The Income Tax Ordinance, 2001 Definitions

The Income Tax Ordinance, 2001

Section

2.      Definitions.-

In this Ordinance, unless there is anything repugnant in the subject or context –

(1)    "accumulated profits" in relation to distribution or payment of a dividend, include–

(a)    any reserve made up wholly or partly of any allowance, deduction, or exemption admissible under this Ordinance;

(b)    for the purposes of sub-clauses (a), (d) and (e) of clause (19), all profits of the company including income and gains of a trust up to the date of such distribution or such payment, as the case may be; and

(c)    for the purposes of sub-clause (c) of clause (19), includes all profits of the company including income and gains of a trust up to the date of its liquidation;

(1A)  “amalgamation”  means the merger of one or more banking companies or non-banking financial institutions, or insurance companies, or companies owning and managing industrial undertakings or companies engaged in providing services and not being a trading company or companies in either case at least one of them being a public company, or a company incorporated under any law, other than Companies Ordinance, 1984 (XLVII of 1984), for the time being in force, (the company or companies which so merge being referred to as the “amalgamating company” or companies and the company with which they merge or which is formed as a result of merger, as the “amalgamated company”) in such manner that –

(a)    the assets of the amalgamating company or companies immediately before the amalgamation become the assets of the amalgamated company by virtue of the amalgamation, otherwise than by purchase of such assets by the amalgamated company or as a result of distribution of such assets to the amalgamated company after the winding up of the amalgamating company or companies; and

(b)    the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation. 

        clause (c) deleted by Finance Act, 2005 which previously read as follows :

        (c)    the scheme of amalgamation is approved by the State Bank of Pakistan or by the Securities and Exchange Commission of Pakistan on or before thirtieth day of June, 2006;

(2)    “Appellate Tribunal” means the Appellate Tribunal established under section 130;  

(3)    “approved gratuity fund” means a gratuity fund approved by the Commissioner in accordance with Part III of the Sixth Schedule;

(3A) "Approved Annuity Plan" means an Annuity Plan approved by Securities and Exchange Commission of Pakistan (SECP) under Voluntary Pension System Rules, 2005 and offered by a Life Insurance Company registered with the SECP under Insurance Ordinance, 2000 (XXXIX of 2000).

(3B)  "Approved Income Payment Plan" means an Income Payment Plan approved by Securities and Exchange Commission of Pakistan (SECP) under Voluntary Pension System Rules, 2005 and offered by a Pension Fund Manager registered with the SECP under Voluntary Pension System Rules, 2005;

(3C)  "Approved Pension Fund" means Pension Fund approved by Securities and Exchange Commission of Pakistan (SECP) under Voluntary Pension System Rules, 2005, and managed by a Pension Fund Manager registered with the SECP under Voluntary Pension System Rules, 2005

(3D) “Approved Employment Pension or Annuity Scheme” means any employment related retirement scheme approved under this Ordinance, which makes periodical payment to a beneficiary i.e. pension or annuity such as approved superannuation fund, public sector pension scheme and Employees Old-Age Benefit Scheme;

 (3E) “Approved Occupational Savings Scheme” means any approved gratuity fund or recognized provident fund;

(4)    “approved superannuation fund” means a superannuation fund, or any part of a superannuation fund, approved by the Commissioner in accordance with Part II of the Sixth Schedule;

(5)    “assessment” includes re-assessment and amended assessment and the cognate expressions shall be construed accordingly;

(5A) “assessment year” means assessment year as defined in the repealed Ordinance;

(5B)  “asset management company” means a company registered under the Assets Management Companies Rules, 1995;

(6)    “association of persons” means an association of persons as defined in section 80;

(7)    “banking company” means a banking company as defined in the Banking Companies Ordinance, 1962 (LVII of 1962) and includes any body corporate which transacts the business of banking in Pakistan;

(8)    “bonus shares” includes bonus units in a unit trust;

(9)    “business” 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;

(10)   “capital asset” means a capital asset as defined in section 37;

(11) “Board” means the Central Board of Revenue established under the Central Board of Revenue Act, 1924 (IV of 1924), and on the commencement of Federal Board of Revenue Act, 2007, the Federal Board of Revenue established under section 3 thereof”;

before substitution by Finance Act 2007 clause 11 read as follows

(11)   “Central Board of Revenue” means the Central Board of Revenue established under the Central Board of Revenue Act, 1924 (IV of 1924);

(11A) “charitable purpose” includes relief of the poor, education, medical relief and the advancement of any other object of general public utility;

(12)   “company” means a company as defined in section 80;

(13)   “Commissioner” 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;

(13A) “Commissioner (Appeals)” means a person appointed as a Commissioner of Income Tax (Appeals) under section 208;

   

(13B) “Contribution to an Approved Pension Fund” means contribution as defined in rule 2(j) of the Voluntary Pension System Rules, 2005, (omitted by Finance Bill 2006 but not exceeding five hundred thousand rupees in a tax year.)

(14)   “co-operative society” means a co-operative society registered under the Co-operative Societies Act, 1925 (VII of 1925) or under any other law for the time being in force in Pakistan for the registration of co-operative societies;

(15)   “debt” means any amount owing, including accounts payable and the amounts owing under promissory notes, bills of exchange, debentures, securities, bonds or other financial instruments;

(16)   “deductible allowance” means an allowance that is deductible from total income under Part IX of Chapter III;

(17)   “depreciable asset” means a depreciable asset as defined in section 22;

(18)   “disposal” in relation to an asset, means a disposal as defined in section 75;

(19)   “dividend” includes –  

(a)    any distribution by a company of accumulated profits to its shareholders, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets including money of the company;  

(b)    any distribution by a company, to its shareholders of debentures, debenture-stock or deposit certificate in any form, whether with or without profit, to the extent to which the company possesses accumulated profits whether capitalised or not;

(c)    any distribution made to the shareholders 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 capitalised 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 capitalised or not; or

(e)    any payment by a private company as defined in the Companies Ordinance, 1984 (XLVII of 1984) or trust of any sum (whether as representing a part of the assets of the company or trust, or otherwise) by way of advance or loan to a shareholder or any payment by any such company or trust on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company or trust, in either case, possesses accumulated profits;

but does not include –

(i)     a distribution made in accordance with sub-clause (c) or (d) in respect of any share for full cash consideration, or redemption of debentures or debenture stock, where the holder of the share or debenture is not entitled in the event of liquidation to participate in the surplus assets;  

(ii)    any advance or loan made to a shareholder by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company; and

(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 a dividend within the meaning of sub-clause (c) to the extent to which it is so set off;

(19A) “Eligible Person”, for the purpose of Voluntary Pension System Rules, 2005, means an individual Pakistani who holds (substituted for has obtained) a valid National Tax Number or Computerized National Identity Card issued by the National Database and Registration Authority (omitted by Finance Bill 2006 but does not include an individual who is entitled to benefit under any other approved employment pension or annuity scheme.),

            Provided that the total tax credit available for the contribution made to approved employment pension or annuity scheme and approved pension fund under Voluntary Pension System Rules, 2005, should not exceed the limit prescribed or specified in section 63.

(20)   “employee” means any individual engaged in employment;

(21)   “employer” means any person who engages and remunerates an employee;

(22)   “employment includes –

(a)    a directorship or any other office involved in the management of a company;

(b)    a position entitling the holder to a fixed or ascertainable remuneration; or

(c)    the holding or acting in any public office;

(23)   “fee for technical services” means any consideration, whether periodical or lump sum, for the rendering of any managerial, technical or consultancy services including the services of technical or other personnel, but does not include –

(a)    consideration for services rendered in relation to a construction, assembly or like project undertaken by the recipient; or  

(b)    consideration which would be income of the recipient chargeable under the head “Salary”;

(24)   “financial institution” means an institution defined (substituted for notified) under the Companies Ordinance, 1984 (XLVII of 1984)(Words "by the Federal Government in the official Gazette as a financial institution" omitted by Finance Act, 2003);

(25)   “finance society” includes a co-operative society which accepts money on deposit or otherwise for the purposes of advancing loans or making investments in the ordinary course of business;

(26)   “firm” means a firm as defined in section 80;

(27)   “foreign-source income” means foreign-source income as defined in subsection (16) of section 101.

(28)   “House Building Finance Corporation” means the Corporation constituted under the House Building Finance Corporation Act, 1952 (XVIII of 1952);

(29)   “income” includes any amount chargeable to tax under this Ordinance, any amount subject to collection or deduction of tax under sections 148, 153, 154, 150, 152(1), 156, 156A, 233 and 233A  sub-section (5) of section 234 (substituted for "and 156" by Finance Act 2005) any amount treated as income under any provision of this Ordinance, and any loss of income but does not include, in case of a shareholder of a (Word "domestic" omitted by Finance Act, 2003) company, the amount representing the face value of any bonus share or the amount of any bonus declared, issued or paid by the company to the shareholders with a view to increasing its paid up share capital;

(29A) “income year” means income year as defined in the repealed Ordinance;

   

(29B) “Individual Pension Account” means an account maintained by an eligible person with a Pension Fund Manager approved under the Voluntary Pension System Rules, 2005.

(29C) “Industrial undertaking” means –

(a)    an undertaking which is set up in Pakistan and which employs, (i) ten or more persons in Pakistan and involves the use of electrical energy or any other form of energy which is mechanically transmitted and is not generated by human or animal energy; or  (ii) twenty or more persons in Pakistan and does not involve the use of electrical energy or any other form of energy which is mechanically transmitted and is not generated by human or animal energy and which is engaged in,–

       (i)     the manufacture of goods or materials or the subjection of goods or  materials to any process which substantially changes their original condition;

(ii)   ship-building;

(iii)    generation, conversion, transmission or distribution of electrical energy, or the supply of hydraulic power; or

(iv)    the working of any mine, oil-well or any other source of mineral deposits; and

 (b)   any other industrial undertaking which the Central Board of Revenue may by notification in the official Gazette, specify.

(30)   “intangible” means an intangible as defined in section 24;

(30A) “leasing company” means a company licensed under the Leasing Companies (Establishment and Regulation) Rules, 2000;

(31)   “liquidation” in relation to a company, includes the termination of a trust;

(31A)  “investment company” means a company registered under the Investment Companies and Investment Advisors Rules, 1971;

(32)   “member” in relation to an association of persons, includes a partner in a firm;

(33)   “minor child” means an individual who is under the age of eighteen years at the end of a tax year;

(34)   “modaraba” means a modaraba as defined in the Modaraba Companies and Modarabas (Floatation and Control) Ordinance, 1980 (XXXI of 1980);

(35)   “modaraba certificate” means a modaraba certificate as defined in the Modaraba Companies and Modarabas (Floatation and Control) Ordinance, 1980 (XXXI of 1980);

(35A)  “Mutual Fund” means a mutual fund registered or approved by the Securities and Exchange Commission of Pakistan (Substituted for "set up by the Investment Corporation of Pakistan or by an investment company" by Finance Act, 2003);

(35B)    “non-banking finance company” means an institution notified under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003.

(36)   “non-profit organization” means any person, other than an individual, which is --

(a)    established for religious, educational, charitable, welfare or development purposes, or for the promotion of an amateur sport;

(b)    formed and registered under any law as a non-profit organization;

(c)    approved by the Commissioner for specified period, on an application made by such person in the prescribed form and manner, accompanied by the prescribed documents and, on requisition, such other documents as may be required by the Commissioner;

and none of the assets of such person confers, or may confer, a private benefit to any other person;

(37)   “non-resident person” means a non-resident person as defined in Section 81;

(38)   “non-resident taxpayer” means a taxpayer who is a non-resident person;

(39)   “Originator” means Originator as defined in the Asset Backed Securitization Rules, 1999;

(40)   “Pakistan-source income” means Pakistan-source income as defined in section 101;

   

(40A) “Pension Fund Manager" means an asset management company registered under the Non-Banking Finance Companies (Establishment and Regulations) Rules, 2003, or a life insurance company registered under Insurance Ordinance, 2000 (XXXIX of 2000), duly authorized by the Securities and Exchange Commission of Pakistan and approved under the Voluntary Pension System Rules, 2005, to manage the Approved Pension Fund.

(41)   “permanent establishment” in relation to a person, means a fixed place of business through which the business of the person is wholly or partly carried on, and includes–

(a)    a place of management, branch, office, factory or workshop, premises for soliciting orders, warehouse, permanent sales exhibition or sales outlet, other than a liaison office except where the office engages in the negotiation of contracts (other than contracts of purchase);  

(b)    a mine, oil or gas well, quarry or any other place of extraction of natural resources;  

(ba)   an agricultural, pastoral or forestry property;

(c)    a building site, a construction, assembly or installation project or supervisory activities connected with such site or projectbut only where such site, project and its connected supervisory activities continue for a period or periods aggregating more than ninety days within any twelve-months period;

(d)    the furnishing of services, including consultancy services, by any person through employees or other personnel engaged by the person for such purpose (Comma and words ", but only where activities of that nature continue for the same or a connected project within Pakistan for a period or periods aggregating more than ninety days within any twelve-month period" omitted by Finance Act, 2003);

(e)    a person acting in Pakistan on behalf of the person (hereinafter referred to as the “agent”), other than an agent of independent status acting in the ordinary course of business as such, if the agent –  

(i)     has and habitually exercises an authority to conclude contracts on behalf of the other person;

(ii)     has no such authority, but habitually maintains a stock-in-trade or other merchandise from which the agent regularly delivers goods or merchandise on behalf of the other person; or

(f)     any substantial equipment installed, or other asset or property capable of activity giving rise to income;

(42)   “person” means a person as defined in section 80;

(43)   “pre-commencement expenditure” means a pre-commencement expenditure as defined in section 25;

(44)   “prescribed” means prescribed by rules made under this Ordinance;  

(44A) "Principal officer" used with reference to a company or association of persons includes

(a)    a director, a manager, secretary, agent, accountant or any similar officer; and

(b)    any person connected with the management or administration of the company or association of persons upon whom the Commissioner has served a notice of treating him as the principal officer thereof;

(45)   “private company” means a company that is not a public company;

(45A) “Private Equity and Venture Capital Fund” means a fund registered with the Securities and Exchange Co`mmission of Pakistan under the Private Equity and Venture Capital Fund Rules, 2007;

 (45B) “Private Equity and Venture Capital Fund Management Company” means a company     licensed by the Securities and Exchange Commission of Pakistan under the Private Equity and Venture Capital Fund Rules, 2007

(46)   “profit on a debt” whether payable or receivable, means (Substituted for "means" by Finance Act, 2003) –  

(a)    any profit, yield, interest, discount, premium or other amount, owing under a debt, other than a return of capital; or  

(b)    any service fee or other charge in respect of a debt, including any fee or charge incurred in respect of a credit facility which has not been utilised;

(47)   “public company” means –  

(a)    a company in which not less than fifty per cent of the shares are held by the Federal Government or Provincial Government;  

(ab)  a company in not less than fifty per cent of the shares (Substituted for "which" by Finance Act, 2005) are held by a foreign Government, or a foreign company owned by a foreign Government;

(b)    a company whose shares were traded on a registered stock exchange in Pakistan at any time in the tax year and which remained listed on that exchange at the end of that year; or  

(c)    a unit trust whose units are widely available to the public and any other trust as defined in the Trusts Act, 1882 (II of 1882); 

Sub-Clause (c) substituted by Finance Act, 2003 which previously read as follows : 

"(c)      a unit trust whose units are widely available to the public and any other public trust;"

(47A) “Real Estate Investment Trust (REIT)” means a scheme which consists of a closed-end collective investment scheme constituted as a unit trust fund and managed by a REIT management company for the purposes of investment in real estate, approved and authorized by the Security and Exchange Commission of Pakistan under the Real Estate Investment Trust Rules, 2006;

 (47B) “Real Estate Investment Trust Management Company” means a company licensed by the Security and Exchange Commission of Pakistan under the Real Estate Investment Trust Rules, 2006.

(48)   “recognised provident fund” means a provident fund recognised by the Commissioner in accordance with Part I of the Sixth Schedule;

(48A) “Regional Commissioner” means a person appointed as a Regional Commissioner of Income Tax under section 208 and includes a Director-General of Income Tax and Sales Tax;

(49)   “rent” means rent as defined in sub-section (2) of section 15 and includes an amount treated as rent under section 16;

(49A)  “repealed Ordinance” means Income Tax Ordinance, 1979 (XXXI of 1979);

(50)   “resident company” means a resident company as defined in section 83;

(51)   “resident individual means a resident individual as defined in section 82;

(52)   “resident person” means a resident person as defined in section 81;

(53)   “resident taxpayer” means a taxpayer who is a resident person;

(54)   “royalty” means any amount paid or payable, however described or computed, whether periodical or a lump sum, as consideration for –  

(a)    the use of, or right to use any patent, invention, design or model, secret formula or process, trademark or other like property or right;  

(b)    the use of, or right to use any copyright of a literary, artistic or scientific work, including films or video tapes for use in connection with television or tapes in connection with radio broadcasting, but shall not include consideration for the sale, distribution or exhibition of cinematograph films;  

(c)    the receipt of, or right to receive, any visual images or sounds, or both, transmitted by satellite, cable, optic fiber or similar technology in connection with television, radio or internet broadcasting;  

(d)    the supply of any technical, industrial, commercial or scientific knowledge, experience or skill;  

(e)    the use of or right to use any industrial, commercial or scientific equipment;  

(f)     the supply of any assistance that is ancillary and subsidiary to, and is furnished as a means of enabling the application or enjoyment of, any such property or right as mentioned in sub-clauses (a) through (e); and  

(g)    the disposal of any property or right referred to in sub-clauses (a) through (e);

(55)   “salary” means salary as defined in section 12;

(56)   “Schedule” means a Schedule to this Ordinance;

(57)   “securitization” means securitization as defined in the Asset Backed Securitization Rules, 1999;

(58)   “share” in relation to a company, includes a modaraba certificate and the interest of a beneficiary in a trust (including units in a trust);

(59)   “shareholder” in relation to a company, includes a modaraba certificate holder, a unit holder of a unit trust and a beneficiary of a trust;

(59A) “small company” means a company registered on or after the first day of July, 2005, under the Companies Ordinance, 1984 (XLVII) of 1984, which,–

                

(i)     has paid up capital plus undistributed reserves not exceeding twenty-five million rupees;

(ia) has employees not exceeding two hundred and fifty any time during the year

(ii)     has annual turnover not exceeding two hundred and fifty million rupees; and

(iii)    is not formed by the splitting up or the reconstitution of business already in existence.

(60)   “Special Purpose Vehicle” means a Special Purpose Vehicle as defined in the Asset Backed Securitization Rules, 1999;

(61)   “speculation business” means a speculation business as defined in section 19;

(62)   “stock-in-trade” means stock-in-trade as defined in section 35;

(63)   “tax” means any tax imposed under Chapter II, and includes any penalty, fee or other charge or any sum or amount leviable or payable under this Ordinance;

(64)   “taxable income” means taxable income as defined in section 9;

(65)   “taxation officer” means any Additional Commissioner of Income Tax, Deputy Commissioner of Income Tax, Assistant Commissioner of Income Tax, Income Tax Officer, Special Officer or any other officer however designated appointed by the Central Board of Revenue for the purposes of this Ordinance;

(66)   “taxpayer” means any person who derives an amount chargeable to tax under this Ordinance, and includes –  

(a)    any representative of a person who derives an amount chargeable to tax under this Ordinance;  

(b)    any person who is required to deduct or collect tax under Part V of Chapter X and Chapter XII; or  

(c)    any person required to furnish a return of income or pay tax under this Ordinance;

(67)   “tax treaty” means an agreement referred to in section 107;

(68)   “tax year” means the tax year as defined in sub-section (1) of section 74 and, in relation to a person, includes a special year or a transitional year that the person is permitted to use under section 74;

(69)   “total income” means total income as defined in section 10;

(70)   “trust” means a “trust” as defined in section 80;

(71)   “underlying ownership” means an underlying ownership as defined in section 98;

(72)   “units” means units in a unit trust; and

(73)   “unit trust” means a unit trust as defined in section 80.

(74)   “Venture Capital Company" and “Venture Capital Fund” shall have the same meanings as are assigned to them under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003;