CHAPTER - 4 INCOME FROM PROPERTY - PRACTICE QUESTIONS (398)

PRACTICE QUESTIONS
Question # 1
(a) Zia and Imtiaz Limited jointly purchased a commercial property for Rs. 50 million. The
agreed investment in the property was in the ratio of 70:30 respectively. To arrange
funds Imtiaz Limited borrowed Rs. 500,000 from their director in cash. The rate of
interest is agreed @ 15% per annum.
During the tax year 2021, the total rent earned was Rs. 3,000,000 inclusive of an amount
of Rs. 50,000 per month for utilities, furniture and fittings. For providing these services
Zia and Imtiaz Limited paid Rs. 20,000 per month. Insurance premium, collection
charges, administration charges and depreciation of Rs. 300,000, Rs. 240,000, Rs.
100,000 and Rs. 200,000 respectively were also paid/incurred by them jointly. Mr. Zia
also owns a house and 75 acre of agriculture land in Kasur. In July 2020 he entered into
an agreement with Yasir for sale of house for Rs. 30 million. As per terms of agreement
he received Rs. 5 million on the day contract was signed and balance amount was to be
paid on 31 August 2020. However due to financial difficulties, Yasir failed to pay the
balance amount on the due date and consequently Zia forfeited the advance in
accordance with terms of agreement. During the tax year 2021 he received annual rent
of Rs. 2 million from the tenant cultivating the agriculture land.
Required
Explain whether the income from the property will be assessed in the hands of Mr. Zia
and Mr. Imtiaz Limited jointly or separately and calculate their tax liability for tax year
2021.
Note: Zia has not opted for NTR.
(b) Paragon (Pvt.) Limited (PPL) owns a piece of agricultural land in Sehwan. On 1 January
2020, PPL rented out the land for poultry farming on commercial basis to one of its
associates, Hen Enterprises, at a monthly rent of Rs. 200,000. However, the annual
letting value of similar land in the area is estimated at Rs. 2,880,000. PPL also received
a non-adjustable deposit of Rs. 800,000 from Hen Enterprises.
Following expenses were incurred by PPL in respect of the land during the year ended
31 December 2020:
(i) Ground levelling expenses Rs. 50,000.
(ii) Property tax Rs. 150,000.
(iii) Rent collection charges Rs. 12,000.
(iv) Interest accrued on mortgage of land Rs. 75,000.
(v) Insurance premium against the risk of water logging Rs. 30,000.
Required:
Under the provisions of the Income Tax Ordinance, 2001 calculate PPL's taxable income
for tax year 2021.
CHAPTER - 4 INCOME FROM PROPERTY - PRACTICE QUESTIONS (399)

Question # 2
In the light of the provisions of the Income Tax Ordinance, 2001 read with Income Tax Rules,
2002 briefly explain the income tax implications for tax year 2021 in respect of each of the
following independent situations:
(i) Moiz transferred his warehouse situated in Malir to Arif by way of a revocable deed. Arif
derives annual income of Rs. 800,000 from the warehouse.
(ii) Al-Khidmat Foundation a non-profit organization has not registered itself under the
Income Tax Ordinance, 2001. During the tax year 2021, it earned property income of
Rs.30 million and sum of Rs. 50 million from Usmani Limited as donation and voluntarily
contribution for free treatment of deserving patients. Usmani Limited did not deduct any
tax while making payment. Discuss tax implications for both Al-Khidmat Foundation and
Usmani Limited.
(iii) Sameel has purchased four properties in a residential locality of Karachi. One property is
in his name, two properties are in the name of his wife and one in the name of his minor
son. All of the four properties are given on rent. Will Sameel be required to pay tax on
total rental income from all the four properties?
(iv) Usman a Pakistani citizen is living abroad in UK for the last 15 years. During the tax year
2021 he earned rental income of Rs. 1 million from his owned property located in
Lahore.
(v) Usman has received 3 years rent of Rs. 3,000,000 in advance and has offered the same
to tax in tax year 2021.
(vi) A piece of land was purchased by a wife from her own sources in 2018 and her husband
constructed a house thereon from his own sources in 2020. The property was given on
rent in 2021. How will rental income be taxed?
(vii) An individual Hamza receives rental income from number of tenants. For tax year 2021
the aggregate amount of rental income is Rs. 6 million. Tax has been withheld by each
tenant in accordance with applicable withholding rates to the tenant’s annual rental
payments. In most of the cases the annual rent paid by each tenant is less than Rs.
600,000. Hamza is of the view that tax withheld by each tenant will be treated as final tax
liability and he will not be required to pay any further tax.
(viii) On 20 June 2021 Arif earned gross rent of Rs. 150,000 from a construction company for
using his fork lifter on their site. The company withheld tax of Rs. 12,000 from the
payment. Arif incurred Rs. 15,000 for repair of the fork lifter.
(ix) A company has acquired a building from Federal Government at an annual rent of
Rs.2.5 million. The company is not withholding any income tax while making payment of
rent.
(x) A banking company has earned property income of Rs.50 million during tax year 2021.
How will such income will be taxed?
CHAPTER - 4 INCOME FROM PROPERTY - PRACTICE QUESTIONS (400)

Question # 3
Mr. Hassan, aged 65, has been resident in Pakistan for many years and offers his income for
tax on the accrual basis. He has provided the following information about his immovable
properties rented out to different persons during the year ended 30 June 2021:

House in Multan
(i) Hassan rented out his house in Multan to Kamal on 1 July 2018, at a monthly rent of Rs.
100,000. He had also received a non-adjustable deposit of Rs. 1,000,000 from Kamal at
the commencement of the rental. On 1 July 2020, Kamal vacated the house and the
non-adjustable deposit was returned to him in full.
(ii) On 1 July 2020, Hassan let the house to Waqar at a monthly rent of Rs. 120,000 which
included Rs. 20,000 for the services of a security guard. Hassan also received a new
non-adjustable deposit of Rs. 1,500,000 from Waqar.
(iii) In the accounting year ended 30 June 2021, Hassan incurred the following expenditure
on the house:

Nature of expenses
Rupees
Repair of the house 120,000
Collection charges 70,000
Property tax paid to the Excise and Taxation 350,000
Department
Expenditure for the preparation of the tenancy 25,000
agreement with Waqar

Legal fee paid for defending the title to the house in a 100,000
court of law
Annual salary paid to the security guard 200,000

Profit paid to a bank on a loan utilized for renovating 50,000

the house
Insurance premium paid to cover the risk of damage 30,000
by fire

Building with plant and machinery

On 1 August 2020, Hassan purchased a new building in which new biscuit manufacturing plant
and machinery had been installed. The consideration paid as specified in the purchase deed
was Rs. 8,000,000 for the building and Rs. 4,000,000 for the plant and machinery installed in
the building. On 1 October 2020, the building together with the plant and machinery was rented
out to Tasty Biscuits (Pvt.) Limited for a composite rent of Rs. 800,000 per month. Hassan also
received a non-adjustable advance of Rs. 1,000,000 from the company.
CHAPTER - 4 INCOME FROM PROPERTY - PRACTICE QUESTIONS (401)

(i) In the accounting year ended 30 June 2021, Hassan incurred the following expenditure
on the building:

Nature of expenses Rupees

Distempering the building 90,000
Interest-free refundable security deposited with the 400,000
electricity providing company
Property tax on the building paid to the local 300,000
government for nine months
Legal fee for preparing the rental agreement 35,000

Salary paid to a technician for maintaining the 400,000

machinery
Hassan has also provided the following additional information relevant to the accounting
year ended 30 June 2021:
(i) Unless stated otherwise, all expenditure has been paid via a mode admissible
under the law and tax deducted wherever applicable.
(ii) During the year, Hassan received a pension of Rs. 10,000 per month from his ex-
employer, the Government of Pakistan.
(iii) Hassan had incurred Rs. 35,000 on his medical treatment. He has kept complete
evidence of the expenditure, as required under the law.
(iv) Tax withheld from/paid by Hassan was:
 Rs. 3,000 on his prepaid mobile phone cards.
 Rs. 20,000 on the purchase of domestic air tickets by Hassan.
 Rs. 350,000 paid as advance tax in four equal quarterly instalments.
Required:
(a) Compute Mr. Hassan’s taxable income for the tax year 2021, giving clear explanations
for the treatment of any items excluded from taxable income or for which no
expense/deduction is allowed.
(b) Calculate the total tax payable by him on the basis of the taxable income computed in
part (a) above.
(c) Compute Taxable income under the head income from property assuming question
pertains to a company.