ICAI MODULE QUESTIONS

SM1. Rahul holding 28% of equity shares in a company, took a loan of Rs. 5,00,000 from the same company.
On the date of granting the loan, the company had accumulated profit of Rs. 4,00,000. The company is
engaged in some manufacturing activity.
(i) Is the amount of loan taxable as deemed dividend, if the company is a company in which the public are
substantially interested?
(ii) What would be your answer, if the lending company is a private limited company (i.e. a company in which
the public are not substantially interested)?
Answer: Any payment by a company, other than a company in which the public are substantially interested,
of any sum by way of advance or loan to an equity shareholder, being a person who is the beneficial owner
of shares holding not less than 10% of the voting power, is deemed as dividend under section 2(22)(e), to
the extent the company possesses accumulated profits.
(i) The provisions of section 2(22)(e), however, will not apply where the loan is given by a company in which
public are substantially interested. In such a case, the loan would not be taxable as deemed dividend.
(ii) However, if the loan is taken from a private company (i.e. a company in which the public are not
substantially interested), which is a manufacturing company & not a company where lending of money
is a substantial part of the business of the company, then, the provisions of section 2(22)(e) would be
attracted, since Rahul holds more than 10% of the equity shares in the company.
Amount chargeable as deemed dividend cannot, however, exceed the accumulated profits held by the
company on the date of giving the loan. Therefore, the amount taxable as deemed dividend would be
limited to the accumulated profit i.e., Rs. 4,00,000 & not the amount of loan which is Rs. 5,00,000.

SM2. Mr. A (dealer in shares) received following without consideration during PY 2020-21 from his
friend Mr. B:
1) Cash gift of Rs. 75,000 on his anniversary, 15th April, 2020.
2) Bullion, the fair market value of which was Rs. 60,000, on his birthday, 19th June, 2020.
3) A plot of land at Faridabad on 1st July, 2020, the stamp value of which is 5 lakh on that date. Mr. B had
purchased the land in April, 2009.
Mr. A purchased from his friend Mr. C, who is also a dealer in shares, Rs.1000 shares of X Ltd. @ Rs.
400 each on 19th June, 2020, the fair market value of which was Rs. 600 each on that date. Mr. A sold
these shares in the course of his business on 23rd June, 2020.
Further, on 1st November, 2020, Mr. A took possession of property (building) booked by him two years
back at 20 lacs. The stamp duty value of the property as on 1st November, 2020 was 32 lakh & on the
date of booking was 23 lacs. He had paid 1 lakh by account payee cheque as down payment on the date
of booking.
On 1st March, 2021, he sold the plot of land at Faridabad for 7 lacs.
Compute the income of Mr. A u/h ‘Income from other sources’ & ‘Capital Gains’ for AY 2021-22.
Answer: Computation of “Income from other sources” of Mr. A for AY 2021-22
Particulars Rs.
(1) Cash gift is taxable under section 56(2)(x), since it exceeds Rs. 50,000 Rs. 75,000
(2) Since bullion is included in the definition of property, therefore, when Rs. 60,000
bullion is received without consideration, the same is taxable, since the aggregate
fair market value exceeds Rs. 50,000
(3) Stamp value of plot of land at Faridabad, received without consideration, is Rs. 5,00,000
taxable under section 56(2)(x)
(4) Difference of 2 lakh in the value of shares of X Ltd. Purchased from Mr. C, a dealer -
in shares, is not taxable as it represents the stock-in-trade of Mr. A. Since Mr. A

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 is a dealer in shares & it has been mentioned that the shares were subsequently
sold in the course of his business, such shares represent the stock-in-trade of Mr.
A.
(5) Difference between the stamp duty value of 23 lakh on the date of booking & the
actual consideration of 20 lakh paid is taxable under section 56(2)(x) since the Rs. 3,00,000
difference exceeds 1,00,000, being the higher of Rs. 50,000 & 10% of consideration

Income from Other Sources Rs. 9,35,000

Computation of “Capital Gains” of Mr. A for the AY 2021-22

Particulars Rs.
Sale Consideration Rs. 7,00,000
Less: Cost of acquisition [deemed to be the stamp value charged to tax under Rs. 5,00,000
section 56(2)(x) as per section 49(4)]
Short-term capital gains Rs. 2,00,000
Note – The resultant capital gains will be short-term capital gains since for calculating the period of
holding, the period of holding of previous owner is not to be considered.

SM3. Discuss the taxability or otherwise of the following in the hands of the recipient under section 56(2)(x)
the Income-tax Act, 1961 -
(i) Akhil HUF received Rs. 75,000 in cash from niece of Akhil (i.e., daughter of Akhil’s sister). Akhil is the
Karta of the HUF.
(ii) Nitisha, a member of her father’s HUF, transferred a house property to the HUF without consideration.
The stamp duty value of the house property is Rs. Rs. 9,00,000.
(iii) Mr. Akshat received 100 shares of A Ltd. from his friend as a gift on occasion of his 25th marriage
anniversary. The fair market value on that date was Rs. 100 per share. He also received jewellery worth
Rs. 45,000 (FMV) from his nephew on the same day.
(iv) Kishan HUF gifted a car to son of Karta for achieving good marks in XII board examination. The fair
market value of the car is Rs. 5,25,000.
Answer:
Taxable/ Amount Reason
Non- taxable liable to tax
(i) Taxable Rs. 75,000 Sum of money exceeding Rs. 50,000 received without consideration
from a non-relative is taxable under section 56(2)(x). Daughter of
Mr. Akhil’s sister is not a relative of Akhil HUF, since she is not a
member of Akhil HUF.
(ii) Non- taxable Nil Immovable property received without consideration by a HUF from
its relative is not taxable under section 56(2)(x). Since Nitisha is a
member of the HUF, she is a relative of the HUF. However, income
from such asset would be included in the hands of Nitisha under
64(2).
(iii) Taxable Rs. 55,000 As per provisions of section 56(2)(x), in case the aggregate fair
market value of property, other than immovable property, received
without consideration exceeds 50,000, the whole of the aggregate
value shall be taxable. In this case, the aggregate fair market value
of shares (Rs. 10,000) & jewellery (Rs. 45,000) exceeds Rs. 50,000.
Hence, the entire amount of Rs. 55,000 shall be taxable.

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 (iv) Non- taxable Nil Car is not included in the definition of property for the purpose of
section 56(2)(x), therefore, the same shall not be taxable.

SM4. Mr. Hari, a property dealer, sold a building in the course of his business to his friend Rajesh, who is a
dealer in automobile spare parts, for 90 lakh on 1.1.2021, when the stamp duty value was 150 lakh. The
agreement was, however, entered into on 1.9.2020 when the stamp duty value was 140 lakh. Mr. Hari had
received a down payment of 15 lakh by a crossed cheque from Rajesh on the date of agreement. Discuss
the tax implications in the hands of Hari & Rajesh, assuming that Mr. Hari has purchased the building for
75 lakh on 12th July, 2019.
Would your answer be different if Hari was a share broker instead of a property dealer?
Answer: Case 1: Tax implications if Mr. Hari is a property dealer
In the hands of the seller, Mr. Hari In the hands of the buyer, Mr. Rajesh
In the hands of Hari, the provisions of section Since Mr. Rajesh is a dealer in automobile spare
43CA would be attracted, since the building parts, the building purchased would be a capital
represents his stock-in- trade & he has asset in his hands. The provisions of section 56(2)(x)
transferred the same for a consideration less would be attracted in the hands of Mr. Rajesh who
than the stamp duty value; & the stamp duty value has received immovable property, being a capital
exceeds 110% of consideration. asset, for inadequate consideration & the
Under section 43CA, the option to adopt the difference between the consideration & stamp
stamp duty value on the date of agreement can duty value exceeds Rs. 9,00,000, being the higher
be exercised only if whole or part of the of Rs. 50,000 & 10% of consideration. Therefore, 60
consideration has been received on or before lakh, being the difference between the stamp duty
the date of agreement by way of account payee value of the property on the date of registration
cheque or draft or by use of ECS through a bank (i.e., 150 lakh) & the actual consideration (i.e., 90
account or through credit card, debit card, net lakh) would be taxable under section 56(2)(x)
banking, IMPS (Immediate payment Service), UPI in the hands of Mr. Rajesh, since the payment on
(Unified Payment Interface), RTGS (Real Time the date of agreement is made by crossed cheque
Gross Settlement), NEFT (National Electronic & not account payee cheque/draft or ECS or
Funds Transfer), & BHIM (Bharat Interface for through credit card, debit card, net banking, IMPS
Money) Aadhar Pay on or before the date of (Immediate payment Service), UPI (Unified
agreement. In this case, since the down payment Payment Interface), RTGS (Real Time Gross
of Rs. 15 lakh is received on the date of Settlement), NEFT (National Electronic Funds
agreement by crossed cheque & not account Transfer), & BHIM (Bharat Interface for Money)
payee cheque, the option cannot be exercised. Aadhar Pay.
Therefore, Rs. 75 lakh, being the difference
between the stamp duty value on the date of
transfer i.e., Rs. 150 lakh, & the purchase price
i.e., Rs. 75 lakh, would be chargeable as business
income in the hands of Mr. Hari, since stamp
duty value exceeds 110% of the consideration.

Case 2: Tax implications if Mr. Hari is a share broker

In the hands of the seller, Mr. Hari
In case Mr. Hari is a share broker and not a
property dealer, the building would represent his
capital asset and not stock- in-trade. In such a
case, the provisions of section 50C would be
attracted in the hands of Mr. Hari, since building
is transferred for a consideration less than the
In the hands of the buyer, Mr. Rajesh
There would be no difference in the taxability in
the hands of Mr. Rajesh, whether Mr. Hari is a
property dealer or a stock broker.
Therefore, the provisions of section 56(2)(x) would
be attracted in the hands of Mr. Rajesh who has
received immovable property, being a capital

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 stamp duty value; & the stamp duty value exceeds
110% of consideration.
Thus, Rs. 75 lakh, being the difference between
the stamp duty value on the date of registration
(i.e., 150 lakh) & the purchase price (i.e., 75 lakh)
would be chargeable as short-term capital gains.
It may be noted that under section 50C, the
option to adopt the stamp duty value on the date
of agreement can be exercised only if whole or
part of the consideration has been received on
or before the date of agreement by way of
account payee cheque or draft or by use of ECS
through a bank account or through credit card,
debit card, net banking, IMPS (Immediate
payment Service), UPI (Unified Payment
Interface), RTGS (Real Time Gross Settlement),
NEFT (National Electronic Funds Transfer), &
BHIM (Bharat Interface for Money) Aadhar Pay
on or before the date of agreement. In this case,
since the down payment of 15 lakhs has been
received on the date of agreement by crossed
cheque & not account payee cheque, the option
cannot be exercised.
asset, for inadequate consideration & the
difference between the consideration & stamp
duty value exceeds Rs. 9,00,000, being the higher
of Rs. 50,000 & 10% of consideration.
Therefore, Rs. 60 lakh, being the difference
between the stamp duty value of the property on
the date of registration (i.e., Rs. 150 lakh) & the
actual consideration (i.e., Rs. 90 lakh) would be
taxable under section 56(2)(x) in the hands of Mr.
Rajesh, since the payment on the date of
agreement is made by crossed cheque & not
account payee cheque/draft or ECS or through
credit card, debit card, net banking, IMPS
(Immediate payment Service), UPI (Unified
Payment Interface), RTGS (Real Time Gross
Settlement), NEFT (National Electronic Funds
Transfer), & BHIM (Bharat Interface for Money)
Aadhar Pay.

SM5. Interest on enhanced compensation received by Mr. G during the previous year 2020-21 is Rs.
5,00,000. Out of this interest, Rs. 1,50,000 relates to the previous year 2017-18, Rs. 1,65,000 relates to
previous year 2018-19 & Rs. 1,85,000 relates to previous year 2019-20. Discuss the tax implication, if any,
of such interest income for AY 2021-22.
Answer: The entire interest of Rs. 5,00,000 would be taxable in the year of receipt, namely, PY 2020-21
Particulars Rs.
Interest on enhanced compensation taxable u/s 56(2)(viii) Rs. 5,00,000
Less: Deduction under section 57(iv) @50% Rs. 2,50,000
Interest chargeable under the head “Income from other sources” Rs. 2,50,000

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 TEST YOUR KNOWLEDGE - ICAI MODULE
Q1. Examine under which heads the following incomes are taxable:
(i) Rental income in case property held as stock-in-trade for 3 years
(ii) Dividend on shares in case of a dealer in shares
(iii) Salary received by a partner from his partnership firm
(iv) Rental income of machinery
(v) Winnings from lotteries by a person having the same as business activity
(vi) Salaries payable to a Member of Parliament
(vii) Receipts without consideration
(viii) In case of retirement, interest on employee’s contribution if provident fund is unrecognized.
(ix) Rental income in case of a person engaged in the business of letting out of properties.
Answer:
Particulars Head of Income
(i) Rental income in case property held as stock-in Income from house property
trade for 3 years
(ii) Dividend on shares in case of a dealer in shares Income from other sources
(iii) Salary by partner from his partnership firm Profits & gains of business or profession
(iv) Rental income of machinery Profits & gains of business or
(See Note below) profession/Income from other sources
(v) Winnings from lotteries by a person having the Income from other sources
same as business activity
(vi) Salaries payable to a Member of Parliament Income from other sources
(vii) Receipts without consideration Income from other sources
(viii) In case of retirement, interest on employee’s Income from other sources
contribution if provident fund is unrecognized
(xi) Rental income in case of a person engaged in the Profits & gains from business or profession
business of letting out of properties

Note: As per section 56(2)(ii), rental income of machinery would be taxable u/h ‘Income from Other
Sources’, if it is not taxable u/h ‘Profits & gains of business or profession’.

Q2. Examine whether the following are chargeable to tax & the amount liable to tax:
A sum of Rs. 1,20,000 was received as gift from non-relatives by Raj on the occasion of the marriage of his
son Pravin.
Interest on enhanced compensation of Rs. 96,000 received on 12-3-2021 for acquisition of urban land, of
which 40% relates to PY 2019-20.
Answer:
SN Taxable? Amount liable Reason
to tax
(i) Taxable Rs. 1,20,000 Exemption from applicability of section 56(2)(x) would be
available if, inter alia, gift is received from a relative or gift is
received on the occasion of marriage of the individual himself.
In this case, since gift is received by Mr. Raj from a non-relative
on the occasion of marriage of his son, it would be taxable in his
hands under section 56(2)(x).

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(ii) Taxable Rs. 48,000 As per section 145B(1), interest received by the assessee on
enhanced compensation shall be deemed to be the income of the
year in which it is received, irrespective of the method of
accounting followed by the assessee.
Interest of Rs. 96,000 on enhanced compensation is chargeable
to tax in the year of receipt i.e. PY 2020-21 under section
56(2)(viii) after providing deduction of 50% under section 57(iv).
Therefore, Rs. 48,000 is chargeable to tax under the head
“Income from other sources”.

Q3. On 10.10.2020, Mr. Govind (a bank employee) received Rs. 5,00,000 towards interest on enhanced
compensation from State Government in respect of compulsory acquisition of his land effected during the
financial year 2014-15.
Out of this interest, Rs. 1,50,000 relates to the financial year 2015-16; Rs. 1,65,000 to the financial year
2016-17; & Rs. 1,85,000 to the financial year 2017-18. He incurred Rs. 50,000 by way of legal expenses to
receive the interest on such enhanced compensation.
How much of interest on enhanced compensation would be chargeable to tax for AY 2021-22?
Answer: Section 145B provides that interest received by the assessee on enhanced compensation shall be
deemed to be the income of the assessee of the year in which it is received, irrespective of the method of
accounting followed by the assessee & irrespective of the financial year to which it relates.
Section 56(2)(viii) states that such income shall be taxable as ‘Income from other sources.
50% of such income shall be allowed as deduction by virtue of section 57(iv) & no other deduction shall be
permissible from such Income.
Therefore, legal expenses incurred to receive the interest on enhanced compensation would not be allowed
as deduction from such income.
Computation of interest on enhanced compensation taxable as “Income from other sources” for the
AY 2021-22:
Particulars Rs.
Interest on enhanced compensation taxable under section 56(2)(viii) Rs. 5,00,000
Less: Deduction under section 57(iv) (50% x Rs. 5,00,000) Rs. 2,50,000
Taxable interest on enhanced compensation Rs. 2,50,000

Q4. The following details have been furnished by Mrs. Hemali pertaining to the year ended 31.3.2021:
(i) Cash gift of Rs. 51,000 received from her friend on the occasion of her “Shastiaptha Poorthi”, a wedding
function celebrated on her husb& completing 60 years of age. This was also her 25th wedding
anniversary.
(ii) On the above occasion, a diamond necklace worth 2 lacs was presented by her sister living in Dubai.
(iii) When she celebrated her daughter's wedding on 21.2.2021, her friend assigned in Mrs. Hemali's favour,
a fixed deposit held by the said friend in a scheduled bank; the value of the fixed deposit & the accrued
interest on the said date was Rs. 52,000.
Compute the income, if any, assessable as income from other sources.
Answer:
(i) Any sum of money received by an individual on the occasion of the marriage of the individual is exempt.
This provision is, however, not applicable to a cash gift received during a wedding function celebrated
on completion of 60 years of age.
Gift of Rs. 51,000 received from a non-relative is, therefore, chargeable to tax under section 56(2)(x)
in the hands of Mrs. Hemali, since the same exceeds Rs. 50,000.

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(ii) The provisions of section 56(2)(x) are not attracted in respect of any sum of money or property received
from a relative. Thus, the gift of diamond necklace received from her sister is not taxable under section
56(2)(x), even though jewellery falls within the definition of “property”.
(iii) To be exempt from applicability of section 56(2)(x), the property should be received on the occasion of
the marriage of the individual, not that of the individual’s son or daughter. Therefore, this exemption
provision is not attracted in this case.
Any sum of money received without consideration by an individual is chargeable to tax under section
56(2)(x), if the aggregate value exceeds Rs. 50,000 in a year. “Sum of money” has, however, not been
defined under section 56(2)(x).
Therefore, there are two possible views in respect of the value of fixed deposit assigned in favour of
Mrs. Hemali –
1) The first view is that fixed deposit does not fall within the meaning of “sum of money” & therefore, the
provisions of section 56(2)(x) are not attracted. It may be noted that fixed deposit is also not included
in the definition of “property”.
2) However, another possible view is that fixed deposit assigned in favour of Mrs. Hemali falls within the
meaning of “sum of money” received.

Income assessable as “Income from other sources”

If the first view is taken, the total amount chargeable to tax as “Income from other sources” would be Rs.
51,000, being cash gift received from a friend on her Shastiaptha Poorthi.
As per the second view, the provisions of section 56(2)(x) would also be attracted in respect of the fixed
deposit assigned & the “Income from other sources” of Mrs. Hemali would be Rs. 1,03,000 (Rs. 51,000 + Rs.
52,000).

Q5. Examine the following transactions in the context of Income-tax Act, 1961:
(i) Mr. B transferred Rs. 500 shares of R (P) Ltd. to M/s. B Co. (P) Ltd. on 10.10.2020 for Rs. 3,00,000 when
the market price was Rs. 5,00,000. The indexed cost of acquisition of shares for Mr. B was computed
at Rs. 4,45,000. The transfer was not subjected to securities transaction tax.
Determine the income chargeable to tax in the hands of Mr. B & M/s. B Co. (P) Ltd. because of the above
said transaction.
(ii) Mr. Chezian is employed in a company with taxable salary income of Rs. 5,00,000. He received a cash
gift of Rs. 1,00,000 from Atma Charitable Trust (registered under section 12AB) in December 2020 for
meeting his medical expenses.
Is the cash gift so received from the trust chargeable to tax in the hands of Mr. Chezian?
Answer
(i) Any movable property received for inadequate consideration by any person is chargeable to tax under
section 56(2)(x), if the difference between aggregate Fair Market Value of the property & consideration
exceeds 50,000.
Thus, share received by M/s B. Co. (P) Ltd. from Mr B for inadequate consideration is chargeable to tax
under section 56(2)(x) to the extent of Rs. 2,00,000.
As per section 50CA, since, the consideration is less than the fair market value of unquoted shares of
R (P) Ltd., fair market value of shares of the company would be deemed to be the full value of
consideration. It is presumed that the shares of R (P) Ltd are unquoted shares.
The full value of consideration (Rs. 5,00,000) less the indexed cost of acquisition (Rs. 4,55,000) would
result in a long term capital gains of Rs. 55,000 in the hands of Mr. B.
(ii) The provisions of section 56(2)(x) would not apply to any sum of money or any property received from
any trust or institution registered under section 12AB. Therefore, the cash gift of 1 lakh received from
Atma Charitable Trust, being a trust registered under section 12AB, for meeting medical expenses
would not be chargeable to tax under section 56(2)(x) in the hands of Mr. Chezian.

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 PAST RTP QUESTIONS
MAY 2018 Q1. From the following transactions relating to Mrs. Sonu, determine taxable amount in
her hands for AY 2021-22. Your answer should be supported by reasons:
(a) Received cash gifts on the occasion of her marriage on 19.11.2020 of Rs. 2,10,000.
It includes gift of Rs. 55,000 received from non-relatives.
(b) On 1.01.2021, being her birthday, she received a gift of Rs. 45,000 by means of
cheque from her father's maternal uncle.
(c) On 12.02.2021, she acquired a vacant site from her friend for Rs. 1,12,000. The State
stamp valuation authority fixed the value of site at Rs. 1,92,000 for stamp duty
purpose.
(d) She bought 50 equity shares of a private company from another friend for Rs.
75,000. Fair market value of such shares on the date of purchase was Rs. 1,33,000.
Answer:
(a) Nil. Cash gift of Rs. 2,10,000 received on the occasion of her marriage is not taxable,
since gifts received by an individual on the occasion of marriage is excluded from
tax u/s 56(2)(x), even if the same are from non-relatives.
(b) Nil. Even though father’s maternal uncle does not fall within the definition of
“relative” u/s 56(2)(x), gift of Rs. 45,000 received from him by cheque is not
chargeable to tax since the aggregate sum of money received by Mrs. Sonu without
consideration from non-relatives (other than on the occasion of marriage) during
PY 2017-18 does not exceed Rs. 50,000.
(c) Rs. 80,000. Purchase of vacant site for inadequate consideration on 12.2.2018 would
attract the provisions of section 56(2)(x). As per section 56(2)(x), where any person
receives from a non-relative, any immovable property for a consideration which is
less than the stamp duty value on the date of agreement or date of registration as
the case may be, & the difference between actual consideration & stamp duty value
so considered is more than the higher of Rs. 50,000 or 5% of the consideration so
received, then the difference between such value & actual consideration of such
property is chargeable to tax as income from other sources. Therefore, in the given
case Rs. 80,000 (Rs. 1,92,000 - Rs. 1,12,000) is taxable in the hands of Mrs. Sonu.
(d) Rs. 58,000. Since shares are included in the definition of “property” & difference
b/w purchase value & FMV of shares is Rs. 58,000 (Rs. 1,33,000 - Rs. 75,000) i.e. it
exceeds Rs. 50,000, the difference would be taxable u/s 56(2)(x).

NOV 2018 Q2. Mr. Pranav has 15% shareholding in TRP (P) Ltd. (engaged in trading business of toys)
& has also 50% share in Pranav & Sons, a partnership firm. Accumulated profit of TRP(P)
Ltd. is Rs. 30 lacs. Pranav & Sons had taken a loan of Rs. 35 lacs from TRP(P) Ltd. Examine
whether the above loan can be treated as dividend as per the provisions of the Income-
tax Act, 1961.
Answer: Section 2(22)(e) provides that any payment by a company, not being a company
in which public are substantially interested, of any sum by way of advance or loan to a
shareholder, being a person who is the beneficial owner of shares holding not less than
10% of voting power, or to any concern in which such shareholder is a partner and in
which he has a substantial interest (i.e., he is beneficially entitled to not less than 20%
of the income of such concern) is deemed as dividend, to the extent the company
possesses accumulated profits.
In present case, loan given by TRP(P) Ltd. to Pranav & Sons, a partnership firm would
be deemed as dividend, since Mr. Pranav is beneficial owner of 15% shareholding in
TRP(P) Ltd. & also has substantial interest in Pranav & Sons (as he is beneficially entitled
to 50% of income of the firm).

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 However, amount of loan would be deemed as dividend only to the extent TRP(P) Ltd.
possesses accumulated profits. Therefore, out of the loan of Rs. 35 lakhs given to Pranav
& Sons, only Rs. 30 lacs, i.e., to the extent of accumulated profit of TRP(P) Ltd., would
be deemed as dividend.

Q3. Discuss the taxability in the hands of the recipients:

(a) MNS Private Limited, a closely held company, issued 12,000 shares at Rs. 125 per
share. (Face value of the share is Rs. 80 per share & FMV of the share is Rs. 110 per
share).
(b) Mr. Arun received advance of Rs. 56,000 on 11.9.2019 against the sale of his house.
However, due to non-payment of instalment in time, contract has cancelled & Rs.
56,000 was forfeited.
(c) Mr. Nitin, transferred a house to his son Mr. Raj without consideration. SDV is Rs. 12
lacs.
(d) Mr. Tanmay gifted a refrigerator to his sister’s daughter on her marriage. FMV =
Rs. 75,000.
Answer:
(a) Taxable. Since MNS Private Limited, a closely held company, issued 12,000 shares at
a premium, ‘Issue price – FMV’ would be taxable u/s 56(2)(viib) in its hands u/h
‘IFOS’. Therefore, Rs. 1,80,000 [12,000 × Rs. 15 (Rs. 125 – Rs. 110)] shall be taxable
as income in the hands of MNS Private Limited u/h “Income from other sources”.
(b) Taxable. Any sum of money received as an advance in the course of negotiations for
transfer of a capital asset would be chargeable to tax u/h “IFOS”, if such amount is
forfeited & negotiations do not result in transfer of such capital asset [Sec.
56(2)(ix)]. Therefore, the amount of Rs. 56,000 received as advance would be
chargeable to tax in the hands of Mr. Arun u/h “IFOS”, since it is forfeited on
account of cancellation of contract for transfer of house, being a capital asset, due
to non-payment of installment in time.
(c) Not Taxable. As per section 56(2)(x), immovable property received without
consideration by any person from his relative is not taxable. In the present case,
since Mr. Nitin is the father of Mr. Raj, Rs. 12 lacs, being the stamp duty value of
house property received, without consideration, would not be chargeable to tax in
the hands of Mr. Raj.
(d) Not Taxable. Refrigerator is not included in the definition of “property”, for the
purpose of taxability u/s 56(2)(x) in the hands of the recipient under the head
“Income from other sources”. Further, the same has been received by Tannu on
occasion of her marriage from her maternal uncle, being a relative. Hence, Rs.
75,000, being the fair market value of refrigerator received without consideration
from a relative on the occasion of her marriage is not taxable in the hands of Tannu,
even though its value exceeds Rs. 50,000.

MAY 2019 Q4. Mr. Suraj sold a house to his friend Mr. Ganesh on 18th Sep 2020 for Rs. 42 Lacs.
[IMP] On the date of registration, SDV of the said property is Rs. 45 Lacs. However, on the
date of agreement SDV of the said property was Rs. 44 Lacs.
Mr. Ganesh had paid 10% of the value of the property by way of A/c payee cheque at
the time of agreement. Assume value of land is 70% of total value of the property.
What are the tax implications in the hands of Mr. Suraj & Mr. Ganesh for AY 2021-22?
Mr. Suraj had purchased the land on 19th February, 2013 for Rs. 9,20,000 & completed
the construction of house on 18th January 2019 for Rs. 15,50,000.
[CII: FY 2012-13: 200; FY 2016-17: 264; FY 2018-19: 289; FY 2019-20: 301]

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 Answer: In the hands of the seller, Mr. Suraj
- As per section 50C, where the consideration received or accruing as a result of
transfer of land or building or both, is less than SDV, SDV shall be deemed to be the
full value of consideration.
- However, where the date of registration & date of agreement are not the same &
part or whole of the consideration is received by way of A/c payee cheque or A/c
payee bank draft or by use of ECS on or before the date of agreement, then stamp
duty value on the date of agreement may be taken to be the full value of consideration.
- Further, where the stamp duty value on the date of agreement or registration, as the
case may be, does not exceed 110% of the amount of consideration received or
receivable then the consideration so received would be deemed to be the full value
of the consideration.
- In the present case, since Mr. Suraj has received 10% of the consideration by way of
A/c payee cheque on the date of agreement, the stamp duty value of Rs. 44,00,000
on the date of agreement would be taken for the purpose of computing FVC.
- Further, since SDV of land & building of Rs. 44,00,000 does not exceed Rs. 46,20,000
i.e., 110% of Rs. 42,00,000, the consideration received i.e., Rs. 42,00,000 i.r.o. land &
building would be deemed to be the full value of consideration.
- In the given problem, land has been held for a period exceeding 24 months & building
for a period less than 24 months immediately preceding the date of transfer. So, Land
is a long-term capital asset, while building is a short-term capital asset.
- Accordingly, capital gains would be determined in the following manner:
Particulars Rs.
Long term capital gain on sale of land
Consideration received/accruing for transfer of land [70% of Rs. 42 Lacs] 29,40,000
Less: Indexed cost of acquisition [Rs. 9,20,000 x 301/200] 13,84,600
Long-term capital gain (A) 15,55,400
Short-term capital loss on sale of building
Consideration received from transfer of building [30% of Rs. 42 Lacs] 12,60,000
Less: Cost of acquisition 15,50,000
Short term capital loss (B) (2,90,000)
STCL can be set-off against LTCG. Therefore, net taxable LTCG = Rs. 13,20,600 (Rs.
16,10,600 – Rs. 2,90,000). It is taxable @ 20% u/s 112, after adjusting unexhausted BEL
against such LTCG.

In the hands of the buyer Mr. Ganesh

As per section 56(2)(x), where any person receives from a non-relative, any immovable
property for a consideration which is less than the stamp duty value on the date of
agreement or date of registration as the case may be, & the difference between actual
consideration & stamp duty value so considered is more than the higher of Rs. 50,000
or 10% of actual consideration, then difference between such value & actual
consideration of such property is chargeable to tax as income from other sources.
Where the date of registration & date of agreement are not the same & part or whole
of the consideration is paid by way of A/c payee cheque or A/c payee bank draft or
by use of ECS on or before the date of agreement, then stamp duty value on the date
of agreement may be taken for the purpose of determining income taxable under the
head “Income from other sources”.

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 Since in the present case, Mr. Ganesh has paid 10% of the consideration by way of A/c
payee cheque, the stamp duty value on the date of agreement has to be taken. Further,
since the difference of Rs. 2,00,000 is not more than Rs. 4,20,000 being higher of Rs.
50,000 & Rs. 4,20,000 (10% of Rs. 42,00,000), no income would be chargeable to tax as
income from other sources in the hands of Mr. Ganesh.

NOV 2019 Q5. APM Ltd. is a pioneer company in textile industry. At the end of PY 2020-21, it
decided to distribute deposit certificates (without interest) to its shareholders
(preference as well as equity shareholders). Total value of accumulated profits of APM
Ltd. was Rs. 25 lacs. Mr. A is an equity shareholder of APM Ltd. holding 10% of share
capital. During PY 2020-21, Mr. A received deposit certificate (without interest) valuing
Rs. 5,00,000 from APM Ltd. Comment upon taxability of receipt of deposit certificates
in the hands of Mr. A. [Updated after abolisition of DDT]
(a) Deposit Receipts (without interest) are taxable to the extent of Rs. 2,50,000 u/h
“IFOS”.
(b) Deposit Receipts (without interest) are fully taxable under Income from other
sources.
(c) Deposit Receipts (without interest) are exempt since DDT is payable by the
company.
(d) Deposit Receipts (without interest) are fully taxable and shall be included in Gross
total income. But such receipt shall be allowed as deduction under Chapter-VI A.
MAY 2020 No Direct Question was asked.

PRACTICE QUESTION BANK

PQ1. Discuss the taxability of the above transactions in case of the company assessee: [May 2015]
(i) Balaji (P) Ltd. issued 26,000 equity shares of Rs. 10 each at a premium of 7. FMV on the date of issue is
Rs. 13.
(ii) RAU (P) Ltd. issued 30,000 equity shares of 10 @ Rs. 9. FMV of each share on the date of issue is Rs. 5.
Answer:
(i) Provisions of section 56(2)(viib) are attracted since the shares of a closely held company are issued
at a premium & issue price exceeds the FMV of such shares.
Consideration received by the company in excess of FMV of the shares would be taxable u/s 56(2)(viib).
Therefore, Rs. 1,04,000 [Rs.17 – Rs.13) x 26,000 shares] shall be taxable u/s 56(2)(viib) in the hands of
Balaji ltd.
(ii) Provisions of section 56(2)(viib) are not attracted in this case since shares of a closely held company
are not issued at a premium.
Thus even if issue price > FMV of the shares, nothing shall be taxable since section 56(2)(viib) is not
attracted.

PQ2. Mr X has the following income for AY 2021-22. Compute the tax payable by Mr. X. [Drafted by PC]
Salary: Rs 6,00,000 (computed) House Property: Rs. 3,00,000
Dividends from domestic company: Rs. 14 Lacs LTCG (STT paid): Rs. 50,000
LTCG (STT not paid): Rs. 3 Lacs. STCG: 2,00,000

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Solution: Computation of total income of X for AY 2021-22
1. Income under the head salary (computed) 6,00,000
2. Income under the head house property (computed) 3,00,000
3. IFOS (Dividend) {Fully Taxable from AY 2021-22] 14,00,000 14,00,000
Less: Exemption u/s 10(34)/ Section 115BBDA (10,00,000)
4. Capital Gains
LTCG (STT paid) - Not Taxable since < Rs. 1,00,000 Nil
LTCG (STT not paid) 3 Lacs
STCG (Normal) 2 Lacs 5,00,000
Gross total income 28,00,000

Computation of Tax payable

Tax on LTCG @ 20% = (3 lacs x 20%) 60,000
Tax on balance total income of Rs. 25 Lacs @ Slab Rate 8,32,500
Tax payable 8,92,500
Add: 4% HEC 35700
Total Tax Payable 9,28,200

PQ3. Following is the P&L A/c of Mr. A, a Dealer in Shares & Securities for PY 2020-21:
Particulars Rs. Particulars Rs.
To Trading Expenses 1,87,80,000 By Sales 2,17,62,000
To Administrative Expenses 3,15,000 By Interest on FD with Bank 49,500
To Financial Expenses 1,44,795 By Dividend from Indian Company 1,93,080
To Demat & Delivery Charges 13,050 By Interest on IT Refund (AY 2012-13) 690
To Securities Transaction Tax 16,500
To Net Profit before Depreciation 27,35,925
Compute the Tax Liability of Mr. A for AY 2021-22. [Nov 2006]
Solution: Computation of Total Income & Tax Liability of Mr. A for AY 2021-22
Particulars Rs. Rs. Rs.
1. Profits & Gains from Business or Profession
Net Profit before Depreciation 27,35,925
Less: Items to be considered u/h “IFOS”
Interest on FD (49,500)
Dividend from Indian Company (1,93,080)
24,92,655
Interest on IT Refund (690) (2,43,270)
2. Income from Other Sources
(i) Income from Dividend – Taxable w.e.f. AY 2021-22 1,93,080
(ii) Interest on FD 49,500
(iii) Interest on IT Refund 690 2,43,270
Gross Total Income 27,35,925

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Less: Deduction under Chapter VI-A Nil
Total Income (Rounded off) 27,35,930
Tax on Total Income [1,12,500 + (27,35930 - 10,00,000) x 30%] 18,48,430
Add: HEC at 4% 73,937
Net Tax Payable (Rounded off) 19,22,370

Note: Securities Transaction Tax is allowed as a deduction u/s 36(1)(xv).

PQ4. Bharat Hurkat, a resident individual, submits the following particulars of his income for PY 2020-21.
(i) Royalty from a coal mine Rs. 15,000
(iii) Salary as a member of Parliament Rs. 5,00,000
(iv) Daily allowance as a member of Parliament Rs. 2,50,000
(v) Dividend received from a cooperative society Rs. 50,000
(vi) He has incurred the following expenses
(a) Paid collection charges for collecting dividends Rs. 1,000
(b) Amount spent for earning & collecting royalty income Rs. 4,000
Compute his “Income from other sources” for AY 2021-22.
Solution:
Royalty from coal mine Rs. 15,000
Less: Collection charges (Rs. 4,000) Rs. 11,000
Salary as a member of Parliament Rs. 5,00,000
Daily allowance as a member of Parliament – Exempt Nil
Dividend from a Co-operative Society Rs. 50,000
Less: Collection charge (Rs. 1,000) Rs. 49,000
Total Income u/h IFOS Rs. 5,60,000

PQ5. Ms. Chhaya transferred a vacant site to Ms. Dayama for Rs. 4,25,000. The Stamp Valuation Authority
fixed the value of vacant site for Stamp Duty purpose at Rs. 6,00,000. Total Income of Chhaya & Dayama
before considering the transfer of vacant site are Rs. 50,000 & Rs. 2,05,000 respectively. Indexed Cost of
Acquisition for Ms. Chhaya i.r.o vacant site is Rs. 4,00,000 (computed). Determine Total Income of both Ms.
Chhaya & Ms. Dayama. [May 2011]
Solution: Computation of Total Income of Ms. Chayya
I. Long Term Capital Gains:
Sale Consideration - Indexed Cost of Acquisition 2,00,000
II. Other income 50,000
Total income 2,50,000
Computation of Total Income of Ms. Dayama
Income from Other Sources: Gift (See Note) [6,00,000 – 4,25,000] 1,75,000
Other Income 2,05,000
Total Income 3,80,000

Note: If Immovable Property is received for inadequate consideration, & shortfall/inadequacy > Rs. 50,000,
then Taxable Value of Gift is the difference between the Stamp Duty Value & Consideration paid.

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PQ6. Mr. Y submits the following information pertaining to the year ended 31.03.2021:
(a) On 30.11.2020, when he attained the age of 60, his friends in India gave a flat at Surat as a gift, each
contributing a sum of Rs. 20,000 in cash. The cost of the flat purchased using the various gifts was Rs.
3.4 Lacs.
(b) His close friend in abroad sent him a Cash Gift of Rs. 75,000 through his relative, for the above occasion.
(c) Mr. Y sold the above flat on 30.01.2021 for Rs. 3 Lacs. The Registrar's valuation for stamp duty purposes
was Rs. 3.7 Lacs. Neither Mr. Y nor the buyer, questioned the value fixed by the Registrar.
(d) He purchased some Equity Shares in X Pvt Ltd (unlisted) on 5.2.2020 for Rs. 3.5 Lacs, which were sold
on 15.03.2021 for Rs. 3.20 Lacs.
You are requested to calculate the Total Income of Y for AY 2021-22. [MAY 2005]
Solution: Computation of Total Income of Mr. Y for AY 2021-22
1 STCG on sale of Flat at surat: [For being LTCA, POH for immovable property should be > 24 months
Full Value of consideration [SDV using Section 50C] 3,70,000
Less: COA (Cost to Previous Owner since the asset is received by Gift) (3,40,000) 30,000
2 STCL on sale of unlisted shares: [For being LTCA, POH for unlisted shares should be > 24 months]
Full Value of Consideration 3,20,000
Less: Cost of Acquisition (3,50,000) (30,000)
3 Income from Other Sources
Gift Received by way of Flat (Gift received in Kind or Cash is taxable) 3,40,000
Gift from Friend (Fully taxable as aggregate amount exceeds Rs. 50,000) 75,000 4,15,000
Gross Total Income 4,15,000
Less: Deduction under Chapter VI-A Nil
Total Income 4,15,000

Note: STCL can be set-off against STCG/LTCG.

PQ7. Discuss the taxability of the following in the hands of the recipient u/s 56(2)(x): [Nov 2013]
(a) Mr. Tejpal received a painting by M. F. Hussain worth 2 Lac from his nephew on his 10th wedding
anniversary.
(b) Mrs. Maya received Cash Gift of Rs. 51,000 from her friend on the occasion of her ‘Shastiaptha Poorthi’,
a wedding function celebrated on her husband completing 60 years of age. This was also her 25th
Wedding Anniversary.
(c) Mrs. Maya also received a diamond necklace of Rs. 2 Lacs from her sister living in Dubai on the above
occasion.
(d) When Mrs. Maya celebrated her daughter's wedding on 21.02.2019, her friend Miss. Saanj assigned in
Mrs. Maya’s avour a FD held in a Bank, (value of the Fixed Deposit & the accrued interest on the said
date was Rs. 51,000).
Answer:
(a) Paintings are included in the definition of “property”. Thus, when paintings are received without
consideration & aggregate FMV of paintings exceed Rs. 50,000, FMV shall be taxable u/s 56(2)(x).
Therefore, Rs. 2,00,000, being the value of painting gifted by his nephew, would be taxable u/s 56(2)(x)
in the hands of Mr. Tejpal, since “nephew” is not included in the definition of “relative”.
(b) Gift received from any other person other than a Relative is taxable. So, gift received from friend is
taxable. (Shastiaptha Poorthi is not a marriage occasion). Rs. 51,000 is taxable.
(c) Sister is a relative & thus, gift received from sister is not taxable in the hands of Mrs. Maya.

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(d) Gift received on marriage of an individual is not taxable. But, in this case, gift is received on marriage
occasion of Assessee’s daughter. Hence Rs. 51,000 is taxable in the hands of Assessee.

PQ9. Mr. Chezian is employed in a Company with Taxable Salary Income of Rs. 5,00,000. He received a
Cash Gift of Rs. 1 lac from Atma Chartiable Trust (registered u/s 12AA) in Dec, 2019 for meeting his Medical
Expenses. Is the Cash Gift so received from the Trust chargeable to Tax in the hands of Mr. Chezian?
[May 2011]
Answer:
▪ Amount received as Gift from any Trust / Institution registered u/s 12AA is exempt u/s 56.
▪ So, the amount of Rs. 1,00,000 is exempt from tax.

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