Income Tax Rules, 2002

Rule 13

[As amended up to 24-11-2023]

13. Apportionment of expenditures, deductions and allowances.---

(1)    This rule applies for the purposes of section 67, which provides for apportionment of expenditure, deductions and allowances incurred for more than one purposes.

(2)    Any expenditure, deductions and allowances that is incurred for a particular class or classes of income shall be allocated to that class or classes, as the case may be.

(3)    (a) Any common expenditure excluding financial expenses relatable or attributable to non-business advances or loans and the amount referred to in sub-rule (2) relatable to business including presumptive and exempt income, shall be allocated to each class of income according to the following formula, namely:-

A x B/C

where---

A is the amount of the expenditure incurred;

B is the total amount of gross receipts (without deduction of expenditures) for the tax year for the class of income; and

C is the total amount of gross receipts (without deduction of expenses, deductions and allowances) and net gains for the tax year of all classes of income;

(b)    Where, however, net gain, brokerage, commission and other income is to be taken into account on turnover of such transactions, such income shall be compared with gross profit from business for adopting figures for components "B" and "C" of the formula at (a) above 7:

Explanation.- The terms gross receipt means net off receipts or turnover of Sales Tax or EFD paid.”

(4)    Where expenditures, deductions and allowances are to be allocated among different classes of income under sub-rule (3) consideration shall be given to the nature and source of each class of income, on reasonable basis to earn each class of income (particularly, in allocating selling expenses).

(5) Where the allocation of expenditures, deductions and allowances is made in accordance with sub-rule (3) a certificate by the Chartered Accountants or Cost and Management Accountant stating the basis of allocation shall be accepted unless significant variations are found; and where books of accounts are not required to be audited, the reasonable basis based on the sub-rules (3) and (4) may be adopted which would be accepted by the Commissioner, unless variation is found. Significant variations would be beyond the limits of 10 ± in collection as in sub-rule (3) under any head of account.

(6) In this rule.---

"class of income" means---

(a) Pakistan-source income chargeable under the head "Salary";

(b) foreign-source income chargeable under the head "Salary";

(c) Pakistan-source income chargeable under the head "Income from Property";

(d) foreign-source income chargeable under the head "Income from Property";

(e) Pakistan-source income chargeable under the head "Income from Business" (other than income subject to section 19);

(f) foreign-source income chargeable under the head "Income from Business" (other than income subject to section 19);

(g) Pakistan-source income from a speculation business chargeable under the head "Income from Business";

(h) foreign-source income from a speculation business chargeable under the head "Income from Business";

(i) Pakistan-source income chargeable under the head "Capital Gains";

(j) foreign-source income chargeable under the head "Capital Gains";

(k) Pakistan-source income chargeable under the head "Income from Other Sources";

(I) foreign-source income chargeable under the head "Income from Other Sources";

(m) income exempt from tax;

(n) Chargeable to tax under section 5, 6 or 7; and

(o) amounts to which section 169 applies and "common expenditure" means expenditure, deductions and allowances that is not clearly allocable to any particular class or classes of income, such as general administrative and other such allocable expenditures, deductions and allowances.

Judicial Interpretations
2025 SCLR 27 = 2025 SCP 419 Coca Cola Pakistan Ltd. (The Coca-Cola Export Corporation, PB), Lahore vs. Commissioner Inland Revenue, Large Taxpayers Officer, Lahore
--- S. 67 --- Income Tax Rules, 2002, R. 13 --- Apportionment of deductions --- Rules framed under S. 67(2) constitute subordinate legislation and must operate consistently with the parent statute --- Subordinate legislation cannot override, restrict, or negate the principle laid down in the primary legislation --- Rule 13 cannot be interpreted so as to make it the exclusive method of apportionment where the statute permits apportionment on any reasonable basis.
2025 SCLR 27 = 2025 SCP 419 Coca Cola Pakistan Ltd. (The Coca-Cola Export Corporation, PB), Lahore vs. Commissioner Inland Revenue, Large Taxpayers Officer, Lahore
--- S. 67 --- Income Tax Rules, 2002, R. 13 --- Apportionment of deductions --- Scope --- Where expenditure relates to derivation of more than one class of income, including taxable income and income subject to final tax regime, such expenditure must be apportioned on any reasonable basis taking into account the relative nature and size of the activities generating such income --- Rule 13 provides a method for allocation of common expenditure but does not exclude other reasonable basis for apportionment --- Taxpayer may adopt a different reasonable basis consistent with the requirements of S. 67(1).
2025 SCLR 27 = 2025 SCP 419 Coca Cola Pakistan Ltd. (The Coca-Cola Export Corporation, PB), Lahore vs. Commissioner Inland Revenue, Large Taxpayers Officer, Lahore
--- S. 67 --- Income Tax Rules, 2002, R. 13 --- Apportionment of deductions --- Scope --- Tax authorities cannot disregard the taxpayer’s method of apportionment merely because they prefer the formula provided under Rule 13 --- If the taxpayer’s basis of allocation is reasonable and consistent with the law, it must be accepted.
2025 SCLR 27 = 2025 SCP 419 Coca Cola Pakistan Ltd. (The Coca-Cola Export Corporation, PB), Lahore vs. Commissioner Inland Revenue, Large Taxpayers Officer, Lahore
--- Ss. 122 & 67 --- Income Tax Rules, 2002, R. 13 --- Apportionment of deductions --- Amendment of assessment --- Scope --- Where a taxpayer has apportioned expenditure on a reasonable basis in accordance with S. 67(1), the mere non-application of Rule 13 does not lead to income escaping assessment or total income being under-assessed --- Accordingly, amendment of assessment under S. 122(5) cannot be justified solely on the ground that the method prescribed in Rule 13 was not followed.
2025 SCLR 27 = 2025 SCP 419 Coca Cola Pakistan Ltd. (The Coca-Cola Export Corporation, PB), Lahore vs. Commissioner Inland Revenue, Large Taxpayers Officer, Lahore
--- S. 67 --- Income Tax Rules, 2002, R. 13 --- Apportionment of deductions --- Meaning of “common expenditure” --- Scope --- Rule 13 applies only to common expenditure, i.e., expenditure not clearly allocable to a particular class of income --- Where expenditure is clearly attributable to a specific class of income, such as manufacturing expenses relating solely to locally produced goods, the question of apportionment between different income streams does not arise.