12.  Income deemed to accrue or arise in Pakistan:-

(1)   Income which would be chargeable under the head "Salary" shall be deemed to accrue or arise in Pakistan, wherever paid, if it is earned in Pakistan, or if it is paid by, or on behalf of, the Government or a local authority in Pakistan to a person in the service of such Government or authority, as the case may be.

(2)   Any income accruing or arising, whether directly or indirectly, through or from-

(a)    any business connection in Pakistan;

(b)    any asset, property or source of income in Pakistan; or

(c)    transfer of a capital asset situated in Pakistan,

shall be deemed to accrue or arise in Pakistan:

Provided that, in the case of a business all the operations of which are not carried out in Pakistan, the income of the business deemed under this sub-section to accrue or arise in Pakistan shall be only such part of the income as is reasonably attributable to the operations carried out in Pakistan.

(3)   Any income by way of interest payable by-

(a)    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 Pakistan or for the purposes of making or earning any income from any source outside Pakistan; or

(b)   a person who is a non-resident, 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 in Pakistan or for the purposes of making or earning any income from any source in Pakistan,

shall be deemed to accrue or arise in Pakistan.

(4)   Any income by way of royalty payable by-

(a)    a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside Pakistan or for the purposes of making or earning any income from any source outside Pakistan; or

(b)    a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in Pakistan or for the purposes of making or earning any income from any source in Pakistan,

shall be deemed to accrue or arise in Pakistan.

Explanation:- For the purposes of this sub-section and sub-section (4) of section 31, "royalty" means consideration (including any lump-sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for-

(i)     the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret process or formula, or trade mark or similar property;

(ii)    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;

(iii)   the use of any patent, invention, model, design, secret process or formula, or trade mark or similar property;

(iv)   the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill;

(v)    the transfer of all or any rights (including the granting of a licence) 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 the sale, distribution or exhibition of cinematograph films; or

(vi)   the rendering of any services in connection with the activities referred to in clauses (i) to (v).

(5)   Any income by way of fees for technical services payable by-

(a)    a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside Pakistan or for the purposes of making or earning any income from any source outside Pakistan; or

(b)    a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in Pakistan or for the purposes of making or earning any income from any sources in Pakistan,

shall be deemed to accrue or arise in Pakistan.

Explanation:- For the purposes of this sub-section, clause (b) of section 24, sub-section (2) of section 30, sub-section (3A) of section 50 and section 80AA, "fees for technical services" means any consideration (including any lump-sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of the services of technical or other personnel) but does not include consideration for any construction, assembly or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salary".

(6)   As used in sub-sections (3), (4) and (5), the expression "a person who is resident" includes Government.

(7)   Where an assessee has made any loan or advance to any person on which no interest has been charged or the rate at which interest has been charged is less than the rate (hereinafter referred to as the 'said rate') arrived at by adding two per cent to the bank rate notified by the State Bank of Pakistan as applicable on the date on which the loan or advance was made, the amount not charged or the amount equal to the interest computed at the said rate as reduced by the interest actually charged shall be deemed to be the income of the assessee and shall be included in his total income:

Provided that nothing contained in this sub-section shall apply to-

(a)    any loan or advance made by an assessee to an employee in accordance with the terms and conditions of his employment and for such purpose or purposes; or

(b)    such assessee or persons or class or classes of assessees or persons, as may be specified in this behalf by the Central Board of Revenue by notification in the official Gazette:

Provided further that nothing contained in this sub-section shall apply in respect of any assessment year beginning on or after the first day of July, 1985.

(8)   Any income derived by an assesses in any income year (hereafter in this sub-section referred to as the 'said income year') from any business or profession, which has been or was, discontinued, or any other source which has ceased, as the case may be, at any time before the commencement, or during the course, of the said income year shall, if such income would have been chargeable to tax if it had been received in the income year in which it accrued or arose, be deemed to be income chargeable to tax from such business or profession or other source, which shall, for the purposes of this Ordinance, be deemed to have been carried on, or not ceased, as the case may be, before the commencement, or during the course, of the said income year.

(9)   Where any bonus or bonus share is declared, issued or paid by a Pakistani Company to its share-holders in any year wholly or partly out of reserves or profits of the company of that year or accumulated profits of earlier years, whether capitalized or not, or out of the share premium or other account, the amount of the bonus or the face value of the bonus share, as the case may be, shall be deemed to be income accruing to the company during that year.

(9A) Where an assessee, being a public company other than a scheduled bank or a modaraba, derives profits for any income year but does not distribute cash dividends within seven months of the end of the said income year, or distributes dividend to such an extent that its reserves, after such distribution, are in excess of fifty per cent of its paid up capital, so much of its reserves as exceed fifty per cent of its paid up capital shall be deemed to be the income having accrued to such company during that year:

Provided that in respect of assessment year commencing on the first day of July, 1999, the cash dividend distribution made within the following period shall be treated as distribution for the purposes of this sub-section :-

(i)     where the income year ended on a date prior to the thirtieth day of June, 1999, and the distribution is made within a period of three months reckoned from the first day of July, 1999; or

(ii)    where the income year ended on the thirtieth day of June, 1999, and the distribution is made within a period of eight months reckoned from the first day of July 1999.

Explanation. - For the purposes of this sub-section, the expression "reserves" shall have the meaning as may be prescribed.

(10) Any dividend paid to any share-holder without Pakistan by a Pakistani company shall be deemed to be income accruing or arising in Pakistan to such share-holder.

(11) Any dividend declared or distributed by a company shall be deemed to be the income of the income year in which it is declared and shall be included in the total income of the assessee of that year:

Provided that, where any dividend is declared within six weeks of the end of the income year, it shall be deemed to be the income of the income year in which it is distributed and included in the total income of that year.

(12) Where any assets not being stock-in-trade are purchased by an assesses from any company and the Deputy Commissioner has reason to believe that the price paid by the assesses is less than the fair market value thereof, the difference between the price so paid and the fair market value shall, be deemed to be income of the assesses chargeable to tax under this Ordinance.

Provided that in the case of an asset leased by a scheduled bank, a financial institution, modaraba or a leasing company the fair market value shall mean the residual value paid by the assessee, being the first lessee, on the maturity of the lease agreement and the amount paid by way of lease rentals and other charges so however that the aggregate of such payments and the residual value is not less than the original cost of the asset.

(13) Where an assessee, being the owner of a building, receives from any person to whom such building or any Part thereof is let out on rent any amount which is not adjustable against the rent payable by such person, such amount shall be deemed to be the income of the assessee and chargeable to tax under the head "Income from house property" in the income year in which such amount is received and the nine income years next following the said income year in equal proportion; and the amount so allocated to each income year shall be deemed to be the rent received in respect of such building or a Part thereof.

(14) Where the amount mentioned in sub-section (13) is refunded by the assessee to the tenant on termination of the tenancy before expiry of ten years as aforementioned, no portion of such amount shall be allocated to the income year in which it is refunded or any income year thereafter except in a case mentioned in sub-section (15).

(15) Where, on the termination of the tenancy of one person and refund to that person of the amount mentioned in sub-section (13), the assessee lets out such building or such part thereof, as the case may be, to another person and receives from such other person any amount (hereinafter called the "succeeding amount") which is not adjustable against the rent payable by such other person, the succeeding amount as reduced by such portion of the earlier amount as was charged to tax, shall be deemed to be the income of the assessee chargeable under the head "Income from house property" and charged to tax as laid down in sub- section 13.

(16) Where an assessee receives any amount in consideration for vacating the possession of a building or a part thereof of which he is a tenant, the said amount as reduced by the amount, if any, paid by the assessee for acquiring possession of such building or part thereof shall be deemed to be the income of the assessee and chargeable to tax under the head 'Income from other sources' in the income year in which it is received and nine income years next following the said income year in equal proportion.

(17) The provisions of sub-sections (13) to (16) shall also apply to an assessee who has received the amount referred to in sub-sections (13), (15) or (16) in the income year relevant to the assessment year commencing on the first day of July, 1980, or in any earlier income year so, however, that income chargeable to tax in the manner laid down in the said sub-sections shall be charged to tax only in respect of the income year relevant to the assessment year commencing on the first day of July, 1980, or any assessment year thereafter.

(18) Where any sum claimed, or shown, to have been received as loan or advance or gift by an assessee during any income year commencing on or after the first day of July, 1998, from any person, not being a banking company, or a financial institution notified by the Central Board of Revenue for this purpose, otherwise than by a crossed cheque drawn on a bank, or through a banking channel from a person holding a National Tax Number, the said sum shall be deemed to be the income of the assessee for the said income year chargeable to tax under this Ordinance; Provided that, where the said loan or advance or gift is claimed or shown by way of the explanation, referred to in sub-section (1) of section 13, in a case to which the first proviso to the said sub-section applies, the income under this sub-section shall relate to the assessment year referred to in the said proviso.

(19) Where an assessee, being a scheduled bank, a financial institution, or such modaraba or leasing company as is approved by the Central Board of Revenue for the purposes of the Third Schedule, has leased out, on or after the first day of July, 1985, any asset, whether owned by it or not, to another person, any amount paid or payable by the said person in connection with the lease of the said asset shall be deemed to be the income of the said assessee.