DEFINITIONS

APPELLATE TRIBUNAL:
Appellate tribunal means the Appellate tribunal Inland Revenue made under section 130
In case of any dispute between the taxpayers and tax department an appeal can be made to
Appellate tribunal. This is the highest judicial authority in the matters of tax. It consists of
judicial as well as accountant members. The members are appointed by the Federal Government.
The decision of the tribunal on point of facts is final. However, in case of point of law the matter
may be referred to high court.

ASSESSMENT:
It includes re assessment and amended assessment and the cognate expressions shall be
construed accordingly.

EXPLANATION:
Assessment is a process whereby the data of a person e.g. income, expenses, tax payments etc
which help in calculating his final tax liability is checked either by the person himself or by the
tax department.

NOTE: Any type of assessment after the original assessment is termed as amended
assessment.

ASSESSMENT YEAR:
Assessment year means a period of 12 months beginning on the first day of July next following
the income year. It also includes any such period, which is deemed to be the assessment year in
respect of any income, or income year.
From the above definition it should be noted that:
1.

Assessment year is a period of 12 months

2.

This year starts on 1st day of July immediate after the close of the income year.

EXAMPLE 1.1: this table shall sufficiently explain the concept of assessment year
Tax payer
Income year ending on
Assessment year

Income year

Assessment year starting from

A31-03-2005

2004-05

01-07-2005

2005-06

B30-06-2005

2004-05

01-07-2005

2005-06

C31-08-2005

2004-05

01-07-2006

2006-07

D30-09-2005

2004-05

E 31-12-2005

2005

01-07-2006

01-07-2006

2006-07

2006-07

NOTE: under the Income Tax Ordinance, 2001 it is the tax year and not the assessment
year or income year in respect of which the tax liability is determined.

ASSOCIATION OF PERSONS:
Association of persons includes a firm, a Hindu undivided family and artificial juridical person
and anybody of persons formed under a foreign law, but does not include a company.

BUSINESS:
It includes any trade, commerce, manufacture, profession, vocation or adventure or concern in
the nature of trade, commerce, manufacture, profession or vocation but does not include
employment.

EXPLANATION:
The definition includes the following terms:
1. Trade: any dealing between 2 or more parties for purchase and sale of commodities to earn
profit.
2. Commerce: the activities to facilitate the exchange of goods between producers and
consumers such as transportation, insurance, warehousing, banking etc
3. Manufacture: it means transforming inputs into a form which has greater value to customers
4. Profession or Vocation: it is the occupation that requires specialized education or training.
Like architecture, law, medicine etc.

BOARD:
Until 30th June 2006 board meant Central Board of Revenue as established under the Central
Board of Revenue Act, 1924 and on the commencement of Federal Board of Revenue Act 2007,
Board means the Federal Board of Revenue.

CAPITAL ASSETS:
Capital assets means property of any kind held by a person whether or not connected with a
business, but does not include:

Any stock-in-trade (not being stocks and shares), consumable stores or raw materials held
for the purpose of business

Any depreciable assets

Any intangible asset on which amortization is allowed

Any immovable property

Any movable property held for personal use by the person or his family member
dependent upon him. However, the following assets shall be treated as capital assets:
I.

A painting, sculpture, drawing or other work of art

II.

Jewelry

III.

A rare manuscript, folio or book

IV.

A postage stamp or first day cover

V.

A coin or medallion

VI.

An antique

COMPANY:
Company means a company formed and registered under the Companies Ordinance 1984.

A body corporate formed by or under any law in force in Pakistan.

A modaraba

A company incorporated outside Pakistan

A trust

A cooperative society

A finance society

Any other society established under any law

A foreign association declared by CBR as company

A provincial Government

A local authority in Pakistan

EXPLANATION:
The Company is created by law and so has a distinct legal entity. For the purpose of tax, a
company is treated to be a separate business entity apart from its shareholders. Any foreign body,

even if it is an incorporated association, can be declared as company by the board and will be
taxed as such.

COMMISIONER:
It means a person appointed as a commissioner of income tax under section 208, and includes a
taxation officer vested with all or any of the powers, and functions of the commissioner.

COMMISIONER APPEAL:
It means a person appointed as a commissioner of income tax (appeals) under sec 208 of the
Income Tax Ordinance, 2001. This authority is appointed to hear the appeals filed by a taxpayer
against the orders of the CIT.

Rent: [2(49), 15(2) to (5), 16]

Rent means any amount received or receivable by the owner of the land or the building for the
use or occupation by some other person.
Generally the amount received or receivable is taken as rent. However, where the fair market
rent is more than the actual rent, then the fair market rent shall be taken as rent.

Salary: [2(55) & 12]

Any salary received by an employee in a tax year , other than salary that is exempt from
tax under this Ordinance ,shall be chargeable to tax in the year under the head salary.

Explanation:
Salary is a reward or recompense for service performed. In a more limited sense, a fixed
periodical compensation paid by an employer for the services rendered by an employee is termed
as salary.
For the purpose of Income Tax, salary means any amount received by an employee from any
employment. It includes any:
1. Pay;
2. Wages;
3. Leave pay
4. Overtime;
5. Bonus;
6. Annuity
7. Pension;
8. Gratuity;
9. Fees;
10. Commission;

11.
12.
13.
14.
15.

Allowances;
Perquisites;
Profit in lieu of or in addition to the salary or wages ;and
Amount chargeable to tax on account of Employee Share Option Scheme (u/s 14) .
Any other benefit provided by the employer to his employee.

Tax: [2(63)]
Tax means any amount chargeable, leviable or payable under the Income Tax
Ordinance, 2001.It may be:
1.
2.
3.
4.

5.

Income tax,
Additional tax,
Penalty,
Fee, and
Any other charge under the Income Tax Ordinance.

Taxable Income: [2(64) &9]

The taxable income of a person for a tax year shall be the total income of the
person for the year as reduced by any deductible allowance. However, the taxable income should
not be below zero.
Taxable Income means the amount which is computed as below:
Total Income of the person for the year

XXX

Less: Deductible Allowances:

1. Zakat paid under Zakat and Usher Ordinance
2. Contribute to Workers Participation Fund
3. Workers Welfare Fund paid under Workers Welfare
Fund Ordinance, 1971
Taxable Income

XXX
XXX
XXX

XXX
XXX

Taxation Officer: [2(65)]

Any of the following appointed officers by CBR for the purpose of the Income Tax
Ordinance shall be a Taxation Officer:
1. Additional Commissioner of Income Tax;
2. Deputy Commissioner of Income Tax;
3. Assistant Commissioner of Income Tax;
4. Income Tax Officer;

5. Special Officer; or
6. Any other officer.
A taxation officer is subordinate to the commissioner (CIT) under whose jurisdiction he is
working. However, if he is vested with the powers and functions of the Commissioner [as
allowed u/s205 (2)], he shall be subordinate to RCIT instead of CIT . 207(4) and (5)].

Explanation:
He is the person who collects revenue. He collects and measure tax and work according to it.

Tax Treaty: [2(67) &107]

Tax treaty is an agreement entered into by the Federal Government with the government of
a foreign country for the purpose of avoidance of double taxation and the prevention of fiscal
evasion with respect to the taxes on Income Tax Ordinance and the income tax law of that
country.

Total Income:
The sum of all the money received by an individual or organization, including income from
employment or providing services, revenue, from sales, payments, pension plans, income
dividends or other sources.

Total Income [2(69) & 10]

Total Income of a person for a tax year means the total of his incomes under each of the
following heads of income:
1.
2.
3.
4.
5.

Salary;
Income from Property;
Income from Business;
Capital Gains ; and
Income from Other Sources.

Agricultural Income:
The agricultural income means income:
i.
ii.
iii.

derived from land;

land is situated in Pakistan ;and
Land is used for agricultural purposes.

Thus any income derived as rent, revenue, or from sale of any produce which is grown on a
Pakistani land is agricultural income. However, it is necessary to understand that the land must

be used for agricultural purposes, which means that the land must be used for agricultural
purposes, which means that some human labour and efforts are necessary to be employed. If a
produce is grown wild or spontaneously on land without any human effort or labor, it will not be
treated as agricultural income under this definition.

Types of Agricultural Income:

Agricultural Income has been classified into five categories:
1. Rent or revenue from agricultural land.
2. Income derived from such land by agriculture.
3. Income derived from such land by the performance of a process ordinarily employed by
a cultivator or receiver of rent in kind to render the produce fit for market.
4. Income derived from such land by the sale of produce by a cultivator or receiver of rent
in kind.
5. Income derived from any building required for agricultural purposes.

Income Year: - section [2(29A)]

Income year means income year as defined in the repealed Ordinance.

Explanation:
This is the accounting period under consideration specifically during which income was earned
in the financial year. It varies by country tax laws.
Income year is a period, generally a year during which a tax period earns income under section
2(26) of the repealed Ordinance, the income year means each of the following periods:
1) The financial year next receding the assessment year(in Pakistan financial year starts
from 1st July and ends 30th June ,next).
2) Any such period as the Central Board of Revenue (CBR) may specify. The CBR has an
authority to specify any special income year in the case of :
i. Any person
ii. Any class of persons or
iii.
Any source of income
3) Any period which is deemed to be as income year.

Tax year: [2 (68) &74]

The Income Tax Ordinance, 2001 recognizes the following different types of tax years.
1. Normal tax year
2. Special tax year; and
3. Transitional tax year.

The term tax year includes all the above stated tax years. Coming paragraphs contain the
definitions of all types of tax year.

Person: [2(42) & 80(1)]

Person means a person as defined in section 80.
The following shall be treated as persons for the purpose of this ordinance, namely:
a) An individual;
b) A company or association of persons incorporated, formed, organized or established in
Pakistan or elsewhere;
c) The federal Government, a foreign government, a political subdivision of a
foreign government, or public international organization.

Explanation:
In short we can say that a person as defined in Income tax Ordinance 2001 can be an individual,
a Company, an Association of Persons (AOP), Federal Government, a political Sub Division of a
Foreign Government or a Public International Organization.

Resident:
Definition:
(50) Resident company means a resident company as defined in section 83;
(51) Resident individual means a resident individual as defined in section 83;
(52) Resident person means a resident person as defined in section 81;
(53) Resident taxpayer means taxpayer who is a resident person;

Explanation:
Resident Company:
For a tax year a company shall be a resident if any of the following conditions are satisfied:
1. The company is formed under any law enforce in Pakistan;
2. The control and management of the company affairs is situated wholly in Pakistan in the
tax year;
3. It is a Provincial Government;
4. It is the local authority in Pakistan

Resident Individual:

An individual shall be resident if he satisfies any of the following conditions;

1. He is in Pakistan for a period of one hundred and eighty two(182) days or more during
the tax year;
2. He is an employee or official of the Government posted abroad in the tax
year.

Resident Person:
A person shall be a resident for a tax year if:
1. For the tax year the person is ;
i.
ii.
iii.

A resident individual
A resident association of persons; or
A resident company; or

2. The person is the Federal Government.

Resident Taxpayer:
Resident taxpayer means a taxpayer who is a resident person.

Resident Associations of Persons:

An AOP shall be resident in the next tax year if the control and management of its affairs is
situated wholly or partly in Pakistan during the tax year.

Non Resident:
Definition:
(37) Non-resident person means a non- resident person as defined in section 81;
(38) Non-resident taxpayer means a tax payer who is a non-resident person;

Explanation:
Non-resident Person:
A person shall be treated as non-resident for a year in which he is not a resident person.

Non-Resident Taxpayer:
Non-resident taxpayer means a taxpayer who is a non-resident person.