22 Other Sources Complete Notes

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Other Sources
Basis of Charge Section 56(1) (Not exempt, not covered specifically)
● A sources of income, which is not exempt

● Which does not specifically fall under any one of the other four heads of income
● Is computed under the head “Income from other sources”.
● Therefore, this head is known as the residuary head of income.
Specific incomes Section 56(2)
● Dividends, other than dividends referred to in section 115-O

● Casual income (Betting, Gambling, Lottery etc.)
● Income from machinery, plant or furniture belonging to the assessee and let on hire, provided the income
is not chargeable to income tax under the head profit and gains of business and profession.
● Where the assessee lets on hire, the machinery, plant or furniture belonging to him and also buildings,
and letting of building is inseparable from the letting of the said machinery etc, the income from such
letting , if it is not chargeable to income tax under the head profit and gains of business and profession.
● Interest on securities, provided the income is not chargeable to income tax under the head profit and
gains of business and profession.
● Interest on compensation or on enhanced compensation to be taxed in the year in which it is received
after giving deduction of 50% of the amount received.
● Key man insurance policy: Sum received under a Key man insurance policy including bonus, provided the
income is not chargeable to income tax under the head profit and gains of business and profession. Key
man Insurance policy means a life insurance policy taken by a person on the life of the employee.
● Gifts
● Advance money forfeited
Other incomes which are normally taxable under the head other
sources (Illustrative List)
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● Income from subletting.

● Any casual income.
● Insurance commission.
● Family Pension.
● Directors sitting fees
● Remuneration received by Members of Parliament.
● Examiner ship fee received by a teacher from an institution other than his employer.
● Rent from vacant land.
● Agricultural income from agricultural land situated outside India.
● Interest on delayed refund of Income tax.
Advance Money Forfeited.
Old Law (Refer Videos)
New Law - 56(2)(ix) (From 1/4/2014 onwards)
Any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital
asset, if,—
a. such sum is forfeited; and
b. the negotiations do not result in transfer of such capital asset
Shall be taxable under the head other sources
Mr. Paresh purchased a house property on 14th Nov, 2015 for Rs 10,00,000. He entered into an agreement with Mr. B for
the sale of the house on 15th September, 20 _ _ and received an advance of Rs. 25,000, but the deal could not be
materialised and the advance was forfeited. Finally the property was sold by Mr. Paresh to Mr. Sanjay on 15-03-20 _ _
for a consideration of Rs 21,00,000.
Discuss tax implications of such a transaction in the hands of Paresh.
Solution : Section 56(2)(ix) provides for the taxability of any sum of money, received as an advance or otherwise on or
after 01-04-2014 in the course of negotiations for transfer of a capital asset shall be chargeable to income-tax under
the head ‘ income from other sources’ if such is forfeited and the negotiations do not result in transfer of such capital
asset.
The sum so taxable will not be reduced from the cost of acquisition to compute capital gains or transfer of such assets..
Hence, the sum of Rs 25,000 received as advance and forfeited by Mr. Paresh shall be taxable as his Income from other
sources in assessment year 20_ _ - _ _
Since the house property is held for more than 24 months immediately preceding the date of transfer, it will be
regarded as a long term capital asset. The capital gains shall be computed as under :
Computation of capital gains of Mr. Paresh for AY 20_ _- _ _ (amounts in Rs ) -
Particulars Rs
Full value of consideration 21,00,000
Less Indexed cost of acquisition ( Rs 10,00,000 * _ _ _ / 254) (WN)
Long term capital gains
Working Note : The advance money forfeited by Paresh shall not be reduced since the same is taken into account while
computing Income from other sources under Section 56(2)(ix).
Question
Mr. Rakesh purchased a house property on 14th April, 1999 for Rs 9,05,000. He entered into an agreement with Mr. B for
the sale of the house on 15th September, 2002 and received an advance of Rs 25,000. However, since Mr. B did not remit
the balance amount, Mr. Rakesh forfeited the advance and later on sold the property on 06/08/20_ _ for ₹ 50,00,000.
FMV of the property as on 1/4/01 = ₹ 11,50,000. Compute the capital gains for the assessment year 20_ _ - _ _
Also answer if Advance Received was Rs. 25,00,000.

Solution in classes (refer videos)
Question
Mr. Rakesh purchased a house property on 14th April, 1999 for Rs 9,05,000. He entered into an agreement with Mr. B for
the sale of the house on 15th September, 2002 and received an advance of Rs 25,000. However, since Mr. B did not remit
the balance amount, Mr. Rakesh forfeited the advance, Later on, he gifted the house property to his son Mr. A on 15th
June, 2006.
Following renovations were carried out by Mr. Rakesh and Mr. A to the house property :
Particulars Amounts in Rs
By Mr. Rakesh during FY 1999-2000 10,000
By Mr. Rakesh during FY 2003-04 50,000
By Mr. A during FY 2007-08 1,90,000
The fair market value of the property as on 01-04-2001 is Rs 11,00,000.
Mr A entered into an agreement with Mr. C for sale of the house on 1st June, 2012 and received an advance of Rs
80,000. The said amount was forfeited by Mr. A, since Mr. C could not fulfill the terms of the agreement.
Finally, the house was sold by Mr. A to Mr. Sanjay on 2nd January, 20_ _ for a consideration of Rs 42,00,000.
Compute the capital gains chargeable to tax in the hands of Mr. A for the assessment year 20_ _ - _ _.
Solution : Computation of capital gains taxable in the hands of Mr A-

Here, the house property so transferred shall be the long term capital asset for Mr. A as he has acquired the property
from Mr. Rakesh by way of gift (one of the modes specified in Section 49(1)), hence, his period of holding = 14-4-1999 to
2-1-20_ _ i.e., more than 2 years .
Particulars Working (amount in Rs )

Notes
Full value of consideration 42,00,000
Less Indexed cost of acquisition ( Rs 10,20,000 * _ _ _ /100) 1
Less Indexed cost of improvement by Mr Rakesh ( Rs 50,000 * _ _ _ /109) 2
Less Indexed cost of improvement by Mr. A ( Rs 1,90,000 * _ _ _ /129)
Long term capital gains
Working Notes :
1. Cost of acquisition = FMV as on 01-04-2001 Less Advance forfeited by Mr. A = Rs 11,00,000 - Rs 80,000 = Rs
10,20,000. Advance money forfeited by Mr. Rakesh (previous owner) shall be ignored.
2. Cost of improvement by Mr. Rakesh shall not include the improvements made before 1-04-2001.
3. Period of holding of previous owner also considered.
Taxation of Gifts - 56(2)(x) - Sum of money or value of property

received without consideration or for inadequate consideration
Where any person receives, in any previous year, from any person or persons on or after the 1st day of April,
2017
Sum of Money
● any sum of money,
○ without consideration,
○ the aggregate value of which
○ exceeds fifty thousand rupees,
■ the whole of the aggregate value of such sum shall be taxable under the head other
sources.
Immovable Property
Without Consideration
● any immovable property
○ without consideration,
○ the stamp duty value of which
■ the stamp duty value of such property shall be taxable under the head other sources.
Inadequate Consideration
● Any immovable property
○ for a consideration,
○ the stamp duty value of such property as exceeds such consideration, (SDV - Consideration)shall
be taxable under the head other sources
○ if the amount of such excess is more than the higher of the following amounts, namely:—
■ the amount of fifty thousand rupees and
■ the amount equal to Ten per cent of the consideration
In case immovable property, being a residential unit fulfilling the stipulated conditions mentioned below, is
received for inadequate consideration from a person who holds such property as his stock-in-trade, then, only if
the stamp duty value of the residential unit exceeds the sale consideration by 20% of the consideration or `
50,000, whichever is higher, would the difference between the stamp duty value and the actual consideration be
chargeable to tax in the hands of the recipient of immovable property. The benefit of higher threshold of 20% of
consideration vis-à-vis 10% of consideration shall be available, subject to the satisfaction of following conditions
● The residential unit is transferred during the period between 12.11.2020 and 30.6.202
● Such transfer is by way of first time allotment of the residential unit and
● The consideration paid or payable as a result of such transfer ≤ Rs. 2 crores.
Meaning of residential unit – An independent housing unit with separate facilities for living, cooking and
sanitary requirements, distinctly separated from other residential units within the building, which is directly
accessible from an outer door or through an interior door in a shared hallway and not by walking through the
living space of another household.
SDV on Date of Agreement

Provided that where the date of agreement fixing the amount of consideration for the transfer of immovable
property and the date of registration are not the same, the stamp duty value on the date of agreement may be
taken for the purposes of this subclause
Condition for SDV on Date of Agreement

Provided further that the provisions of the first proviso shall apply only in a case where the amount of
consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or an
account payee bank draft or by use of electronic clearing system through a bank account, or such prescribed
electronic mode on or before the date of agreement for transfer of such immovable property
The prescribed electronic modes notified are credit card, debit card, net banking, IMPS (Immediate payment
Service), UPI (Unified Payment Interface), RTGS (Real Time Gross Settlement), NEFT (National Electronic Funds
Transfer), and BHIM (Bharat Interface for Money) Aadhar Pay as other electronic modes of payment
Valuation officer
Provided also that where the stamp duty value of immovable property is disputed by the assessee on grounds
mentioned in subsection (2) of section 50C, the Assessing Officer may refer the valuation of such property to a
Valuation Officer, and the provisions of section 50C shall, as far as may be, apply in relation to the stamp duty
value of such property for the purpose of this sub-clause as they apply for valuation of capital asset under
those sections;
Property other than IMP

● any property, other than immovable property
Without consideration,
○ the aggregate fair market value of which
○ the whole of the aggregate fair market value of such property
○ shall be taxable under the head other sources.
Inadequate consideration
○ For consideration which
○ is less than the aggregate fair market value of the property
○ by an amount exceeding fifty thousand rupees,
○ the aggregate fair market value of such property that exceeds such consideration shall be taxable
under the head other sources.
Provided that this clause shall not apply to any sum of money or any property received
➢ from any relative; or
➢ on the occasion of the marriage of the individual; or
➢ under a will or by way of inheritance; or
➢ in contemplation of death of the payer or donor, as the case may be; or
➢ from any local authority as defined in the Explanation to clause (20) of section 10; or
➢ from any fund or foundation or university or other educational institution or hospital or other medical
institution or any trust or institution referred to in clause (23C) of section 10; or
➢ from or by any trust or institution registered under section 12A or section 12AA; or
➢ by any fund or trust or institution or any university or other educational institution or any hospital or
other medical institution referred to in subclause (iv) or subclause (v) or subclause (vi) or subclause (via)
of clause (23C) of section 10; or
➢ by way of transaction not regarded as transfer under
○ clause (i) (Partition of HUF) or

○ clause (iv) (Holding to subsidiary)
○ clause (v) (Subsidiary to holding)
○ clause (vi) (amalgamation) or
○ clause (via) (ignore) or
○ clause (viaa) (ignore it) or
○ clause (vib) (demerger) or

○ clause (vic) (ignore) or
○ clause (vica) (ignore) or
○ clause (vicb) (ignore) or
○ clause (vid) (issue of shares by resulting co to shareholder of demerged co) or

○ clause (vii) (Transfer of shares by shareholder in amalgamating co)
■ of section 47
➢ from an individual by a trust created or established solely for the benefit of a relative of the individual.
Property" means the following capital asset of the assessee, namely

➢ immovable property being land or building or both;
➢ shares and securities;
➢ Jewellery;
➢ archaeological collections;
➢ Drawings;
➢ Paintings;
➢ sculptures;
➢ any work of art
➢ Bullion
Meaning of relative for section 56(2)(x)
● In case of an individual
○ Spouse of the individual
○ Brother or sister of the individual
○ Brother or sister of the spouse of the individual
○ Brother or sister of either of the parents of the individual
○ Any lineal ascendant or descendant of the individual

○ Any lineal ascendant or descendant of the spouse of the individual
○ Spouse of the person referred to in above points
● In case of HUF – Any member of the HUF
Cost of Acquisition for the recipient- Section 49(4)
Where the capital gain arises from the transfer of a property, the value of which has been subject to
income-tax clause (x) of sub-section (2) of section 56, the cost of acquisition of such property shall be deemed
to be the value which has been taken into account for the purposes of the said clause.
Special provision for full value of consideration for transfer of assets

other than capital assets in certain cases.
43CA. (1) Consideration < Stamp Duty Value

Where the consideration received or accruing as a result of the transfer by an assessee of an asset (other
than a capital asset), being land or building or both, is less than the value adopted or assessed or assessable by
any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer,
the value so adopted or assessed or assessable shall, for the purposes of computing profits and gains from
transfer of such asset, be deemed to be the full value of the consideration received or accruing as a result of
such transfer.
SDV < 110% of Consideration

Provided that where the value adopted or assessed or assessable by the authority for the purpose of payment
of stamp duty does not exceed one hundred and ten per cent of the consideration received or accruing as a
result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the
purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the
consideration.
In simple words if SDV > 110% of Consideration then SDV will be the full value of consideration. (Sales price of
IMP being SIT)
Further, in case of transfer of an asset, being a residential unit, if the stamp duty value of the residential unit
does not exceed 120% of the consideration received or accruing, then, such consideration shall be deemed to be
the full value of consideration for the purpose of computing profits and gains from transfer of such asset,
subject to the satisfaction of following conditions
● The transfer of residential unit takes place during the period between 12.11.2020 and 30.6.2021
● Such transfer is by way of first time allotment of the residential unit to any person.
● The consideration received or accruing as a result of such transfer ≤ Rs. 2 crores
(2) The provisions of sub-section (2) and sub-section (3) of section 50C shall, so far as may be, apply in relation
to determination of the value adopted or assessed or assessable under sub-section (1).
(3) Where the date of agreement fixing the value of consideration for transfer of the asset and the date of
registration of such transfer of asset are not the same, the value referred to in sub-section (1) may be taken
as the value assessable by any authority of a State Government for the purpose of payment of stamp duty in
respect of such transfer on the date of the agreement.
(4) The provisions of sub-section (3) shall apply only in a case where the amount of consideration or a part
thereof has been received by way of an account payee cheque or account payee bank draft or by use of
electronic clearing system through a bank account, on or before the date of the agreement for transfer
Dividend income
In general dividend means sum received by the shareholders of the company in proportion to their shareholding
in the company.
Dividend income would form part of income from other sources, irrespective of the fact that it is derived from
stock in trade or business.
Any income by way of dividends received from a company, whether domestic or foreign, is taxable in the hands
of shareholders at normal rates of tax, depending upon the residential status of the recipient.
Special Meaning
A special meaning has also been assigned to dividend under Income tax under section 2(22). Such a dividend is
known as a deemed dividend.
Dividend includes
(a) Any distribution by a company to the extent of accumulated profits (whether capitalized or not)
involving the release of the assets of the company.
● In this case market value of the assets as on the date on which the shareholder became entitled
to receive the dividend shall be taken as value of dividend (subject to availability of accumulated
profits whether capitalized or not)
(b) Distribution
● of debenture / deposit certificates to shareholders (equity or preference)
● and bonus share to preference shareholders
● to the extent of accumulated profits whether capitalized or not
(c) Distribution to shareholders on

● liquidation of the company
● to the extent of accumulated profits whether capitalized or not.
(d) Distribution on
● reduction of share capital

● except to preference shareholders
● to the extent of accumulated profits whether capitalized or not.
(e) Any advance / loan by PRIVATE company to the extent of accumulated profits (Excluding capitalized
profit) to
● Equity shareholders holding not less than 10% voting power or
● Any concern in which such shareholder (holding 10% voting power in the company) is having not
less than 20% profit sharing.
● Any person, on behalf, or for the individual benefit of such shareholder.
Following things must be checked on the date on which loan/advance is given

(a) Beneficial owner of shares
(b) Holding 10% or more voting power
(c) Member/partner in a concern.
Notes
● Substantial interest will be there if the person is having 20% or more profit sharing at any time during
the previous year.
● 2(22)(e) is applicable only in case of the companies in which the public is not substantially interested.
○ In other words it is applicable only in case of closely held companies.
● If any loan or advance was given to any shareholder and subsequently the loan amount was repaid by
him, even in such cases the loan or advance shall be considered to be dividend.
Dividend shall not include the following
● Loan given in the normal course of the business.

● Where a loan has been treated as dividend and subsequently, the company declares and distributes
dividend to all its shareholders including the borrowing shareholder, and the dividend so paid is set off by
the company against the previous borrowing, the adjusted amount will not be again treated as a
dividend.
● Any payment made by a company on purchase of its own shares from a shareholder in accordance with
the provisions of section 58 of the Companies Act, 2013.
● any distribution of shares on demerger by the resulting companies to the shareholders of the demerged
company (whether or not there is a reduction of capital in the demerged company).
Clarification regarding trade advance not to be treated as deemed dividend under section 2(22)(e)
Trade advances, which are in the nature of commercial transactions, would not fall within the ambit of the
word 'advance' in section 2(22)(e) and therefore, the same would not be treated as deemed dividend.
Deductible Expenses
Interest expenditure to earn such income is allowed as deduction subject to a maximum of 20% of such income
included in the total income, without deduction under this section.
Surcharge
The incidence of surcharge on dividend income would not exceed 15%.
Dividends Section 194
● The principal officer of a domestic company is required to deduct tax on dividends distributed or paid by it to its
resident shareholders.
● Rate of TDS The rate of deduction of tax in respect of such dividend is - 10%.
● Time of tax deduction at source The deduction of tax has to be made before making any payment by any mode in
respect of any dividend or before making any distribution or payment to a resident shareholder of any amount
deemed as dividend under section 2(22)(a)/ (b)/(c)/(d)/(e).
● No tax is to deducted in case of a shareholder, being an individual, where -

○ the dividend is paid by any mode other than cash; and
○ the amount of such dividend or aggregate of dividend distributed or paid or likely to be distributed or paid
during the financial year by the company to such shareholder does not exceed Rs. 5,000.
● The TDS provisions will not apply to such dividends credited or paid to LIC, GIC, subsidiaries of GIC or any other
insurer provided the shares are owned by them, or they have full beneficial interest in such shares.
● Section 197A is applicable - No TDS if declaration is given in prescribed form.
Keyman Insurance policy

● Generally speaking any amount received on maturity of insurance policy including any bonus thereon
shall NOT be included in the income of the assessee.
● However any amount received on maturity of Keyman insurance policy shall be taxable.
● Amendment by FA 2013. Assignment of Keyman insurance policy to employees will not alter its nature
and it will not be exempt u/s 10(10)D.
● Sum received under Keyman insurance policy shall be taxable under head Salary OR PGBP OR Other
sources.
● If the employer receives the sum of the key man insurance policy it will be taxable under the head PGBP.
● If the policy is surrendered in favour of employee then it will be taxable in the hands of employee as
salary (profit in lieu of salary)
● If the person in whose favour the policy is endorsed is not an employee of the company (Chairman,
Director) the surrender value of the policy will be taxable under the head other sources
Winning from lotteries etc.
Winning from lotteries, crossword puzzles, races including horse races, card games, gambling or betting of any
sort. Lottery includes winnings from prizes awarded to any person by draw of lots or by chance or in any other
manner under any scheme by whatever name called and include any game show, entertainment programme
on TV or electronic mode in which people compete to win prizes or any other similar game.
● No deduction: No deduction of any expenditure or exemption is allowed from such income.

● Also no deduction under chapter VI-A shall be allowed.
● Computation of Tax Section 115BB
● Tax rate shall be @ 30 %
NOTE: If net income is given in question we have to gross it up and then consider it as a part of Gross Total
income. This is applicable for all the incomes including interest etc.
Interest Income
Exempt Interest
● Issued by central and state government (No TDS) as the interest on such securities are exempt from
tax under section 10(15)
● Interest on Gold Deposit Bond issued under the Gold Deposit Scheme, 1999 or deposit certificates issued
under the Gold Monetization Scheme, 2015 notified by the Central Government.
● Interest on bonds, issued by –
○ a local authority; or
○ a State Pooled Finance Entity
and specified by the Central Government by notification in the Official Gazette.
“State Pooled Finance Entity” means such entity which is set up in accordance with the guidelines for the
Pooled Finance Development Scheme notified by the Central Government in the Ministry of Urban
Development.
● Interest on PPF accounts is also exempt.

● Interest on post office savings account is exempt
○ Upto ₹ 3,500 in case of an individual account.
○ Upto ₹ 7,000 in case of a joint account.
Grossing up of interest
● Grossing up means adding back the TDS in interest amount.
● This will be done only when a net amount of interest is given.
● Net amount means, after deduction of income tax on the same.
● The rate of TDS is 10%.(Details in chapter of TDS – Section 193 & 194A)
● If interest in exempt no grossing up is required as the interest will not form part of income
Income from Owning and Maintaining of Race Horses - Section 56
If any person has income from owning and maintaining race horses, such income shall be taxable under the
head of other sources and income shall be computed in the normal manner and will be taxed at the normal
rates.
Income from owning and maintaining of any other animal

If the assessee is engaged in the business of owning and maintaining any other animal, his income shall be
computed under the head business/profession because section 56 includes only income from owning and
maintaining race horses.
Family Pension Payments received by the legal heirs of the deceased

employee
Such pension shall be deemed to be the income of the heir and will be taxable under the head of other sources.
From this amount a standard deduction shall be allowed @ 33 1/3% of such pension or Rs. 15,000, whichever is
less.
Exemption in respect of family pension

● The family pension received by the widow or children or nominated heirs of a member of the armed
forces (including para-military forces) of the Union, where the death of such member has occurred in the
course of operational duties, in specified circumstances would, however, be exempt under section 10(19).
● The family pension received by any member of the family of an individual who had been in the service of
Central or State Government and had been awarded “Param Vir Chakra” or “Vir Chakra” or other notified
gallantry awards would be exempt under section 10(18)(ii).
Compensation or any other payment received in connection with

termination of his employment
Section 56(2)(xi) has been inserted with effect from assessment year 2019-20 to provide that a receipt
satisfying the following conditions shall be taxable as income from other sources in the hands of the recipient:
a. any compensation or other payment is due to any person or is received by him
b. such compensation or payment could be by whatever name called

c. such compensation/payment is made in connection with :
i. the termination of the employment of the recipient; or
ii. modification of the terms and conditions relating to such employment.
“Any compensation or other payment, due to or received by any person, by whatever name called, in connection
with the termination of his employment or the modification of the terms and conditions relating thereto.”
Example
● The assessee entered into an employment agreement with a company under which he was to be
employed as CEO of the company with effect from 1-7-2007. By letter dated 1-5-2007, company denied
employment to assessee and paid a certain amount to him as compensation for non-commencement of
employment.
● The assessee received payment under non-compete agreement after cessation of employment for not
sharing secrets of trade with third parties and particularly to competitors.
Deductible expenses Section 57
● In respect of interest any expenditure by way of commission or remuneration for realization of such
income is deductible.
● Where the income to be charged under this head is from letting on hire of machinery, plant and
furniture, with or without building: The following items of deductions are allowable in the computation of
such income
○ the amount paid on account of any current repairs to the machinery, plant, furniture or building.
○ the amount of any premium paid in respect of insurance against risk of damage or destruction
of the machinery or plant, furniture or building.
○ the normal depreciation allowance in respect of the machinery, plant or furniture, due thereon.
● Income consists of recovery from employees as contribution to any provident fund etc. in terms of
section 2(24)(x): A deduction will be allowed in accordance with the provisions of section 36(1)(va) i.e., to
the extent the contribution is remitted before the due date under the respective Acts.
● Any other expenditure incurred wholly and exclusively for earning such income.
Expenses not allowed deduction - Section 58
● Any personal expense of the assessee

● Any interest chargeable to tax under the Act which is payable outside India on which tax has not been
paid or deducted at source.
● Any payment chargeable to tax under the head “Salaries”, if it is payable outside India unless tax has
been paid thereon or deducted at source.
● Any expenditure in respect of which a payment is made to a related person, to the extent the same is
considered excessive or unreasonable by the Assessing Officer, having regard to the FMV.
● Any expenditure in respect of which a payment or aggregate payments exceeding Rs. 10,000 is made to
a person in a day otherwise than by account payee cheque or draft or ECS through bank account or
through such other prescribed electronic mode such as credit card, debit card, net banking, IMPS, UPI,
RTGS, NEFT, and BHIM Aadhar Pay.
● Disallowance of Section 40(a)(ia)
○ 30% of expenditure shall not be allowed, in respect of a sum which is payable to a resident and
on which tax is deductible at source, if
■ such tax has not been deducted or;
■ such tax after deduction has not been paid on or before the due date of return specified in
section 139(1).
● Any expenditure or allowance in connection with income by way of earnings from lotteries, crossword
puzzles, races including horse races, card games and other games of any sort or from gambling or
betting of any form or nature
● However, expenditure incurred for activity of owning and maintaining race horses shall be allowed as
deduction.
Some examples
● Mr. Z purchased lottery tickets of Sikkim govt. for Rs. 20,000 but lost. He purchased another ticket from the Himachal govt. for
Rs. 10,000 and won an amount of Rs. 60,000. Determine his taxable income.
● Mr. Y purchased a lottery of Rs. 15,000 but did not win any amount. He has income of Rs. 1, 20,000 from business. On how much
income he is liable to pay tax?
Deemed Income chargeable to tax Section 59
Any amount which was earlier allowed as deduction from the income under the head of other sources and is
recovered subsequently will be taxable in the year of receipt irrespective of the existence of the source of the
income in that previous year.
Method of accounting (Regularly employed by the assessee)
● Income chargeable under this head is to be computed in accordance with the method of accounting
Regularly employed by the assessee.
● If the assessee is following a mercantile basis, the income is to be computed on a due basis and if the
assessee is following a cash system then income shall be computed on a cash basis.
Special provision for full value of consideration for transfer of share

other than quoted share. - Section 50CA
● Where the consideration received or accruing as a result of the transfer by an assessee of a capital
asset,
○ being share of a company
■ other than a quoted share,
● is less than the fair market value of such share determined in such manner as may be prescribed,
● the value (FMV) so determined shall, for the purposes of section 48,
● be deemed to be the full value of consideration received or accruing as a result of such transfer.
Explanation.—For the purposes of this section, "quoted share" means the share quoted on any recognised stock
exchange with regularity from time to time, where the quotation of such share is based on current transaction
made in the ordinary course of business.
Capital gains on distribution of assets by companies in liquidation. -

Section 46
1. Notwithstanding anything contained in section 45,

● where the assets of a company are distributed to its shareholders
● on its liquidation,
● such distribution shall not be regarded as a transfer by the company for the purposes of section
45.
2. Where a shareholder
● on the liquidation of a company
● receives any money or other assets from the company,
● he shall be chargeable to income-tax under the head "Capital gains", in respect of the money so
received or the market value of the other assets on the date of distribution,
➢ as reduced by the amount assessed as dividend within the meaning of sub-clause (c) of
clause (22) of section 2
➢ and the sum so arrived at shall be deemed to be the full value of the consideration for
the purposes of section 48.
NOTES
In case of transfer of any capital asset received by the shareholder on liquidation of a company, which had been
assessed under section 46, then the cost of acquisition will be the fair market value as on the date of
distribution.
Particulars Amount
Money so received or market value of other assets received on liquidation on the date xxx
of distribution
Less: Amount assessed as deemed dividend under section 2(22)(c) to the extent of xxx
accumulated profits as on the date of liquidation
Full Value of Consideration xxx
Consideration received in excess of FMV of shares issued by a closely

held company to be treated as income of such company, where shares
are issued at a premium [Section 56(2)(viib)]
● Section 56(2)(viib) brings to tax the consideration

○ received from a resident person by a company,
○ other than a company in which public are substantially interested,
○ which is in excess of the fair market value (FMV) of shares. (Issue Price - FMV will be taxable)
● Such excess is to be treated as the income
○ of a closely held company taxable under section 56(2)
○ under the head Income from Other Sources,
○ in cases where consideration received for issue of shares exceeds the face value of shares i.e.
where shares are issued at a premium. (Only when shares are issued at premium)
● Fair market value of the shares shall be the higher of, the value as may be –
○ determined in accordance with the prescribed method; or
○ substantiated by the company to the satisfaction of the Assessing Officer, based on the value of
its assets on the date of issue of shares.
● For the purpose of computation of FMV, the value of assets would include the value of intangible assets
being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or
commercial rights of similar nature.
Example
The following are the details of the shares issued by the following closely held companies. Discuss the
applicability of provisions of section 56(2)(viib) in the hands of these companies
Co. No. of Face FMV of Issue Applicability of section 56(2)(viib)

shares value of shares price of
shares (₹) shares
(₹) (₹)
A (P) 10,000 100 120 130 The provisions of section 56(2)(viib) are attracted in this
Ltd. case since the shares are issued at a premium (i.e., issue
price exceeds the face value of shares). The excess of the
issue price of the shares over the FMV would be taxable
under section 56(2)(viib). ₹ 1,00,000 [10,000 × ₹ 10 (₹ 130 -
₹ 120)] shall be treated as income in the hands of A (P)
Ltd.
B (P) 20,000 100 120 110 No sum shall be chargeable to tax in the hands of B (P)
Ltd. Ltd. under the said section as the shares are issued at a
price less than the FMV of shares.
C (P) 30,000 100 90 98 Section 56(2)(viib) is not attracted since the shares are
Ltd. issued at a discount, though the issue price is greater
than the FMV.
D (P) 40,000 100 90 110 The provisions of section 56(2)(viib) are attracted in this
Ltd. case since the shares are issued at a premium. The
excess of the issue price of the shares over the FMV
would be taxable under section 56(2)(viib). Therefore, ₹
8,00,000 [40,000 × ₹ 20 (₹ 110 - ₹ 90)] shall be treated as
income in the hands of D (P) Ltd.

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● A sources of income, which is not exempt

Specific incomes Section 56(2)

● Dividends, other than dividends referred to in section 115-O

● Income from subletting.

Advance Money Forfeited.

Old Law (Refer Videos)

New Law - 56(2)(ix) (From 1/4/2014 onwards)

Discuss tax implications of such a transaction in the hands of Paresh.

Computation of capital gains of Mr. Paresh for AY 20_ _- _ _ (amounts in Rs ) -

Full value of consideration 21,00,000

Less Indexed cost of acquisition ( Rs 10,00,000 * _ _ _ / 254) (WN)

Long term capital gains

Also answer if Advance Received was Rs. 25,00,000.

By Mr. Rakesh during FY 1999-2000 10,000

By Mr. Rakesh during FY 2003-04 50,000

By Mr. A during FY 2007-08 1,90,000

The fair market value of the property as on 01-04-2001 is Rs 11,00,000.

Solution : Computation of capital gains taxable in the hands of Mr A-

Particulars Working (amount in Rs )

Full value of consideration 42,00,000

Less Indexed cost of acquisition ( Rs 10,20,000 * _ _ _ /100) 1

Less Indexed cost of improvement by Mr Rakesh ( Rs 50,000 * _ _ _ /109) 2

Less Indexed cost of improvement by Mr. A ( Rs 1,90,000 * _ _ _ /129)

Long term capital gains

Taxation of Gifts - 56(2)(x) - Sum of money or value of property

SDV on Date of Agreement

Condition for SDV on Date of Agreement

Property other than IMP

○ clause (i) (Partition of HUF) or

○ clause (vib) (demerger) or

○ clause (vid) (issue of shares by resulting co to shareholder of demerged co) or

Property" means the following capital asset of the assessee, namely

Meaning of relative for section 56(2)(x)

○ Any lineal ascendant or descendant of the individual

● In case of HUF – Any member of the HUF

Cost of Acquisition for the recipient- Section 49(4)

Special provision for full value of consideration for transfer of assets

43CA. (1) Consideration < Stamp Duty Value

SDV < 110% of Consideration

(c) Distribution to shareholders on

● reduction of share capital

Following things must be checked on the date on which loan/advance is given

Dividend shall not include the following

● Loan given in the normal course of the business.

The incidence of surcharge on dividend income would not exceed 15%.

Dividends Section 194

● No tax is to deducted in case of a shareholder, being an individual, where -

● Section 197A is applicable - No TDS if declaration is given in prescribed form.

Keyman Insurance policy

Winning from lotteries etc.

● No deduction: No deduction of any expenditure or exemption is allowed from such income.

● ​Interest on PPF accounts is also exempt.

Income from Owning and Maintaining of Race Horses - Section 56

Income from owning and maintaining of any other animal

Family Pension Payments received by the legal heirs of the deceased

Exemption in respect of family pension

Compensation or any other payment received in connection with

b. such compensation or payment could be by whatever name called

● Interest on PPF accounts is also exempt.