A; (iv) Tax on income of certain person—Section-82C; (v) Time Limit for Commissioner of Appeal Order— Section-156.

Ans. Question No. 03 (c)

The changes made in Finance act, 2004 in respect of the following: i. Deductions from income from house properties (Section-25, clause (h) of sub-section (1) In respect of allowable expenditure for repairs, collection of rent, water & sewerage, electricity and salary of darwan, security guard, pump-man, lift-man and caretaker and all other expenditure related to maintenance and provision of basic services; a. an amount equal to one fourth of the annual value of the property where the property is used for residential purpose; b. an amount equal to thirty per cent of annual value of the property where the property is used for commercial purpose. ii. Collection of tax from clearing and forwarding agents-section 52AAA The Commissioner of Customs shall make collection on account of commission receivable by clearing and forwarding agents licensed under Customs Act 1969 at the rate of five per cent on such commission at the time of clearance of goods imported or exported. iii. Deduction at source from house property - section 53A Where, the Government or any authority, corporation or body, including its units, the activities or the principal activities of which are authorized by any Act, Ordinance, order or instrument having the force of law in Bangladesh or any company as defined in clause (20) of section 2, or any banking company or any co-operative bank established by or under any law for the time being in force or any non-governmental organization run or supported by any foreign donation or assistance or any university or medical college or dental or engineering college is a tenant shall deduct from the house rent paid or payable as advance tax such amount as may be prescribed. iv. Tax on income of certain person - section 82C New clauses inserted u/s 82C as parts of final settlement of tax liability which are stated below:  the amount representing the payable on account of royalty, technical know-how fee for which tax is deductible u/s 52A(2);  commission from clearing and forwarding agency business for which tax is ded uctible u/s52AAA. v. Time limit for Commissioner of Appeal - section 156 On the disposal of an appeal, the Appellate Joint Commission or the Commission (Appeals) shall communicate the order passed by him to the appellant, the DCT and the Commissioner wit hin fifteen days of the passing of such order.

Q. 4. How will you compute the income in respect of Tea and Rubber Industries?

Ans. Question No. 04 The computation of income in respect of Tea & Rubber Industries is shown as below: Computation of income derived from the sale of tea (Rule 31): Income derived from the sale of tea grown and manufactured by the seller in Bangladesh shall be computed as if forty percent of such income was derived from business and sixty percent of such income was derived from agriculture: Provided that in computing such income from business an allowance shall be made in respect of the cost of planting bushes in replacement of bushes that have died or become permanently useless in an area already planted, unless such has previously been abundant: Provided further that in computing such income and allowance shall be made in respect of the expenditure incurred in the income year by the assessee in connection with the development of the new areas for bringing them under tea cultivation.

Computation of income derived from the sale of rubber (Rule 32): Income derived from the sale of rubber grown and manufactured by the seller in Bangladesh shall be computed as if forty percent of such income was derived from business and sixty percent of such income was derived from agriculture: Provided that in computing such income an allowance shall he made in respect of the expenditure incurred in the income year by the assessee in connection with the development of the new areas .for bringing them under rubber cultivation.

Q.5 Please describe the procedure for completion of assessment u/s 83 (2) with all the alternatives and the circumstances for best judgement assessment.

Ans. Question No. 05 The procedure for completion of assessment u/s 83(2) is enumerated below: 1. Where a return or revised return has been filed under Chapter VIII and the Deputy Commissioner of Taxes (DCT) is not satisfied without requiring the presence of the person who filed the return or the production of evidence that the return is correct and complete, he shall serve on such person a notice requiring him, on a date

to be therein specified, to appear before the DCT, or to produce or cause to be produced before him or at his office, any evidence in support of the return.

2. The DCT shall, after hearing the person appearing, or considering the evidence produced in pursuance of the notice under sub-section (1) and also considering such other evidence, if any, as he may require on specified points, by an order in writing assess. within thirty days after the completion of the hearing or consideration, as the case may be, the total income of the assessee and determine the sum payable by him on the basis of such assessment, and communicate the order to the assessee within thirty days next following.

Alternatively, where a return or revised return has been filed and the Deputy Commissioner of Taxes is satisfied, without requiring the presence of the assessee or the production of any evidence, that the return is correct and complete, he shall assess the total income of the assessee and determine the sum payable by him on the basis of such return Under the following circumstances, the DCT shall, by an order in writing assess the total income of the assessee to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment: Where any person fails— a. to file the return required by a notice under section 77 and has not filed a return or revised return under section 78; or b. to comply with the requirements of a notice under section 79 or 80; or c. to comply with the requirements of a notice under section 83(1).

Q.6.(a) What are the provisions of law for determination of value under section 5 of Value Added Tax Act, 1991?

Ans. to Question No. 6 (a) Computation of Value for charging of VAT In case of Import: L/C value of imported goods shall be the transaction value as determined under section 25 or 25A of the Customs Act plus import duty, supplementary duty except advance tax.  The value of any imported or exported goods shall be deemed to be the price at which such or like goods are ordinarily sold, for delivery at the time and place of importation or exportation as the case may be;  Notwithstanding anything contained in this section, the Govt., may, by notification in the official Gazette, fix, or the purpose of levying customs duties, tariff values or minimum values for any goods imported or exported as chargeable with customs duty; Provided that in case of any imported or exported goods, the declared value of which is higher than its tariff value fixed under the sub-section, shall be chargeable with customs duties on the basis of its declared value.  Govt., may appoint pre-shipment inspection agencies who may declare the quality, quantity, price, description and customs classification of the goods and may determine the price as per their certification.

In case of goods manufactured: The price shall be the consideration receivable from buyer by the producer or business person, which will include purchase price of materials and all expenditure incurred by the manufacturer and also commission, charges, fees and all supplementary duty excluding VAT. Provided that in order to determine base for computing VAT, the Board can fix through notification in official gazette VAT rate and amount/quantity in respect of certain goods and class of goods.

The Govt., shall, through official gazette notification determine price of the goods, which is sold at retail price.

In case of supplied: VAT shall be charged on the total money received/receivable on the goods in a specific period as determined by the rule.

In case of services: VAT shall be charged on total money receipts. The Board may also determine value or rate for this purpose by notification in official gazette.

Apart from the above, there are truncated rates of VAT on some specific services where value addition is pre-fixed.

VAT shall be charged on the value of goods supplied after deducting trade discount if any, provided that the value for which goods are supplied allowing trade discount has to be mentioned in the challan and the amount of trade discount has to be in line with the general business practice.

Notwithstanding anything contained in this section the Board can determine the tariff value of any taxable goods or service through office gazette notification for the purpose of charging VAT or VAT & supplementary duty, considering public interest and when satisfied after making proper inquiry.

Q.6.(b) What accounting and other records are to be kept (i) under section 31 of Value Added Tax Act, 1991?

Ans. Question No. 06 (b) (i)

As per section 31 of VAT Act 1991, every registered person for determining his tax liability in a certain tax period has to maintain, keep in store the following books and record in the form and manner prescribed by the rules related to the goods or services bought, sold, supplied or rendered by him or by his agent. a. Statement of purchase together with challans of all taxable and exempted goods or services: b. Statement of supply of all taxable and exempted goods or services together with challans; c. Current account for payment of VAT: d. Statement of money deposited into the treasury through challans or to any bank approved by the Government for this purpose: e. Statement of stock of imports and finished goods; ee. Commercial documents related to taxable or exempted goods or supplies: f. Books and records prescribed by rules; Provided that the Board through official gazette notification can prescribed the manner and the type of books and records to be mentioned by registered person.

Q.6.( b) What accounting and other records are to be kept (ii) under Rule 22 of Value Added Tax Rule of 1991?

Ans. Question No. 06 (b) (ii) As per rule 22 of VAT Act 1991, any registered person shall maintain properly the following books at the place of production or manufacture of goods or business: a. Books for Purchase: Information relating to purchase of taxable and exempted goods or services shall be maintained in this book in form „Mushak-16‟; b. Books for Sales: Information relating to supply of taxable and exempted goods or services or exports in form „Mushak-17‟; c. Books for Challans: Printed and pre numbered challan shall be maintained as per forms „Mushak-11‟ and „Mushak-1la‟ whatever applicable in such a way that no page of it can be released without tearing off and; d. Books for Current Account: Records of transactions, output tax payable, deposit into treasury, amount of debatable input tax and related information shall be recorded in this book as per form „Mushak-18‟ The Board on the application of the registered person can permit maintain computerized books of accounts regardless of the provisions of rules stated above on condition of preservation of computerized copy of accounts at the place of production, manufacturer or business or any other condition specified by the Board.

Any registered person shall maintain the accounts of production or manufacture of goods or raw materials, services, machinery or parts thereof used in the supplied of services or any bill paid by him or any treasury deposit or accounts related to production or manufacture of goods in an easily auditable manner.

Q. 7. (a) What are the provisions of law for offences and penalty under section 37 of Value Added Tax Act, 1991?

Ans. Question No. 7 (a) The following are the provisions of law for offences and penalty u/s 37 of VAT 1991 : 1) If any persona. fails to apply for registration under this Act even when it is necessary for him to apply, or b. fails to file returns within prescribed time, or c. fails to inform the VAT officer about any change related to registration, or d. fails to comply with the directive of any summon u/s 25, or e. violates any other provision of this Act f. would be penalized for an amount not exceeding Tk. 50,000 with a minimum of Tk. 5,000.

2) If any persona. does not issue challans or issue challans incorrect on substantive ground or aa. fails to pay VAT or VAT & supplementary duty when applicable, in spite of the order of the concerned officer twice or fails to file return for any tax period even after the expiry of the prescribed time, or b. submits returns incorrect on substantive grounds, or c. evades or attempts to evade tax through submission forged or false documents to VAT officer; d. does not preserve any record required to be preserved under this Act or rules or destroys or alters such records or shreds those or does not preserve records in accordance with the provisions of this Act, or e. offer false statement or declaration with full k nowledge; f. obstructs or restrains any VAT officer to inspect or seize any records, books or others documents; g. engages in accepting or acquiring or transacting on any goods knowingly or reason to believe that VAT or supplementary duty payable on the goods evaded; h. receives input tax rebate through false or forged challans; i. evades or attempts to evade VAT or supplementary duty in any other means;

j. issues challans stating therein the amount of VAT even without being a registered person; jj. does not do anything as required or does something as not required under sub-section (4a) of section 6; JJJ. releases goods without maintaining the balance in the current account for paying output tax or adjusting against the deposit of money and input tax rebate, required under this Act or the rules; k. does or abates in doing any activity stated in clauses (a) to (jjj) would be penalized: i. minimum 50% of VAT or VAT and supplementary duty but does not exceedi ng Tk. 2 times of the said amount; ii. minimum imprisonment of 3 months but not exceeding 2 years, if the guilty proved by the court of Magistrate or both. iii. minimum Tk. 10,000 and maximum Tk. 300,000, in case of other irregularities excluding tax evasion.

(3) If any registered services provider fails to submit the returns or pay off the VAT or VAT and supplementary duty if applicable, shall pay the liabilities together with 2% interest per month as additional tax; 3A)The above interest charging shall not prejudice effectiveness of any provision relating to punishment of this law; 4) Notwithstanding anything contained in the Act, if a registered person fails pay VAT or VAT and supplementary duty, within 3 months of the expiry of tax period, even after being noticed twice or does any offence twice within 12 months as per section 38(2) or fails to register himself within 1 month from the date of received of the order for compulsory registration u/s 15(4) thena. in the case of registered person, his business premise can be closed and his registration can be cancelled, and b. in the case of a person required to be registered, his business premise can be closed.

5) Penalty under this Act cannot be imposed upon a person except penalty imposed by any court of Magistrate or his premise cannot be locked or registration cannot be cancelled without giving the concerned person reasonableopportunity of being heard.

Q.7. (b) What are the provisions of law under section 42 of Value Added Tax Act, 1991 for appeals?

Ans. Question No. 07 (b) The provisions of law for appeal u/s 42 of VAT 1991 are as follows : 1) If any person (including VAT officer) aggrieved by any decision taken or order issued under this Act or

under any rule, can appeal against the decision or order within 3 months of such order or decision (other than seizure of goods u/s 56 of VAT and u/s 82 or 48 of Customs Act): a. to the Commissioner (Appeal), when such order given by the Additional Commissioner or any VAT officer subordinate to him; and b. to the Appellate Tribunal constituted u/s 196 of the Customs Act, hereinafter called Appellate Tribunal when such order is given by the Commissioner (Appeal) or by any other VAT officer equivalent to his status or rank. la) After accepting appeal under sub-section 1 abovea. if the appeal is preferred to the Commissioner (Appeal), he can make necessary inquiry or collect information which he thinks suitable and can uphold or alter or cancel or take new decision or order as he thinks fit after giving the application the opportunity of being heard.

The Commissioner (Appeal) can extend for another 2 months if he is satisfied that the applicant has sufficient cause for not being able to apply within the said 3 months.

If the appeal is preferred to the Appellate Tribunal, notwithstanding anything contained in the Act regarding Appellate Tribunal, provision mentioned in the Customs Act for Tribunal will be followed for settlement of the appeal.

2) At the time of preferring the appeal under sub-section (1), amount to be paid to the Govt. treasury as under: a. 10% of the demand if preferred before the Commissioner (Appeal): or b. 15% of the demand if preferred before Appellate Tribunal.

3) No appeal under sub-section (1) can be made against any claim or order after commencement of proceeding taken by the Board u/s 43; 4) Notwithstanding anything contained in this Act, the appeal shall be deemed to be accepted if the Appellate Authority fails to give the order within 9 months from the date of receiving of the appeal under subsection (1) 5) Any unsettled appeal or appeal at the implementation stage which is filled before 1st October 1995 shall be disposed off in accordance with the manner stated in section 196 of the Customs Act. Q.7. (c) Differentiate between Value Added Tax and Turnover Tax. Ans. Question No. 07 (c) Differences between Value Added Tax and Turnover Tax are stated below:

Particulars

Introduction

Percentage Rebate

Value Added Tax Value Added Tax was introduced in Bangladesh in 1991. All goods and services provided or supplied or Imported intoor exported outside Bangladesh should be within the VAT net.

15% on value addition Rebate is applicable for input at output stage

Turnover Tax _ Person other than those specified by National Board of Revenue (NBR) through official gazette notification, who produce taxable goods or provide taxable services but not required to register under section 15 of the VAT Act, 1991, and having annual turnover of less than Tk 20 lakhs shall have to enlist with the superintendent and to pay 4% as turnover tax.

4% on turnover No rebate is applicable

Duty drawback

Registered person is entitled to get duty drawback against export

Registered person is entitled to get duty drawback against export, even if registered under Turnover Tax

Turnover Ceiling for Registration

Registration can be done for Any amount of turnover

If turnover does not exceeds Tk. 20 Lac, any person can register under Turnover Tax

Suggested Answers Professional Examination –I Taxation - I May - June — 2005 Q.1.(a) State the provisions with regard to ‗Settled Liability Scheme‘ as per section 82C of Income Fax Ordinance, 1984.

Answer to Question No. 1 (a) The following are the provision with regard to settled liability scheme u/s 82C of I.T.O-1984: i.

Contractors and supplies other than contractors and sub contractor engaged in oil and gas exploration. ii.

Royalty and technical knowhow fee. iii.

Bidi Manufactures. iv.

Interest on savings instruments. v.

All imports by industrial manufacturers other than raw material imports for own consumption in the industry. vi.

Manpower exports. vii.

Sale through public auction. viii.

Commission of insurance agents. ix.

Bill of general insurance surveyor. x.

Registration of immovable properties. xi.

Lottery, prize bond etc. xii.

Commission from clearing and forwarding agency.

However, an assessee shall not be allowed to take into account the full amount of income or receipts from which tax has been collected or deducted at source and considered as final assessment settling the tax liability, in explaining the nature and source of any sum, investment money, valuable articles, excess expenditure referred to in S. 19. The income on payments or receipts represented by the tax deducted at source in only allowed as source of fund for explaining any investment etc.

Q. 1. (b) State whether the following are capital or revenue in nature? a. The assessee, a transport company, purchased shares of another transport company with a view to eliminating competition. The shares were subsequently sold at a loss. b. The assessee spent Tk. 575.000 on the construction of katcha roads on public land in order to expedite supply of sugarcane. The roads become unusable after the rains. c. The assessee firm entered into an agreement with Jaman Brothers who will help them to get their publications recommended in Chittagong. They got the hooks approved and as per agreement period royalty of Tk.350,000 to Jaman Brothers as consideration for the help. d. Amount received by the assessee for digging and removing earth from his land for brick making at the rate of Taka 100 per thousand bricks.

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Answer to Question No. 1 (b)

a. b. c. d.

The company has purchased the shares of another company to make profit but had to sale those at a loss. This is an investment for making profit. So, this is an expenditure of capital nature.

The assessee has spent an amount of Tk. 575,000/- to construct a katcha road to expedite the supply of sugarcane which is related to his business. This is a temporary road and become unusable in one accounting year. So, it is a revenue expenditure.

The assessee firm has received royalty of Tk. 350,000/- from another firm as consideration for the help which is fixed as per agreement is earned in the normal course of business. So, this is an income of revenue nature.

The assessee has earned income for digging and removing earth from his land to be used in brick making in normal course of business. So, this is a revenue income.

Q.2. From the following data compute the total income and tax payable by Mr. Aziz for the year ended June 30, 2004 : (a) (b) (c) (d) (e) (f) (g)

Basic salary Tk. 15,000 p.m.; Festival bonus at 2 months basic pay; Free furnished accommodation; Employer’s and Employee’s contribution to Provident Fund @10% of the basic salary; Car partly used for business and partly personal; Life insurance premium paid for himself Tk. 12,000; He is the owner of a house property annual rent of which is Tk. 3,00,000 p.a. Expenses incurred are as follows: Taka Property tax 2,500 Insurance premium 5,000 Collection charges 25,000 Water tax 15,000

Arrear water tax (h)

10,000

He has other income of Tk. 2,00,000 shown as under : Dividend (Net) from a listed company Tk. 1,40,000.

Interest (Net) on savings bank account Tk. 60,000.

Assessee : Mr. Aziz Assessment Year : 2008 – 2009 Income Year 2007 – 2008 Computation of Total Income

Particulars 1.

2.

Taka

INCOME FROM SALARIES [Section 21] (a) Basic Salary [15,000 x 12] (b) Festival Bonus [15,000 x 2] (c) Free Accommodation (Rule 33B) [25% of 1,80,000] (d) Employer’s Contribution to P.F. [10% of 1,80,000] (e) Car Facility (Rule 33D) [7.5% of 1,80,000]

1,80,000 30,000 45,000 18,000 13,500

INCOME FROM HOUSE PROPERTY [Section 24] Annual Value –

MunicipalValue -   Whicever is higher AnnualRent  3,00,000  Less:

1

th Repair & maintenance 4 Property Tax Insurance Premium Water Tax Arrear Water Tax

INCOME FROM OTHER SOURCES [Section 33 – 34] (a) Dividend : 1,40,000 [It is mandatory to deduct tax @10% on source from dividend,so it is grossed  100   1,40,000   90 ] up 

(b)

3,00,000

Allowable Deductions [Section 25] (a) (b) (c) (d) (e)

3.

2,86,500

Interest on Savings Bank Deposit : 60,000 [It is mandatory to deduct tax @10% on source from Savings Bank A/c, so it is  100   1,40,000   ] grossed up  90

75,000 2,500 5,000 15,000 10,000

1,07,500

1,92,500

1,55,556

66,667

2,22,223

TOTAL INCOME

7,01,223

Computation of Investment Allowance Particulars Life Insurance Premium Employer’s & Employee’s Contribution to P.F. [18,000 x 2] ACTUAL INVESTMENT 25% of Total Income Excluding Employer’s Contribution to P.F. i.e [25% of (7,01,223 -18,000)] Maximum Allowable Out of (a), (b) & (c) 10% of the lowest [10% of 48,000]

Taka

(a) (b) (c)

12,000 36,000 48,000 1,70,806 5,00,000 4,800

Computation of Tax Liability Particulars

Income

Rate

Tax

Up to On Next On Next Total Less: Investment Rebate Withholding Income Tax:

1,65,000 2,75,000 2,61,223 7,01,223

10% 15%

27,500 39,184 66,684 4,800

On Dividend Interest on Savings Bank A/c TOTAL TAX LIABILITY

15,556 6,667 39,661

Note – (1)

The total income and tax liability have been calculated in light of Finance Ordinance, 2008, considering all implication of assessment year 2008 – 2009.

Q. 3. Write short notes on the following: (a)Agricultural income; Answer to Question No. 3 (a) Agricultural income : means a. any income derived from any land in Bangladesh and used for agriculture purposesi. by means of agriculture ; or ii. by performance of any process ordinarily employed by a cultivator to render marketable the produce of such land ; or iii. by the sale of the produce of the land raised by the cultivator in respect of which no process, other than that to render the produce marketable, has been performed ; or iv. by granting a right to any person to use the land for any per period ; or b. any income derived from any building which i) is occupied by the cultivator of any such land as is referred to in sub-clause (a) in which any process is carried on to render marketable any such produce as aforesaid ; ii) is on or in the immediate vicinity of such land and iii) is required by the cultivator as the dwelling house or storehouse or other out house by reason of his connection with such land.

Q.3.(b) Profits in lieu of salary; Answer to Question No. 03 (b) Profits in lieu of salary : includes — a. the amount of compensation due to, or received by, an assessee from his employer at or in connection with the termination of, or the modification of any terms and conditions relating to, his employment : and b. any payment due to. or received by an assessee from a provident or other fund to the extant to v. Filch it does not consist of contributions by the assessee and the interest on such contributions : Q.3.(c) Recognized Provident Fund; Answer to Question No. 03 (c) Recognized Provident Fund: Recognized provident fund means a provident fund which has been and continues to be, recognised by the Commissioner in accordance with the provisions of Part B of the First Schedule; Q.3.(d) Speculation business; Answer to Question No. 03 (d) Speculation business : Speculation business means business in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the commodity or scripts, but does not include business in which: a) contract in respect of raw materials or merchandise is entered into by a person in the course of his manufacturing or mercantile business to guard against loss through future price fluctuations for the purpose fulfilling his other contracts for the actual delivery of the goods to be manufactured or the merchandise to be sold by him ; b) a contract in respect of stocks and shares is entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; and c) a contract is entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member.

Q.3. (e) Transfer in relation to a capital asset.

Answer to Question No. 03 (e) Transfer in relation to a capital assets Transfer in relation to a capital assets, includes the sale, exchange or relinquishment of the asset, or the extinguishment of any right therein, but does not include a. any transfer of the capital asset under a gift, bequest, will or an irrevocable trust; b. any distribution of the assets of a company to its shareholders on its liquidation ; and

•

c. any distribution of capital assets on the dissolution of a firm or other association of persons or on the partition of a Hindu undivided family.

Q.4.(a) What do you mean by ―Written down value‖? How do you calculate gains or losses on disposal of fixed assets?

Answer to Question No. 04 (a) Written down value : means i. where the assets were acquired in the income year, the actual cost thereof to the assessee ; ii. where the assets were acquired before the income year the actual cost thereof to the assessee as reduced by the aggregate of the allowances for depreciation allowed under this Ordinance, or the Income tax Act, 1922 (XI of 1922), in respect of the assessments for earlier year or years.

Where in any income year, fixed assets is disposed of, the calculation on disposal will be as follows: i.

No depreciation allowance shall be allowed in respect of year of disposal. ii.

When the sale proceeds exceed the written down value, the excess amount limited up to the difference between the original cost and the written down value shall he income of the year from business or profession.

The principal underlying the provision is that the depreciation allowed in the past as expenditure in determining income shall be treated as income in the year of sale when the sale proceeds exceed the written value. iii.

When the sale proceeds arc less than the written down value of the assets deficit shall be expenditure deductible from the profits or gains of business or profession of that year.

Q.4.(b) ABC Ltd. purchased a machine in the year 2000 at Tk. 5,000,000 and sold the same in November 2004 at Tk. 3,500,000. The written down value is Tk. 3,000,000 The year end of the company is December.

Calculate the business profit or losses and also the capital refit or losses, if any, for the relevant Assessment year.

Answer to Question No. 4 (b) ABC Ltd. Income Year 2004 Assessment year 2005-2006 Purchase Price Tk. 500,000 Sale Price Tk. 350,000 Less: Written Down Value Tk. 300,000 Business Profit Tk. 50,000 There is no capital profit as sale price is less than purchase price.

Q.5.State the provisions of Income Tax Ordinance with regard to the following: (a)Deduction of tax at source from payment of house rent.

Answer to Question No. 05 (a) The provisions with regard to deduction tax at source from payment of house rent is as follows: Rate of tax: Up to Tk. 15,000 Nil From Tk. 15,000 to Tk. 35,000 3% Above 35,000 5% Q.5. (b) Deduction in respect of repairs etc. while computing taxable income from house property .

Answer to Question No. 05 (b) For expenditure on repairs, rent collection, water and sewerage, electricity, salary of darwan, security guard, pump man, lift man, and others for maintenance and basic services i) 25% of the annual value when the property is used for residential purpose. ii) 30% of the annual value of the property when used for commercial purpose.

Q.6.(a) Who are the payers of Value Added Tax? Answer to Question No. 06 (a) Value Added Tax will be paid by : i. The Importer in the case of imported goods. ii. The supplier in the case of goods manufactured or produced in Bangladesh. iii. The provider of services in the case of services; and iv. In other cases the supplier.

Q.6.(b) How value is determined for charging of Value Added Tax? Answer to Question No. 06 (b) Determination of Value Added Tax will be made as follows :

1. In case of importation of goods the amount on which the Value Added Tax will be payable, will be determined by adding the amount of import duty, and supplementary duty along with any other duty and tax (if there is any) except advance income tax and import duty under section 25 or 25(A) of the Customs Act. 2. Subject to the provision in sub-section (3) The Value Added Tax which IA dl be payable upon the cost of goods supplied will he the price of the goods which the manufacturer or producer or trader will receive from the buyer in which all costs of manufacture or production or, where applicable, any commission paid, charge and supplementary duty along with other with other duties and rates (except Value Added Tax) will be included.

Provided that, in cases where goods subject to value added tax are manufactured with imported material, or in the case of sale, exchange or transfer of imported goods in any other manner, input tax credit is taken under section 9 of this Act on the basis of value arrived at under sections 25 or 25 (A) of the Customs Act then the Value added tax due on the goods so supplied shall be calculated on the basis of such value. a. Any person who is registered for value added tax who acquires goods in any way from any other person under a contract or sub-contract and sells those goods themselves or sells them through their own sales center, to account for value added tax on the basis of the price received from the consumer of such goods.

3. Where Value Added Tax is to be imposed on the basis of the retail price of goods, the Government by Gazette notification will be able to fix the retail price of those goods upon which value added will be imposed and this will be the price which will be calculated by the producer or manufacturer after approval of the proper officer which will include all kinds if expenditure, commission, charge, duties and taxes and that commodity after being specially branded or described will be sold at in that price to the consumer (the price must be printed clearly, legibly and unreasonably on the surface of the goods, or on their packet, bag etc.)

4. In the case of services, Value Added Tax will be imposed on the total receipts.

Provided that in the case of providing any specific service the Board by order, will be able to determine the amount of Value Added Tax on the basis of a rate fixed for addition of cost or actual addition of cost.

5. Goods on which trade discount is allowed; in the case of such goods the amount of value added tax will be based on the cost of the goods after deduction of trade discount. Provided that in case where goods are supplied at a discount the cost and the amount of the discount will be shown on the invoice and the quantity of trade discount must be consistent with the normal business policy.

6. Without prejudice to the remainder of this section, if the Board, on consideration of national interest and after any necessary inquiry becomes satisfied that the fixation of a tariff value is necessary in order to determine Value Added Tax, or where applicable Value Added Tax and supplementary duty in case of taxable goods or services then the Board will be able to fix a tariff value for the taxable goods or services by an order issued in a Gazette notification.

Q.6.(c) What is supplementary duty? How value is determined for imposing supplementary duty?

Answer to Question No. 06 (c) Supplementary Duty [Section 7(1)]: Supplementary duty is an output tax, in addition to VAT, on luxuries, not essential and not socially desirable goods and services. The rate of supplementary duty varies from 15 to 350%.

Value is determined for Imposition of Supplementary Duty are as follows : 1. Luxury goods and such other goods or services, which are not essential and socially undesirable and which are listed in the third schedule and supplied in Bangladesh, will have supplementary duty imposed in accordance with rate specified in that schedule.

2. In order to impose supplementary duty the cost of the goods or services will be taken as : a. That value upon which import duty in imposed under section 25 or 25k of the Customs Act in order to impose import duty on imported goods. b. The price charged to the buyer by the producer or manufacturer of goods produced or manufactured in Bangladesh or by the supplier in the case of goods otherwise supplied in which Value Added Tax or supplementary duty is not included. In the case of goods on which Value Added Tax is imposed on the basis of retail price, where goods the retail price of which is stated in section 5 (3) of this Act, are subject to supplementary duty, the supplementary duty will be considered as included in the retail price of those goods. c. The total amount received for providing services in Bangladesh in which Value Added Tax or supplementary duty will not be included Q.7.(a) What forms and documents are required to be maintained for Value Added Tax? Answer to Question No. 07 (a) The following books and documents shall be maintained by a VAT tax payer : i. Purchases Register in Form VAT-16; ii. Sales Register in Form VAT-17

iii. Current Account in Form VAT-I 8; iv. Invoices in Form VAT-11 or 11A; v. Paid Treasury Challans ; vi. VAT Return in Form VAT-19; and These books and documents shall be maintained for at least 4 years.

Q.7.(b) Discuss the procedure for registration for Value Added Tax. Answer to Question No. 07 (b) The following are the procedures for registration of VAT : Application for VAT Registration shall be made to the VAT Divisional Officer in Form VAT-6. The following documents shall be submitted along with the application form:i. Trade License; ii. TIN Certificate (if any); iii. IRC/ERC Certificate(if any); iv. List of all related Selling Centers in the case of “central registration”; v. Declaration in Form VAT-7 of the production or business premises, plant, machinery, fittings, finished or tradable goods, stocks, and inputs.

If the application is complete, the VAT Divisional Officer shall issue the Certificate of Registration in Form VAT-8 within 7 days of the application.

No fee is payable for registration for the purposes of VAT. If a person carries out business from various premises, he may obtain “central registration” so as to pay VAT; and complies with the requirements of the VAT laws “centrally”. However, no “group” (that is, various companies/entities under common management or ownership) registration is permissible under the VAT Act, 1991.

If “central registration” is not obtained, then separate registration for separate premises shall be required for the purposes of VAT. However, If a registered person changes his premises or businesses, he will file declaration with the VAT Circle Office in Form VAT-9 at least 14 days prior to such changes in his premises or businesses.

Q.7.(c) Draw up a proforma Invoice for Value Added Tax. Answer to Question No. 07 (c) Proforma Invoice for VAT INVOICE (REF. RULE-16) Name of the Firm : Address : Tax Payer's identification No………..

Name of buyer: Address: Tax Payer’s identification no : Ultimate destination of goods: Type of transport and Number: Sl No. of goods / Goods / services Dely. Or service date

Goods / service Qty. And name

Sl. No. of Invoice : Date of Issue of invoice : Time of issue of Invoice : Actual date and time : of removal of goods : Total Value Amount ofAmount of (minus other taxes VAT VAT)

Value including all kind of taxes

**Name of buyer, his tax payer identification number and address in case of service shall have to be mentioned only when such service is rendered to a registered buyer. Ultimate destination of goods type of transport and number, time of issuing invoice and actual date and time of removal shall not be applicable in case of service.

Ultimate destination will be-applicable only when it is different from the address of the buyer.

Signature of the Seller

Suggested Answers Professional Examination-I Taxation I November-December-2005 Q.1.(a)Explain the scope of total income as per Bangladesh Income Tax Ordinance, 1984.

Answer to Question No. 1 (a) Scope of the total income : 1) Subject to the provisions of this Ordinance, the total income of any income year of any person includesa. in relation to a person who is a resident, all income, from whatever source derived, whichi) is received or deemed to be received in Bangladesh by or on behalf of such person in such year; or ii) accrues or arises or is deemed to accrue or arise to him in Bangladesh during that year ; or iii) accrues or arises to him outside Bangladesh during that year ; and b. in relation to a person who is a non-resident, all income from whatever source derived, whichi) is received or deemed to be received in Bangladesh by or on behalf of such person in such year ; or ii) accrues or arises, or is deemed to accrue or arise, to him in Bangladesh during that year.

2) Notwithstanding anything contained in sub-section (1), where any amount consisting of either the whole or a part of any income of a person has been included in his total income or the basis that it has accrued or arisen, or is deemed to have accrued or arisen, to him in any year, it shall not be included again in his total income on the ground that it is received or deemed to be received by him in Bangladesh in another year.

Q.1.(b)Describe the circumstances under which the following shall be treated as resident for the purposes of income tax: (i) An individual; (ii) A company.

Answer to Question No. 1 (b) Under the following circumstance, the following shall be treated as resident : i. An Individual : a) an individual is resident in Bangladesh if he remains in the income year in Bangladesh for a period of or for periods amounting in all to 182 days or more, or b) if heremains in Bangladesh in the income year for a period of or for periods amounting in all to 90 days or more and he remained for a period or periods amounting in all to 365 days or more during the immediate four preceding years i.e., total stay in the immediate preceding four years was for a period of 365 days. ii. A Company :A Bangladeshi company or any other company the control and management of whose affairs issituated wholly in Bangladesh in that year.

Q. 2. (a) Briefly describe how the following income of an individual will be treated in computing his total income? (i) Medical allowance@Tk. 5,000 received in each month. (ii) He has been given Tk. 100,000 as a travel passage to U.S.A with his spouse as per terms of employment. On the return ticket he saved Tk. 20,000 by flying the cheapest airlines available in the sector. (iii) He received compensation amounting to Tk. 400,000 from the Government against acquisition of his land situated at Dhaka.

Answer to Question No. 2 (a) Computation of Total Income of an individual : i. Medical Expenses @ Tk. 5,000/- received in cash per month.

Medical Expenses : Rule 33I : Where any amount is payable to the employee by way of hospitalisation or medical expenses, the amount, if any, by which the sum receivable by him exceeds the actual expenditure incurred by him shall be included in his income.

So, in this case if we consider his yearly income at Tk. 60,000/- (Tk. 5,000/- x 12) as actual expenditure, nothing will be added to his total income ii. Free or concessional passage for Travel Abroad or within Bangladesh : Rule -33G Where free or concessional passage for travel abroad or within Bangladesh is provided by the employer to an employee (including the members of his household and dependants), there shall be included in the income of the employee i. Where the passage is provided in accordance with the terms of employment, an amount equal to the sum by which the cash payments, if any, made by the employer exceeds the actual expenditure incurred by the employee.

In this case he received Tk. 100,000/- and saved Tk. 20,000/- out of the total travel passage.

So, Tk. 20,000/- will be included in his total income. iii. He received the amount of Tk. 400,000/- as compensation from the Government is subjected deduction of tax u/s 53H and hence will be settled u/s 82C. So, nothing will be added in his total income.

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.3

2. (b) Discuss the provisions of Bangladesh income tax law in respect of the following in computing income from business :

 Entertainment expense:  Bad debt:  Initial depreciation.

Answer to Question No. 2 (b) As per Provision of I.T.O. 1984, the following will be treated as follows : Entertainment Expense: Any allowance in respect of expenditure on entertainment not in excess of the amount prescribed in this behalf. Ceiling of admissible expenditure has been prescribed in Rule 65 of Income Tax Rules. 1984.

Prescribed rates are : i. On the first Tk. 1,000,000 of income from business or profession 4% ii. On the balance income 2% Bad Debt : The amount of bad debt, which is established to have become irrecoverable under the stated circumstances.

The amount of bad debt written off as irrecoverable but deduction not allowed on the ground that it was not then irrecoverable, the amount which was established to be irrecoverable.

The amount of bad debt having been irrecoverable in an earlier year, is allowable for the earlier year under the stated circumstances and with the consent of the assessee.

Initial Depreciation : By amending the Third Schedule in 2002 provision has been made for allowing initial depreciation on building, Machinery and plant built / introduced as the case may be after 30.06.2002 in the year of construction or installation or use or commencement of commercial production whichever is later. Its rate will be 10% for building and 25% for machinery and plant. This will not be admissible to motor vehicles not plying for hire and to machinery or plant previously used in Bangladesh. Normal Depreciation alsowill be admissible to these assets.

Q.3.(a) A private limited company with a paid up capital of Taka 10,000,000 divided into 10,000 ordinary shares of Taka 1,000 each went into liquidation on 30th June, 2003. On that date, its reserves created out of profits amounted to Taka 7,000,000 and the balance to the credit of the Profit and Loss Account was Taka 500,000. The liquidator realized the assets at prices considerably in excess of their book values and after meeting and providing for all liabilities had a distributable sum of Taka 26,250,000 which he fully distributed to the shareholders in July,2004.

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Mr X, a shareholder of 500 shares, acquired by him at a cost of Taka 600,000 seeks your advice as to the treatment for tax purpose of the amount received by him from the liquidator.

Answer to Question No. 3 (a) Mr. X Accounting Year July 2004 Assessment Year 2005-2006

Tk. 26,250,000 will be distributed to 10,000 ordinary shares. Hence Tk. 2,625/ - will arrive per ordinary share (26,250,000÷10,000) So, Mr. X will get Tk. 1,312,500 (Tk. 2,625 x 500 shares) Less : Dividend Income(Note — 1) Less : Cost of acquisition of 500 shares (Note — 2)

Capital Gain :

1,312,500 375,000 937,500 600,000 337,500

Note : 1. Mr. X will get dividend on Tk. 7,500,000/- (Reserves.+ Profit = 7,000,000 + 500,000) on his shares at Tk. 375,000/- (7,500,000÷10,000 x 500).

Advice : i) Mr. X will pay income tax on capital gain of Tk. 337,500/- @ 10% as per SRO No. 220-Law/2004 dt.

13.07.2004 as against the previous rate of 15%.

ii) Mr. X will pay tax @10% on dividend income of Tk. 375,000/- as he is a shareholder in the status of individual resident assessee.

Q.3.(b) The Profit and Loss Account of X & Co. Ltd. for the year ending 30 June, 2005 shows a net profit of Taka 570,000 which includes the following income: (i) Dividend from Y & Co. Ltd. Taka 60,000; (ii) Interest on security Taka 12,500.

The expenditure side of the Profit and Loss Account includes the following:

(i)

Salary & allowances Taka 752,500 to the General Manager, which includes Taka 225,000 being the perquisites. (ii) Provision for bad and doubtful debts Taka 5,000: (iii) Provision for depreciation Taka 40,000 (tax depreciation works out to be Taka 60,000) (iv) Provision for income tax Taka 380,000.

Compute the taxable income of the company for the relevant assessment year.

Answer to Question No. 3 (b) X & Co. Ltd. For the year ended June 30,2005 Taka Taka Net Profit as per Profit & Loss Account 570,000 Less : Income for separate consideration : 60,000 i)Dividend fr om Y & Co. (Note — 1) 12,500 ii)I nter est on Secur ity 72,500 497,500 Add : For Separate Consideration : Perquisites 225,000 Provision for Doubtful Debts (Note — 2) 5.000 Depreciation 40,000 Provision for Income Tax (Note - 3) 380,000 650,000 1. 1 47,500 Add : Interest on Security 12,500 1,160,000 Less : Allowable Perquisites (Note — 4) 150,000 Tax Depreciation 60,000 210.000 Taxable Income 950,000 Note : 1.

2.

3.

4.

It is assumed that Y & Co. is a Public Ltd. Company and the company has paid dividend distribution tax on it.

Provision for Bad Debt is a non-allowable expenses rather actual Bad Debt is an allowable expenses.

Provision for Income Tax is a not an expenditure hence not allowable expenses.

As per Finance Act 2005, allowable perquisites has been raised to Tk. 192,000 from Tk. 150,000 w.e.f. July 01,2005.

Q.4. Write short notes on the following : (a) Best judgment assessment; Answer to Question No. 04 (a) Best judgment assessment: Section — 84 : The Deputy Commissioner of taxes may complete the assessment to the best of his judgment under the following circumstances: 1. When an assessee does not file return of income as required by a notice under section 77 or has not filed a return or a revised return under section — 78.

2. When an assessee fails to produce books of accounts or submit statement of assets and liabilities as required by a notice in writing.

3. When an assessee does not comply with notice of hearing under section 83(1) for production of evidences.

4. Where the Board considers that a best judgment assessment shows lack of proper evaluation of legal and factual aspects of the case and the same has resulted in an arbitrary and injudicious assessment, the Deputy Commissioner‘s action leading to such assessment shall be constructed as misconduct.

Q.4. (b) Capital profit; Answer to Question No. 4 (b) Capital Profit: Section — 32 : The income under the head ―Capital gains‖ shall be computed after making the following deduction from the full value of the consideration received or accruing from the transfer of the capital asset or the fair market value thereof, whichever is higher, namely:

i Any expenditure incurred solely in connection with the transfer of the capital asset; and ii. The cost of acquisition of the capital asset and any capital expenditure incurred for any improvements thereto but excluding any expenditure in respect of which any allowance is admissible under any provisions of sections 23, 29 and 34.

Q.4 . (c) Advance payment of tax; Answer to Question No. 4 (c) Advance Payment of Tax: Sec 64: Except as provided in section 64(2), tax shall be payable by an assessee during each financial year by way of advance payment of tax, hereinafter referred to as ‗advance tax‘, in accordance with the provisions hereafter made in this Chapter, if the total income of the assessee for the latest income year in respect of which he has been assessed by way of regular assessment, or has been provisionally assessed under this Ordinance, or the Income tax Act. 1922 exceeds Tk 2,00,000.

Q.4.(d) Taxes Appellate Tribunal; Answer to Question No. 4 (d) Taxes Appellate Tribunal [sec 11]: 1. For the purpose exercising the functions of the Appellate Tribunal under the Ordinance, the Government shall establish a Taxes Appellate Tribunal consisting of a President and such other members as the Government may, from time to time, appoint [Section 11(1)].

2. A person shall not be appointed as a member of the Taxes Appellate Tribunal unlessi. he was a member of the Board; ii. he was Commissioner of Taxes; iii. he is a chartered accountant and practiced professionally for a period not less than 8 years; iv. he is a cost and management accountant and practiced professionally for a period not less than 8 years; v. he is an income-tax practitioner within the meaning of section 174(2)(f) and practiced professionally for a period not less than 20 years; vi. he is a professional legislative expert having experience for a period not less than 8 years in the process of drafting and making financial and tax laws; or vii. he is an advocate and practiced professionally for not less than 10 years in any income-tax office.

[Section 11(3)] The Government shall appoint a member of the Appellate Tribunal to be the President thereof [Section 11(4)].

Q. 4. (e) Excess profit tax.

Answer to Question No. 4 (e) Excess Profit Tax : Section — 16C : Provision has been made in the law for excess profit tax on bank company operating under bank company Act. 1991. If such a company shows, in the return, profit exceeding 50% of the aggregate sum of capital as defined under the said bank company Act and reserve, the company shall pay tax @ 15% of such excess. Such tax is payable in addition to the tax payable under the I.T. Ordinance, 1984.

Q.5.(a) Briefly describe the provisions of Bangladesh Income Tax Law for set off and carry forward of: (i) Business loss; (ii) Loss under the head capital gain; (iii ) Loss from Agriculture.

Answer to Question No. 5 (a) The provisions for set off and carry forward of as per I.T.O. 1984 are as follows in respect of the following : i.

Business Loss : Where, for any assessment year, the net result of the computation of income under the head ‗Income from business or profession‘ is a loss to the assessee is business loss.

Whenever an assessee sustains any loss under the head ―Business or Profession‖ not being loss from speculation business and the loss cannot wholly be set off against income under any other head i.e. salary, property, interest on securities and income from other sources, such unadjusted loss shall be carried forward to the following year to be set-off against the profits and gains of the same business or profession. The only exception in this regard is that the loss sustained in speculative business shall be carried forward to be set-off only against speculative profits, if any, of the following year.

Loss cannot be carried forward for more than six successive assessment years. ii.

Loss from ‗Agricultural Income‘: Where for any assessment year, the net result of the computation of income under the head ‗Agricultural income‘ is a loss to the assessee is agricultural loss.

Where any assessee sustains a loss of profit or gains in any year under the head ‗Agricultural Income‘ and the loss cannot be wholly set-off under section — 37, so much of the loss as is not set-off, or the whole of the loss where the assessee has no -

SUGGESTED ANSWERS -TAXATION-I

hat are the income which are deemed to accrue or arise in Bangladesh as per the income ax Ordinance, 1984?

10 income under any other head, shall be carried forward to the following year and set-off against the profits and gains, if any, of such agricultural income and if the loss in either case cannot be wholly set-off, the amount of loss not so set-off, shall be carried forward to the next year and so on but no loss shall be carried forward for more than six years. iii. Loss under the Head ‘Capital Gains’: Where, in respect of any assessment year, the net result of computation of income from any source under the head ‗capital gains‘ is a loss to the assessee under the head capital gain.

Loss under the head ―Capital Gains‖ can be set-off against income from the same head during the income year. If the loss cannot be set-off in the above manner, the loss or portion thereof can be carried forward to the next assessment year and set-off against income under the same head in that year. The loss can be carried forward upto 6 successive assessment years.

Where, in respect of any assessment year, the loss computed under the head ‗Capital gains‘ does not exceeds five thousand taka it shall not be carried forward and where it exceeds five thousand taka only so much of such loss shall be carried forward as exceeds five thousand taka under section 40(3).

Q.5.(b) For the assessment year 2005-2006 Mr. X has the following results: Taka Loss in business (200,000) Agricultural income 50,000 Capital gain 40,000 ‘

Loss in speculative business (30,000) Property income 60,000 Income from other sources 25,000 What would be the order of setting off the losses as shown above with the income under various heads?

Answer to Question No. 5 (b) Mr. X Assessment year 2005 — 2006 Taka

Taka

Loss in Business Less:

(200,000)

To be Set Off : Agricultural Income Property Income Income from Other Source

50,000 60,000 25,000

Loss after Set off

1,35,000 (65,000)

Note: 1. Income from Capital gain of Tk. 40,000 can only be set off against the income of the same head 2. Loss in speculative business of Tk. 30,000 cannot be set off from any other income.

Q.6. What are the income which are deemed to accrue or arise in Bangladesh as per the income Tax Ordinance, 1984?

Answer to Question No. 06 Income deemed to accrue or arise in Bangladesh : The following income shall be deemed to accrue or arise in Bangladesh, namely : a) any income which falls under the head ‗Salaries‘ wherever paid if – i. it is earned in Bangladesh ; or ii. it is paid by the Government or a local authority in Bangladesh in the service of such Government or authority ; b) any income accruing or arising, whether directly or indirectly, through or from —

i. any business connection in Bangladesh ; ii. any property, asset, right or other source of income in Bangladesh ; iii. transfer or capital assets in Bangladesh ; Provided that in the case of a business all the operations of which are not carried out Bangladesh, only such part of the income as is reasonably attributable to the operation carried out in Bangladesh shall be deemed to accrue or arise in Bangladesh. c) d)

any dividend paid outside Bangladesh by a Bangladeshi company ; any income by way of interest payablei. by the Government ; or ii. by a person who is a resident, except where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person outside Bangladesh or for the purpose of making or earning any income from any source outside Bangladesh ; or iii. by a person who is a non-resident where the interest is in respect of any debt incurred, or moneys borrowed and used for the purposes of a business or profession carried on by such person in Bangladesh or for the purposes of making or earning any income from any source in Bangladesh. e) any income by way of fees for technical services payablei. by the Government ; or ii. by a person who is resident, except where such fees are payable in respect of services utilised in a business or profession carried on by any such person outside Bangladesh or for the purposes of making or earning any income from any source outside Bangladesh ; or iii. by a person who is non-resident where such fees are payable in respect of services utilised in a business or profession carried on by such person in Bangladesh or for the purposes of making or earning any income from any source in Bangladesh.

f ) any income by way of royalty payablei. by the Government ; or ii. by a person who is resident, except where the royalty is payable in respect of any right, property or information used or services utilized for the purposes of a business or profession carried on by such person purposes of making or earning any income from any source outside Bangladesh ; or iii. by a person who is a non-resident where the royalty is payable in respect of any right, property or information used or services utilized for the purposes of a business or profession carried on by such person in Bangladesh or for the purposes of making or earning any income from any source in Bangladesh.

Q.7. Explain briefly the following in the light of the VAT Act and Rules 1991: (a) VAT challan; Answer to Question No. 07 (a) VAT Challan In the light of the VAT Act and Rules 1991 the VAT Challan is a form in which the amount of VAT is deposited into Bank. The challan form contains the following particulars : ChallanForm : T.R. Form No. — 6 (S.A. 37) 1st (Original) copy — 2nd copy — 3rd copy Challan no. ........................ dated ....................... Bangladesh Bank / Sonali Bank ...... District ....

Branch ...............

Code No To be filled up by Deposit Holder Name & Address by whom Name & address of the Details of purpose to deposit the the amount is deposited individual/organisation by amount whom the amount is paid Details of cash / Draft; pay order or cheque Taka in words :

Amount Taka

Amount Received Date................

Manager Bangladesh Bank1Sonali Bank Q.7.(b) VAT Return; Answer to Question No. 07 (b) VAT Return : Every taxable producer or manufacturer of goods or provider of taxable services must submit to the local value Added Tax office two copies of a return in form VAT - 19 for each taxable period before the tenth of the next month following on the taxable period.

Government of the Peoples Republic of Bangladesh National Board of Revenue VAT - 19 Value Added Tax Return [Ref., Rule 24(1)] Tax Period Taxpayer's Identification Number Month Year

Name : Address :

Activity Code:

Area Code : Telephone : No purchase of sales in the tax period Schedule A :

Determination of Payable output Tax

Information on Sales

Sales Value

Supplementary Duty VAT

1.

2.

3.

4.

5.

Schedule B :

Determination of remittable input Tax

Information on Purchases

Purchase Value

Other Taxes

Supplementary Duty VAT

6.

7.

8.

9.

10.

11.

12.

13.

14.

Schedule C: 15.

Amount Payable

Remission/Return/Deposit

16.

17.

18.

19.

20.

21.

22.

Declaration of the invoices given during tax period

Enclosures Number

Remarks

Name of Document 1.Treasury Challan 2.Bill of Export 3.Bill of Lading 4.Airway Bill 5. Copy of current Account 6.Others (specify) I declare that all information in this return are true and correct.

Date:

The following invoices have been given in the tax period

Description of invoices SI. No. From ........... to ............

1. Sales Invoice 2. Cr edit Note

Signature of Tax Payer

Q.7.(c) Supplementary duty.

Answer to Question No. 07 (c)

Supplementary Duty : A new duty under the above name will also be imposed under the Value Added Tax Ordinance, 1991.

The duty will be imposed at varying rates from 16% to 350% on luxury goods imported into Bangladesh, nonessential and socially undesirable goods produced and supplied in Bangladesh and similar services rendered in Bangladesh.

The goods and services liable for supplementary duty and the rates have been mentioned in the Third Schedule of the Value Added Tax Ordinance, 1991 as amended upto June 30,2005.

Few Examples of Goods and Services subject to supplementary duty : Goods & Services

Rate SD

1.

Betel Nuts

35%

2.

Spices

25%

3.

Food Products

15%

4.

Hotel and Restaurants Performing Floor Shows

10%

5.

Film Exhibitors

35%

-

SI. No.

8. (a) What do you mean by input tax rebate as mentioned in section 9 of the VAT Act, 1991?

Answer to Question No. 08 (a) INPUT TAX [REBATE]: As per section — 9 of the VAT Act, 1991, a supplier of taxable goods or taxable services, subject to the provision in sub sections ( 1a) and (2) will be able to claim credit of input tax against payable output tax which is due on the supply of

their produced or manufactured goods or on the supply by them of goods imported, purchased, obtained or otherwise acquired or on the supply of their services.

Provided that, in the case of capital equipment, remission of input tax will be given according to procedures prescribed by the rules.

Where Value Added Tax is paid on services in accordance with rules made under subsection (4) of section 5, of where Value Added Tax is paid under rules made under subsection (7), no credit will be allowed.

Any supplied of taxable goods or services will not be eligible to obtain rebate of input tax which has been paid without the invoice proving that Value Added Tax has been paid on inputs or a bill of entry proving that Value Added Tax has been paid at importation and if any person obtains remission without such proof then the proper officer will be able to cancel the remission and order reconciliation of the current account or on the current tax return.

A supplier of taxable goods or services who supplies goods or services upon which Value Added Tax in not chargeable will be able to obtain remission of input tax against output tax in proportion to the purchases which have been used from the total quantity to produce or manufacture goods or services on which Value Added Tax in payable, in accordance with procedures fixed by rule.

8. (b) What at e the conditions to be fulfilled in order to claim input tax rebate?

CONDITIONS TO BE MET FOR CLAIMING INPUT TAX REBATE: The following conditions are to be met for claiming rebate of input tax:\;

i) The Tax payer must have been registered for the purposes of ―full‖ VAT, not turnover tax or not VAT based on estimated value addition. ii) The Tax payer must have Bills of Entry for imports and VAT Invoices (VAT- 11 ) for loca1 purchases of goods and services, maintained for 4 years. No credit for input tax shall be allowed against turnover tax or VAT based on estimated value addition. iii) The Tax payer must declare the inputs in Price Declaration including output / input ratio. iv) The Tax payer must claim the input tax within the related year. However, claim for input tax may be allowed after the related year for bonafide reason. v) The Tax payer must possess the inputs for which input tax has been claimed. vi) The Tax payer can claim credit against VAT only, not import duty, supplementary duty and /or income tax at source. However, an exporter can claim credit against import duty and / or supplementary duty under ―duty exemption and drawback‖(generally known as DEDO)arrangement under rule 19(4).

Q.9.(a) On what amount VAT is to be paid by a service renderer as per section 5(4) of the VAT Act, 1991? Mention exception, if any, for payment of VAT by the service renderers Answer to Question No. 09 (a) In the case of services, Value Added Tax will be imposed on the total receipts u/s 5(4) of VAT Act. 1991.

Provided that in the case of providing any specific service the Board by order, will be able to determine the amount of Value Added Tax on the basis of a rate fixed for addition of cost or actual addition of cost.

Q.9.(b)Define Trader for the purpose of imposition of VAT. How value is determined for the purpose of levy of VAT of a Trader?

Answer to Question No. 09 (b) ‗Trader‘ means a person or any organization who, without changing the nature, form or qualities of any goods imported, purchased to otherwise acquired, puts them on sale, offers in exchange or for supply in any other manner for a consideration.

In case of importation of goods the amount on which the Value Added Tax will be payable, will be determined by adding the amount of import duty, and supplementary duty along with any other duty and tax (if there is any) except advance income tax and import duty under section 25 or 25(A) of the Customs Act. Subject to the provision in sub-section (3) The Value Added Tax which will be payable upon the cost of goods supplied will be the price of the goods which the manufacturer or producer or trader will receive from the buyer in which all costs of manufacture or production or, where applicable, any commission paid, charge and supplementary duty along with other with other duties and rates (except Value Added Tax) will be included

Suggested Answers Professional Examination-I Taxation-I May-June-2006 (Question solved according to the provision of Finance.Act-2006 and law implications of assessment year 2006-07) Q.1. (a) What is meant by perquisite? Give definition of perquisite as per the latest amendments made by the Finance Act. Ans. Question No. 01(a) Perquisite: As per section 2(45) of the Income Tax Ordinance 1984, “Perquisite” means i. any payment made to an employee by an employer in the form of cash or any other form excluding basic salary, festival bonus, incentive bonus not exceeding 10% of disclosed profit of relevant income year, arrear salary, advance salary, leave encashment or leave fair assistance and overtime , and ii. any benefit, whether convertible into money or not, provided to an employee by an employer, called by whatever name, other than contribution to a recognized provident fund, approved pension fund, approved gratuity fund and approved superannuation fund.

Q.1.(b) What income of an assessee shall be classified and computed under the head “Salaries” under Sec 21 of the LT Ordinance, 1984?

Ans. Question No. 01(b) Salaries : As per section 21 of the Income Tax Ordinance, 1984, 1. The following income of an assessee shall be classified and computed under the head “Salaries” namely:a. any salary due from an employer to the assessee in the income year, whether paid or not; b. any salary paid or allowed to him in the income year by or on behalf of an employer though not due or before it became due to him; and c. any arrears of salary paid or allowed to him in the income year by or on behalf of an employer, if not charged to income-tax for any earlier income year.

2. Where any amount of salary of an assessee is once included in his total income of an income year that amount shall not be again be included in his income of any other year.

Q.1.(c) Jabbar Ali is an employee of a company in Bangladesh and his salary and benefits for the income year ended June 2005 were as follows: (i) Basic pay Tk. 300,000; (ii) House rent allowance Tk. 100,000; (iii) Festival bonus 2 months basic; (iv) Full time company car for which company incurred an expenditure of Tk. 100,000; (v) Annual membership fees of Club Tk. 15,000; (vi) Company paid mobile telephone bill of Tk. 12,000; (vii) Leave encashment Tk. 10,000; (viii) Leave Fare assistance Tk. 30,000; (ix) Advance salary Tk. 35,000; (x) Company gave him International Air ticket for pleasure trip during his leave for which company spent Tk. 35,000; Find out the total taxable income and Tax thereon for Jabbar All. Ans. Question No. 01(c) Mr. Jabbar Ali Computation of Total Income Assessment Year-2005-2006 Income Year-2004-2005 Income from Salary: U/S-21 Figure in Taka Amount i) Basic Salary 25,000 x 12 300,000 ii) House Rent 100,000 Less: Exemption:

iii) iv) v) vi) vii) viii) ix) x)

50% of Basic Salary OR Tk. 15,000/- per month

150,000

Festival bonus Conveyance/Car (Rule-33D) Annual membership fees of club Mobile Phone Bill (Note — 3): Leave encashment, Leave Fare Assistance Advance salary Air Ticket (Note - 4)

25,000 X 2 = 3,00,000 X 7.5%=

Whichever is lower

1,50,000

----------

180,000

Total Income

50,000 22,500 15,000 ---10,000 30,000 35,000 ---4,62,500

Calculation of tax liability: Tax Tk. 120,000 Nil Tk. 250,000 @ 10% Tk. 25,000 Tk. 92,500 @ 15% Tk. 13,875 Total Tk. 462,500 Tk. 38,875 Less:- Rebate on investment allowance (no information available) -----------Tax Liability Tk. 38,875 Notes: 1) The total income & tax liability of Mr. Jabbar Ali has been computed in accordance with the provision of Finance Act-2006 and law implication of assessment year 2006-2007 for the sake of avoiding complexity.

2) Since, Mr. Jabbar Ali is entitled full time car facility, 7.5% of basic salary shall be added to his total income. The expenditure Tk. 100,000 incurred by the company is not related to Mr. Jabbar Ali for his total income computation.

3) Company paid mobile phone bill of Tk. 12,000 to Mr. Jabbar Ali. It is not included in his total income, as assumed that the mobile was used for official purpose only as per terms of employment.

4) Company paid air ticket cost of Tk. 35,000 which is assumed as per terms of employment & once in two years of service. So, this is not included in his total income.

Q.2.(a) What do you mean by “annual value” as defined by I.T.Ordinance, 1984?

Ans. Question No. 02 (a) Annual value As per section 2(3) of the Income Tax Ordinance 1984, “Annual Value” shall be deemed to be 1) in relation to any property let out,i. the sum for which property might reasonably be expected to let from year to year; or ii. where the annual rent in respect thereof is in excess of the sum referred to in paragraph (i) above, the amount of the annual rent.

On 1st Next On Balance

Q.2.(b) Mr. A.B Ali has the following house property income for the year ended 30 June 2005. How much tax he has to pay for his following income? (i) Rent received for the year Tk. 600,000; (ii) Annual value of his house Tk. 650,000; (iii) He spent for repairing his house Tk. 25,000; (iv) Ground rent paid Tk. 5,000; (v) Collection charges or rent 2% of the total rent; (vi) Paid guard's salary maintained for his house Tk. 24,000; (vii) Liftman was paid salary Tk. 30,000; (viii) Insurance premium paid Tk. 25,000; (ix) He paid bank interest due to mortgage of the house Tk. 10,000; (x) Land development Tax paid to Government Tk. 12,000.

Ans. Question No. 02 (b) Mr. A. B Ali

Computation of Total Income Assessment Year-2005-2006 Income Year-2004-2005 Income from House Property: U/S-24-25 Annual value: Less:-Allowable Expenses: Repairs & maintenance: '/4 of annual value Ground rent Insurance premium Bank interest Land development tax

Amount 650,000.00 162,500 5,000 25,000 10,000 12,000 214,500.00

Total Income

435,500.00

Calculation of tax liability: On 1st Next Next

120,000 250,000 65,500

Total

423,500

Rate @ @

10% 15%

Less: Rebate on investment allowance (No information available) -

Tax Liability

i.

Tax Nil 25,000.00 9,825.00 34,825.00 -----34,825.00

The total income & tax liability of Mr. A. B Ali has been computed in accordance with the provision of Finance Act2006 and law implication of assessment year 2006-2007 for the sake of avoiding complexity. ii.

Repairing, Guard‟s salary, Liftman‟s salary and collection charges arc already included in minimum ceiling of 1/4th of annual value as Repair & Maintenances allowance according to the I.T. Ordinance-1984. So, these expenses are not required to charge separately. iii.

Since, the annual value of the house is considered; rent received for the year Tk. 600,000 need not to be considered.

Q.3.(a) What is meant by the term “deduction of tax at source” under Income Tax law? At what rates deduction of taxes at source will be applicable for the following, Quote the section of I.T. Ordinance, 1984 ( i ) Int er est on Secur it i es; ( i i ) Payment to Contractors/Suppliers; ( i i i) Indenting Commission; ( i v) Fees paid for the professional services; ( v) C & F A g e n c y ; ( vi ) Rent of house pr operty. (b) What are the consequences of failure to deduct or to deposit the money which has been deducted at source to Government Exchequers?

Ans. Question No. 3 (a) Deduction of tax at source “Deduction of tax at source” means tax shall be withheld at source under section 49(l) in respect of any income according to the provision of the Chapter VII of ITO, 1984 by the person responsible for making payment which constitutes the income of the payee. i.Deduction of tax at source on Interest on Securities As per section 51 of ITO, 1984, in case of the security of the Govt., or security approved by the Govt., unless the Govt., otherwise directs, the person responsible for issuing the security, income of which is classifiable under the head „interest on securities‟ shall collect tax at the rate of 10%. ii. Deduction of tax at source on Payment to Contractors/Suppliers

As per section 52 of ITO, 1984, the payment on account of execution of contract and supply of goods subject to deduction of tax as below: SI No Amount of Payment Rate of Deduction 1 Where the annual payment does not exceed Tk. 90,000 Nil 2 Where the annual payment exceeds Tk. 100,000 but does not exceed Tk. 500,000 1% 3 Where the annual payment exceeds Tk. 500,000 but does not exceed Tk. 1,500,000 2.5% 4

Where the annual payment exceeds Tk. 1.500,000 but does not exceed Tk. 2.500,000

5 6

Where the annual payment exceeds Tk. 2,500,000 In case of oil supplied by oil marketing companiesi) where the payment does not exceed Tk. 200,000

3.5% 4% Nil

ii)where the payment exceeds Tk. 200,000

0.75% iii. Deduction of tax at source on Indenting Commission As per section 52(1) and Rule 17 of ITO, 1984, the authority making any payment or the Bangladesh Bank or any Scheduled Bank through which remittance of indenting commission is received shall, for the purpose of making a deduction of tax, deduct or collect an amount calculated at the rate of 3.5% on the total receipt of commission. iv. Deduction of tax at source on fees paid for the professional services As per section 52A of ITO, 1984, the principal officer of any company registered under the Companies Act 1913 or Companies Act 1994, or the chief executive of any non government organization registered with the NGO Affairs Bureau of the chief executive of any trust registered under the Trusts Act 1882 shall be responsible for deducting tax at source from fees or services rendered by a doctor in hospital or diagnostic centre @5%; Deductions to be made from payment on account of royalty or technical know- how/ lees for professional or technical services in cash or by issuing of a cheque or draft or by any other mode whichever is earlier @ 10%. v. Deduction of tax at source on C& F Agency As per section 52AAA of ITO 1984, the commissioner of customs shall make collection on account of commission receivable by clearing & forwarding agents licensed under Customs Act 1969@ 5% on such commission at the time of clearance of goods imported or exported. vi. Deduction of tax at source on rent of house property As per section 53A of ITO, 1984, the authorized person shall be responsible to deduct tax in the following manner: Amount of Payment SI No Rate of Deduction 1 Where the monthly payment does not exceed Tk. 15,000 Nil 2 Where the monthly payment exceeds Tk. 15.000 but does not exceed Tk. 35,000 3% 3 Where the monthly payment exceeds Tk. 35,000 5% (b)According to the section 57, where a person is required to deduct, collect or pay to the credit of the Government tax, he or it shall: i. be deemed to be an assessee in default in respect of the tax: and ii. in addition to such tax, pay an amount @ 2% per month of such tax for the period commencing on the date following the expiry of one week and ending on the date of the actual payment of the tax.

Q.4.(a).Write short notes on the followings: (i) Spot Assessment; (ii) Self Assessment for Private Ltd. Companies; (iii) C a p i t a l A s s e t ; (iv) D u t y D r a w b a c k ; (v) Infrastructure Development Surcharge Ans. Question No. 04 i. Spot Assessment (Section 82D) Notwithstanding anything contained in the Income Tax Ordinance. 1984 where an assessee not being a company;  who has not been previously assessed under this Ordinance;  carrying on any business or profession in any shopping centre or commercial market or having a small establishment;  does not claim adjustment of tax deducted or collected at sources;  not having whole sale business;  having initial capital investment not exceeding Tk. 10 lacs

The DCT may fix the tax payable by him in the following manner and rates as may be prescribed and receipt obtained for payment of such tax shall be deemed to be an order of assessment under section 82: a) an assessee carrying business within the limits of any City Corporation shall pay tax per annum at the following ratesi. where the initial capital does not exceed Tk. 5 lac ---- Tk. 1,200 ii. where the initial capital exceeds Tk. 5 lacs b u t d o e s n o t e x c e e d s T k . 1 0 l a c - - - - - T k . 3 , 5 0 0 b) an assessee carrying on business within the limit of a Pourashava or any Divisional Headquarters or District Headquarters shall pay tax at the following rates: i. where the initial capital does not exceed Tk. 5 lac----- Tk. 1,200 where the initial capital exceeds Tk. 5 lacs b u t d o e s n o t e x c e e d s T k . 1 0 l a c s - - - - T k . 2 , 5 0 0 c) an assessee carrying on profession as a lawyer or a doctor for a period exceeding 5 years but not exceeding 10 years shall pay tax at the following rates: i. where profession is carried on within the limits of any City Corporation Tk. 2,000 ii. where profession is carried on within the limits of any City Corporation Tk. 1,200 ii. Self Assessment for Private Limited Companies (Section 83AA) Where, an assessee being a private limited company files: i. a return on or before the date specified in section 75(2)(C); ii. shows income at least 5% higher than last assessed income and has also increased by at least a further sum of 5% on pending assessment; The return filed by the assessee shall be deemed to be correct and complete and the DCT shall assess total income of the assessee on the basis of such return and communicate the assessment order to the assessee within 30 days next following: Provided thata) such return shall be accompanied by a copy of the accounts of the company audited by a chartered accountant; b) tax payable shall be paid on or before the date on which the return is filed: c) the assessment on the basis of such return shall not result any refund. iii.Capital Assets (Section 2(15) “Capital assets” means property of any kind held by an assessee, whether or not connected with his business or profession, but does not includea) any stock-in-trade (not being stocks and share), consumable stores or raw materials held for the purposes of his business or professions; b) personal effects, that is to say, movable property (including wearing appeals, jewellery, furniture, fixtures, equipments and vehicles), which are held exclusively for personal use by, and are not used for the purposes of the business or profession of the assessee or any member of his family dependent on him; and c) agricultural land in Bangladesh, not being land situatei. in any area which is comprised within the jurisdiction of municipality (whether known as a Municipality, Municipal corporation, town, or by any other name) or a Cantonment Board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the income year; or ii. in any area within such distance not been more than 5 miles from the local limits of any Municipality or Cantonment Board. iv. Duty Drawback The term „Drawback‟ is meant that the certain amount of VAT, Supplementary duty, Import duty, Excise duty, Turnover tax, Infrastructure Development Surcharge, etc, paid on the imported or locally manufactured goods or on supplies used as inputs to subsequent identifiable exports can be drawn back from Government other than advance income tax and supplementary duty on natural gas on fulfillment of certain conditions. This is known as duty drawback.

For getting duty drawback facility, concerned goods should be easily identifiable and must be exported within 2 years of the import to any foreign country.

Drawback facility is allowed by the Government in order to make our export items more competitive cost wise in the international market. The objective is to earn more foreign exchange against exports. v. Infrastructure Development Surcharge

Infrastructure Development Surcharge shortly termed as IDSC is an indirect tax imposed by the Government.

Presently Government is charging IDSC @ 4% on the value of goods produced in Bangladesh as specified by the Government in its notification published in the official gazette and all goods imported into Bangladesh.

It is levied and realized at the same time and in the same manner as in the case of levy and realization of VAT. VAT Act 1991 and the relevant rules issued there under will be applicable in case of levy and realization of the IDSC. Q.5.What is turnover tax and to whom is it applicable? How turnover tax of a certain tax period is to be paid?

Ans. Question No. 05 Turnover Tax : Person other than those specified by National Board of Revenue (NBR) through official gazette notification, who produce taxable goods or provide taxable services but not required to register under section 15 of the VAT Act, 1991, and having annual turnover of less than Tk.20 lacs shall have to enlist with the superintendent and to pay 4% as turnover tax.

Turnover tax @ 4% shall be deposited to the treasury in case of annual declaration, within 30 days of such declaration;  in case of quarterly/monthly declaration, within 15 days of such declaration.

Return along with the main copy of treasury challan have to be submitted to the concerned VAT Circle in the form „Mushak-4‟. Tax is payable from the date of enlistment and even though there is no transaction in any tax period for any reason, tax has to be paid.

Q. 6. With reference to Bangladesh VAT Act and Rules 1991 state whether the statements are True or False: (a) Net VAT payable by a Construction Contractor is 5% of tender price. (b) VAT challan is to be issued by a manufacturer at the time of delivery of VAT able goods. (c) Refund for VAT is to be claimed within 6 months from the date of payment of payment of such VAT (d) Information regarding purchase of taxable goods shall only be recorded in the purchase register in Mushak-16. (e) As per section 37 (1) of the VAT Act 1991 minimum penalty for failure to apply for VAT registration would be Tk. 5,000. (f) At the time of filing appeal to the Commissioner (Appeal) 5% of the disputed VAT is to be deposited through treasury challan.

Ans. Question No. 06 a) False. VAT shall be deducted at truncated rate of 4.5% on the whole amount of payable. Any bill paid either partly or fully or as advance shall come under the purview of deduction. b) True. every registered person shall issue VAT challan while delivering any taxable goods from the business premises; c) True. refund for VAT shall be claimed within 6 months from the date of payment. d) False. statement of purchase shall be maintained for all taxable and exempted goods or services according to Mushak-16: e) True, failure to apply for VAT registration shall he triggered minimum penalty of Tk. 5,000. f) True. 5% of the tax demand or penalty imposed shall be paid for preferring appeal to the Commissioner (Appeal) Q.7. Mention the name of five services that are exempted from VAT. Ans. Question No. 07 As per Second Schedule of VAT Act 1991, out of many other services the following five services are exempted from VAT: 1. Organization engaged in preparing and cultivating agricultural land: 2. Education and training institute; 3. Life insurances policies: 4. Stock and Securities Exchange institute; 5. Passengers transports (other than air conditioned buses, launches, railways and rent a car services).

Q.8. Mention the services from which VAT is required to be deducted at source at the time of payment for such services specifying the rate of deduction of VAT. Ans. Question No. 08 In the case of following services from which VAT is required to be deducted at source at the time of payment: Name of the service providers % of deduction on total service value 1. Construction firms ------------------------------4.5 2. Indenting firms 15 3. Lease holder 15 4. Motor garages and workshop 5. Dockyards

6. Printing press 7. Advertising firm 8_ Consultancy and supervisory firm 9. Carrying contractors

4.5 4.5 4.5 15 4.5

a. Petroleum products b. O t h e r s 10 Person attending board meeting -------------------------------.11 Survey firms .12 Lessors of vehicles .13 Procurement providers .14 Audit and accounting firms .15 Buyer of auctioned goods

2.25 4.5 15 15 4.5 2.25 4.5 1.5

..

Q.9. (a) Define input in the context of Bangladesh VAT Act, 1991.

Ans. Question No. 9 (a) As per section 2 (c), input meansi. All kinds of raw materials, any gas, anything used as fuel, packing, service, machinery and parts thereof excluding labor, land, building, office equipment and vehicles; ii. All goods imported, bought, acquired or procured for the purpose of sales, exchange or transfer in connection with business.

Q.9.(b)When shall VAT be payable in the case of : (i) A manufacturer; ( i i ) A service renderer Ans. Question No. 9 (b) VAT shall be payable incase of i) A Manufacturer : In the case of goods produced or manufactured by a registered or required to be a registered person, VAT shall be payable on happening of the following events, which occurs first: i. when goods are delivered; ii. when related delivery challan is issued: iii. when goods are used for personal purpose or transferred for the use of others; iv. when payment is received either in part or in full. ii) A Service renderer : In the case of service rendered or required to be rendered by a registered person, VAT shall be payable on happening of the following events, which occurs first: a) when goods are delivered; b) when related delivery challan is issued; c) when payment is received either in part or in full. (

Suggested Answers Professional Examination I -

-7,

Taxation-I November-December-2006 Q.1.Define the following with reference to the Income Tax Ordinance (ITO), 1984: (a) Income; Ans. Question No. 01 (a) Income As per section 2(34) of the Income Tax Ordinance 1984, ―Income‖ includes: i. any income, profits or gains, from whatever source derived, chargeable to tax under any provision of this Ordinance under any head specified in section 20; ii. any loss of such income, profits or gains; iii. the profits or gains of any business of insurance carried on by a mutual insurance association computed in accordance with paragraph 8 of the Forth Schedule; iv. any sum deemed to be income, or any income accruing or arising or received, or deemed to accrue or arise or be received in Bangladesh under any provision of this Ordinance: [Provided that the amount representing the face value of any bonus share or the amount of any bonus declared, issued or paid by any company registered in Bangladesh under Companies Act 1994 to its shareholders with a view to increase its paid- up share capital shall not be included as income of that shareholder] Q.1. (b) Assessee; Ans. Question No. 01(b) Assessee As per section 2(7) of the Income Tax Ordinance 1984, ―Assessee‖ means a person by whom any tax or other sum of money is payable under this Ordinance, and includes:i.every person in respect of whom any proceeding under this ordinance has been taken for the assessment of his income or the income of any other person in respect of which he is assessable,, or of the amount of refund due to him or to such other person; ii.every person who is required to file a return under section 75, section 89 or section 91; iii.every person who desires to be assessed and submits his return of income under this Ordinance; and iv.every person who is deemed to be an assessee, or an assessee in default, under any provision of this Ordinance; Ans. Question No. 01(c) Salary As per section 2(58) of the Income Tax Ordinance 1984, ―Salary‖ includesi. any wages; ii. any annuity, pension or gratuity: iii. any fees, commissions, allowances, perquisites or profits in lieu of, or in addition to salary or wages; iv. any advance of salary; v. any leave encashment. .

Q.1.(d) Professional Services.

Ans. Question No. 01(d) Professional Services For the purposes of section 52A — ―Professional services‖ means services rendered by a person in the course of carrying on legal, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising but does not include services rendered by doctors.

Q.2. Discuss the provisions of the ITO 1984 regarding penalties for the following defaults: (a) Failure to file return of income under section 75 Ans. Question No. 02 (a): The provision of I.T.O 1984 regarding penalties for the following defaults are : Penalty for failure to file return of income under section 75 As per section 124 of the Income Tax Ordinance 1984, where any person. without reasonable cause, failed to file a return of income under section 75, the DCT may impose upon such person a penalty: - amounting to 10% of tax imposed on last assessed income subject to a minimum of Tk. 2,000 and in case of a continuing default a further penalty

2.(b) Failure to pay advance tax under section 64 Ans. Question No. 02 (b) Penalty for failure to pay advance tax under section 64 As per section 125 of the Income Tax Ordinance 1984, where, the DCT is satisfied that any person has without reasonable cause, failed to pay advance tax as required by section 64, he may impose upon such person a penalty- of a sum not exceeding the short fall amount of tax he actually paid and he should have been paid.

2. (c) Failure to pay tax on the basis of the return Ans. Question No. 02 (c) Penalty for failure to pay tax on the basis of return under section 74 As per section 127 of the Income Tax Ordinance 1984, where, the DCT is satisfied that any person has not paid tax as per section 74 or he has paid tax which is less than 80% of tax payable under this section, he may impose upon such person a penalty-of a sum not exceeding 25% of the whole of the tax or as the case may be, of such portion of the tax as has not been paid.

Q.3. (a) Define assessment year Ans. Question No. 03 (a) Assessment year means : As per section 2(9) of the Income Tax Ordinance 1984, ―assessment year‖ means the period of twelve months commencing on the first day of July every year; and includes any such period which is deemed, under the provisions of this Ordinance, to be assessment year in respect of any income for any period.

Q.3. (b) What would be the assessment year for the following income year ending dates of the assessees: 4 Assessee Income year ended on A 30 June 2005 B 31 August 2005 C 30 April 2005 D 31 December 2005 Ans. Question No. 03 (b) The assessment year of the following income year ending would be as follows: Assessee Income year ended on Assessment year 30 June 2005 2005-2006 A B 31 August 2005 2006-2007 C D

30 April 2005

2005-2006

31 December 2005

2006-2007

Q.4. (a) What are the basic information an individual assessee is required to provide in IT 10BB? Ans. Question No. 04 (a) As per Rule 25A of the Income Tax ordinance 1984, an individual assessee is required to provide the following basic information in IT 10BB: 1. Information about residence, whether: a. resides in the house owned by the assessee; b. resides in a rented house; c. rent is borne by the assessee and what is the annual rent amount; d. resides in a house provided by the employer; e. house furnished by the employer or self furnished.

2. Information regarding vehicle, whether : a. vehicle is owned by the assessee or owned by the employer; b. expenses for maintenance of the vehicle borne by the assessee or by the employer; c. type of vehicle such as Jeep/Car, CC and annual expenses for fuel & maintenance of the vehicle; 3. (a) annual expense on electricity; (b) annual expenses on telephone; 4. (a) information regarding children studying in a local private school/college/university stating the name of the institute, number of children & expenditure during the year; (b) expenditure during the year for children studying abroad; 5. Information regarding foreign visit(s) during the year.

Q.4.(b) How the information provided in IT 10BB is linked with the information contained in IT 10B of the assessee?

Ans. Question No. 04 (b) The information provided in the statement of individual regarding particulars of life style (IT IOBB) is interlinked with the statement of assets and liabilities (IT 10B). IT IOBB statement provides information regarding family expenditure, property and the idea about the earning capacity to determine the total income of an individual assessee which is required to verify the net assets accretion in IT 10B. Q.5. Mr. Milky CEO of a Multinational Company in Bangladesh has got the following income for the income year ended 30 June 2006. You are required to calculate the total income and tax payable of Mr. Milky: (a) Basic pay Tk. 150,000 p/m sent to his bank account; (b) Rent free accommodation fully furnished by the company; (c) Full time company car for 24 hrs for his own use and for his family; (d) Company pays Tk. 100,000 p/m for is three school going children which is paid to the school authority directly; (e) He received two festival bonuses equivalent to basic pay during the festival time which e spent partly for his family and partly for the poor people in his village; (f) Driver‘s salary Tk. 10,000.00 p/m paid to driver‘s bank a/c; (g) Company paid Tk. 300,000.00 to him during the year being the reimbursement of various utility bills of his house; (h) Land and mobile bill paid Tk. 5,000.00 p/m; 4 (i) He was paid Tk. 1,000,000.00 for his overseas travels for the official trip out of which he saved 25% during the year; (j) Bill paid for international club Tk. 250,000.00; (k) He received interest on securities Tk. 150,000.00 on his investments; (l) He has got one house of is own at Baridhara and he received total Tk. 1,200,000.00 as rent during that income year; (m) He paid Tk. 150,000 as LIP by himself; (n) He invested Tk. 1,500,000.00 on Govt. bonds and primary shares of various companies; (o) Received dividend Tk. 150,000.00 during the year.

Assessee : Mr. Milky CEO, a Multinational Company Assessment Year : 2008 – 2009 Income Year 2007 – 2008 Computation of Total Income Particulars 1.

2.

Taka

INCOME FROM SALARIES [Section 21] (a) Basic Salary [1,50,000 x 12] (b) Free Accommodation (Rule 33B) [25% of 18,00,000] (c) Car Facility (Rule 33D) [7.5% of 18,00,000] (d) Allowance for Children [1,00,000 x 12] (e) Festival Bonus [1,50,000 x 2] (f) Utility Bills (g) Overseas Travels Less: Exempted (Rule 33G) (h) Bills paid for International Club INTERST ON SECURITIES [Section 22 -23] (a) Interest : 1,50,000 [It is mandatory to deduct tax @10% on source from Interest, so it is grossed up

3.

 100   1,50,000    90 ]

INCOME FROM HOUSE PROPERTY [Section 24] Annual Value –

18,00,000 4,50,000 1,35,000 12,00,000 3,00,000 3,00,000 10,00,000 7,50,000

2,50,000 2,50,000

46,85,000

1,66,667

1,66,667

MunicipalValue  -   Whicever is higher AnnualRent  12,00,000 

Less:

4.

12,00,000

Allowable Deductions [Section 25] 1 th (a) Repairs & Maintenance 4

INCOME FROM OTHER SOURCES [Section 33 – 34] (a) Dividend : 1,50,000 [It is mandatory to deduct tax @10% on source from

Dividend, so it is grossed up TOTAL INCOME

 100   1,50,000    90 ]

3,00,000

9,00,000

1,66,667

1,66,667 59,18,334

Computation of Investment Allowance Particulars LIP Govt. Bonds & Primary Shares ACTUAL INVESTMENT 25% of Total Income i.e. [25% of 59,18,334] Maximum Allowable Out of (a), (b) & (c) 10% of the lowest 10% of 5,00,000]

Taka

(a) (b) (c)

1,50,000 15,00,000 16,50,000 14,79,584 5,00,000 50,000

Computation of Tax Liability Particulars

Income

Rate

Tax

Upto On Next On Next On Next Balance Total Less: Income tax rebate on Investment Withholding Income Tax: On Interest on Securities On Dividend TOTAL TAX LIABILITY

1,65,000 2,75,000 3,25,000 3,75,000 47,78,334 59,18,334

10% 15% 20% 25%

27,500 48,750 75,000 11,94,584 13,45,834 50,000 16,667 16,667 12,62,500

Notes – 1) The total income and tax liability have been calculated in light of Finance Ordinance, 2008, considering all implication of assessment year 2008 – 2009.

2) Land & Mobile telephone bill have not been added to total income assuming the expenses is incurred only for the official purpose.

3) Salary to the driver is the income of the driver, so it has not been added to the total income of Mr. Milky.

Q.6.State how the assessment is done under the following circumstances (quote section in each case) : (i) Assessment in case of persons leaving Bangladesh ; Ans. Question No. 06 (1) Assessment in case of persons leaving Bangladesh As per section 91 of the ITO 1984, where it appears to the DCT that any person may leave Bangladesh during the current financial year and he has no intention of returning, an assessment may be made in that year-

1. in respect of each completed income year, at the rate at which tax would have been charged had it been fully assessed; 2. in respect of the period from the expiry of the completed income year to the probable date of departure, at the rate of the financial year. In this case financial year shall be deemed to be the assessment year; For the purpose of making assessment, the DCT may serve minimum 7 days notice to the person concerned for filing return.

For the purpose of assessment of tax, the notice of this section shall be treated as if it were a notice under section 77.

Q.6. (ii) Assessment in case of income of a deceased person ; Ans. Question No. 06 (ii) Assessment in case of income of deceased person 1. As per section 92 of the ITO 1984, where a person dies, his legal representative shall be liable to pay tax or other sum payable under this Ordinance and the legal representative of the deceased shall, for the purposes of this Ordinance, be deemed to be an assessee.

2. For the purposes of making an assessment of the income of the deceased and recovery of taxa) any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative; b) any proceeding which could have been taken against the deceased , if he had not died, may be taken against the legal representative; 3. The liability of the legal representative under this Ordinance shall be limited to the extent to which the estate of the deceased is capable of meeting the liability.

Q.6.(iii) Assessment in case of income escaping assessment.

Ans. Question No. 06 (iii) Assessment in case of income escaping assessment 1. As per section 93 of the ITO 1984, if for any reason, any income chargeable to tax for any assessment year has escaped assessment or has been under assessed or has been assessed at too low a rate or has been the subject of excessive relief or refund under this Ordinance, the DCT may issue a notice to the assessee containing all or any of the requirements which may be included in a notice under section 77 and may proceed to assess or determine the total income of the assessee or the tax payable by him.

Provided that the tax shall be charged at the rate or rates applicable to the assessment year for which the assessment is made.

2. No proceeding u/s 1, shall be initiated unless definite information has come into the possession of the DCT and he has obtained the prior approval of the Inspecting Joint Commissioner of Taxes (IJCT) in writing to do so, except in a case where a return has not been filed U/S 75 or 77.

3. Time limit for issuing notice for finalizing assessment is stated below: Time for issuing notice SI # Particular r, A Where no return has been filed u/s 93(3)(a) At any time B Concealment or furnishing of inaccurate Particulars Within 5 years from the end of the u/s 93(3)(b) concerned assessment year C In any other case Within 2 years from the end of the concerned assessment year Q. 7. Write short notes on the following: 3 x3=9 (a) Input tax rebate Ans. Question No. 07 (a) Input tax rebate Input tax paid by a registered person on the inputs imported or purchased by him can be adjusted under certain sections of the VAT Act or Rules etc. against output tax liability in the current account for a certain tax period which is called input tax rebate.

Persons willing to obtain input tax rebate must be registered and rebate can not be obtained in the form of refund.

Documents relating to input tax payment including the name, address and registration that is to say bill of entry on Mushak-11 challan or any other papers or records deemed to be challan must exist which should be retained for 4 years.

Rebate shall be availed within the concerned tax period: however. delay on reasonable grounds may be acceptable. On the other hand, rebate can not be obtained against challan of turnover tax.

Q.7.(b) VAT return; Ans. Question No. 07 (b) VAT return

Every VAT registered person has to submit information of his sales and purchase, imports-exports, tax payable, rebate obtained, treasury deposit, adjustments, balance, etc., to the total VAT office for its tax period within 10th (in case of insurance company the date will be 20th) of the following months in form ‗Mushak-19‘. This is known as VAT return.

VAT officials can get necessary primary information regarding the overall activities and tax liabilities of the taxpayers from the VAT return.

Q.7.(c) Deemed export.

Ans. Question No. 07 (c) Deemed export Deemed export means any of the following activities: 1) Supplies to organizations in EPZs or local 100% export oriented organization or against export L/C in exchange of foreign currency; 2) Supply of provisions, fuel and other goods to international flights or foreign bound vessels; 3) Supply of goods or services to international organizations, diplomatic missions etc.; 4) Supplies against international tender in foreign currency made by registered person in Bangladesh; 5) Export of goods imported on temporary basis in accordance with prescribed rules; 6) Fishing nets, steel ropes and fuel used in fishing trawlers engaged in catching fishes for exports; 7) The Board, through gazette notification, includes goods or supplies for drawback under conditions against any international agreements.

Q. 8. Briefly describe the price declaration procedure in FormVAT-1 for levy of VAT on the delivery of manufactured goods.

Ans. Question No. 08 : Price declaration procedure in VAT - 1 : Producers of taxable goods are required to submit information relating their products in accordance with VAT Rule 3 in form ‗Mushak-1‘. This is price declaration, which shall have to be submitted by any manufacturer or businessman to concerned customs, excise and VAT divisional office.

The following information shall be included at the time of price declaration: a) description of goods; b) value of inputs and where applicable, duties and taxes (other than VAT) paid on the inputs; c) all direct and indirect expenses of the organization (other than income tax); d) commission, charges, fees paid; e) profit; f) item wise value addition; g) sales price including duties and taxes.

Decision on the price declaration shall be made within 15 working days of its submission failing which the declared price shall be deemed to be accepted. When declared price is to be changed new declaration in form ‗Mushak-1‘ shall be submitted to the concerned divisional office before 7 working days of such change.

Trade discount may be allowed for a period of 30 days in a year and the discount amount shall not exceed 15% of the declared price. Besides, the policy of trade discount shall be advertised in the national daily.

Q. 9. What are the books and records required to be maintained as per VAT Act and Rules, 1991 by a VAT registered person?

Ans. Question No. 09: The books and records are to be maintained as per VAT Act and Rules 1991 are as follows : As per section 31 of VAT Act 1991, every registered person for determining his tax liability in a certain tax period has to maintain, keep in store the following books and record in the form and manner prescribed by the rules related to the goods or services bought, sold, supplied or rendered by him or by his agent: a) Statement of purchase together with challans of all taxable and exempted goods or services; b) Statement of supply of all taxable and exempted goods or services together with challans; c) Current account for payment of VAT; d) Statement of money deposited into the treasury through challans or to any bank approved by the Government for this purpose; e) Statement of stock of imports and finished goods; ee) Commercial documents related to taxable or exempted goods or supplies; 1) Books and records prescribed by rules; Provided that the Board through official gazette notification can prescribed the manner and the type of books and records to be mentioned by registered person.

Q. 10. Mention the applicable rate of VAT for the following service Tenderers : (a) Procurement provider;

(b) Audit and accounting firm; (c) T r a d e r ; (d) Building floor maintenance ; (e) Car rental; (f) Izaradar.

Ans. Question No. 10 In the case of following services from which VAT is required to be deducted at source at the time of payment: Name of the service providers % of deduction on total service value a) Procurement providers 2.25 b) Audit and accounting firms 4.5 c)Trader 4.5 Wholesale trader

1.5

Retail trader

2.25

d)Building floor maintenance e) Car r ent al f)Izaradar

2.25 4.5 15