INCOME FROM BUSINESS: ILLUSTRATION 9

State with reasons whether the following are admissible or not:

1. Audit fee
2. Provision for bad and doubtful debts

3. Excise duty

4. Interest on long-term loans

5. Fines and penalties

6.Loss of cash embezzled by an employee

7. The charity paid to a beggar

8. Wealth tax paid

9. Zakat paid into Zakat Fund

10. Income tax paid

Solution

1. Admissible Expenditure. fee is a and revenue expenditure.

2.Non-Admissible Expenditure. No provision or reserve is allowed by the income tax authorities except amount transferred to Participatory Reserve under section 20.

3.Admissible. As this expenditure is necessary for the purpose of continuation of the business, it is an admissible expenditure.

4. Admissible. Interest on borrowed money is admissible under section 23.

5. Non-Admissible. A fine or penalty imposed for breach of any law is not deductible because infraction of law is not a normal incident of business.

6. Admissible. When the amount is embezzled through the carelessness of the employee in the regular course of business, it is an admissible expenditure. When the amount is embezzled after the working hours, it is non-admissible expenditure.

7. Non-Admissible. The sums paid by way of voluntary charities are not allowed to be deducted because it is not for the purpose of or profession, rather Dfa Ho it is a personal expense.

8. Non-Admissible. Wealth tax is a personal tax.

9. Admissible. Zakat paid can also be deducted from gross total income.

10. Non-Admissible. All the taxes paid on profits of the business are non- admissible.