Income Tax Act - 1961

Session 15 – Income from Other

Sources
 Chargeability – Sec 56
As per Sec 56(1), income of every kind,
which is not to be excluded from the total
income under this Act, shall be chargeable
to income tax under the head ‘Income
from Other Sources’ if it is not chargeable
to tax under any of the first four heads.
It is therefore a residuary head of income
 Chargeability – Sec 56
Sec 56(2) gives certain specific items which shall be
chargeable to Income tax under this head.
a) Dividends other than dividends referred to in Sec
115-O.
b) Income by way of winnings from lotteries,
crossword puzzles, races including horse race,
card games and other games of any sort,
gambling or betting of any form or nature.
c) Any sum received by the assessee from his
employees as contribution to any provident fund,
or any other welfare fund for the employees
provided it is not taxable under the head Profits
and Gains of Business or Profession
 Chargeability – Sec 56
d) Income by way of interest on securities provided
the income is not chargeable to Income tax under
the head Profits and Gains of Business or
Profession.
e) Income from machinery, plant or furniture
belonging to the assessee and let on hire provided
the income is not chargeable to tax under the
head Profits and Gains of Business or Profession.
f) Where the assessee lets on hire, the machinery,
plant or furniture belonging to him and also
 Chargeability – Sec 56
buildings and letting of buildings is inseparable
from the letting of the said machinery, plant or
furniture, the income from such letting, if it is not
chargeable to income tax under the head Profits
and Gains of business or profession.
g) Any income received under a Keyman Insurance
Policy, including the sum allocated by way of
bonus on such policy, if such income is not
taxable under the head Salaries or Profits and
Gains of Business or Profession.
 Chargeability – Sec 56
h) Any sum of money the aggregate value of which
exceeds Rs.50000 received from any person
without consideration by an individual or HUF,
subject to certain exceptions.
i) The value of any property received without
consideration or for inadequate consideration by
an individual or HUF from any person or persons.
Such properties will include immovable property
being land or building or both, shares and
securities, jewellery, archaeological collections,
 Chargeability – Sec 56
drawings, paintings, sculptures or any work of art.
j)Income by way of interest received on
compensation or enhanced compensation referred
to in Sec 145A(b).
(a,b,h,i & j taxable only under this head)
(c,d,e & f taxable under this head if not taxed under
Profits and Gains of Business/ Profession)
(g taxable under this head if not taxed under salaries
or Profits and Gains of Business or Profession)
 Dividend
Any amount declared, distributed or paid by
a domestic company by way of dividends
referred to in Sec 115-O (whether interim
or otherwise) whether out of current or
accumulated profits shall not be included
in computing the total income of a
previous year of any person.Hence
dividends are exempt in the hands of the
shareholders (Sec 10(34)).
 Dividend
Dividend from a foreign company or deemed
dividend, mentioned under section2(22)(e) shall
however, be taxable under the head ‘Income from
Other Sources’.
Deemed dividend u/s 2(22)(e)
Any payment to the extent of accumulated profits
by a company, not being a company in which
public are substantially interested, of any sum by
way of
i. loan or advance to a shareholder who holds
 Dividend
the beneficial ownership of equity shares
carrying not less than 10% of the voting power.
ii. Loan or advance to any concern (HUF, firm, AOP,
BOI or a company) in which such shareholder is
a member or partner holding substantial interest
(20% or more beneficial interest at any time
during the previous year)
iii. Any payment on behalf of or for the individual
benefit of any such shareholder made to any
person.
In pt above, any advance or loan to a shareholder or
a concern in which the shareholder has
 Dividend
substantial interest will not be deemed to be
dividend if it has been given during the course of
its business, provided lending of money is a
substantial part of the business of the company.
Deduction of expenses
a) Collection charges – paid to a banker or any other
person for realising the dividend.
b) Interest on money borrowed for purchasing the
shares . This interest can be claimed even if no
income is earned by way if dividend on such
 Dividend
shares.
c) Any other expenditure, not being of a
capital nature,expended wholly and
exclusively for earning such income.
 Winnings from Lottery etc
Income by way of winnings from any lottery or
crossword puzzle or race including horse race
or card game and other game of any sort or
from gambling or betting of any form shall be
chargeable as income from Other Sources and
shall be chargeable @ 30% u/s 115BB.
These winnings are subject to the following:
1. No expenditure or allowance can be allowed
against such income
2. No deduction under Chapter VIA shall be
allowed.
 Winnings from Lottery etc – Sec
115BB
3. No benefit of carry forward and set off of
loss/unabsorbed depreciation allowance is
available against such income.
4. No basic exemption limit is available.

Card game and other game of any sort includes

any game show, an entertainment programme
on television in which people compete to win
prizes or any other similar game.
 Income on Securities
Interest on securities may be taxed on receipt basis
or due basis, depending upon the system of
accounting adopted by the assessee.

Deduction for expenses – As in the case of

dividends, collection charges, interest on loan
taken for investment in securities and any other
expenditure (not being of capital nature)
expended wholly for earning such income can be
deducted.
 Income from letting of
machinery, plant or furniture
Income from machinery, plant or furniture,
belonging to the assessee and let on hire, is
chargeable to income tax under the head
income from other sources, if not chargeable
under Profits and Gains of Business or
Profession.
(If assets are given on hire as a part of the
assessee’s business activity of as commercial
assets belonging to the assessee, income
derived therefrom will be business income).
 Income from composite letting of
machinery, plant or furniture and buildings
Where the assessee lets on hire the machinery,
plant or furniture belonging to him and also
buildings and the letting of the building is
inseparable from the letting of the said
machinery, plant or furniture, income from such
letting,called composite rent, if not chargeable
under Profits and Gains of Business , will be
chargeable as Income from Other Sources.
 Letting of machinery, plant or
furniture, with or without building
 In case of lease rental on letting of
machinery, plant and furniture, with or
without building, the following shall be
deducted – current repairs, insurance
premium against risk of damage or
destruction, depreciation based upon
block of assets and any other expenditure
(not being of capital nature) expended
wholly for earning such income.
 Amount under a Keyman
Insurance Policy
Any sum received under a keyman
insurance policy including bonus is
chargeable under this head when it is
received by any person other than the
employer who took the policy and the
employee in whose name the policy was
taken.
 Gift of Money or Property from
unrelated persons
The following 3 kinds of gifts received by an
individual or HUF from an unrelated person shall
be chargeable u/s 56(2)(vii).
i. Gift of money – Where any sum of money is
received by an individual or HUF from any
person or persons without consideration, the
aggregate value of which exceeds Rs.50000,
the whole of the aggregate value of such sum
shall be taxable in the hands of the recipient.
 Gift of Money or Property from
unrelated persons
ii. Gift of Immovable Property – Where any immovable
property is received by an individual or HUF from any
person without consideration, the stamp duty value of
which exceeds Rs.50000, the stamp duty value of
such property shall be taxable in the hands of the
recipient.
iii. Gift of Property other than Immovable property
a. Without consideration - Where any property other
than immovable property is received by an individual
or HUF, the aggregate fair market value of which
exceeds Rs.50000, the whole of
 Gift of Money or Property from
unrelated persons
the aggregate FMV of such property shall be
taxable in the hands of the recipient.
b. Acquired for inadequate consideration – Where
such property is acquired for a consideration
which is less than the aggregate fair market
value of the property by an amount exceeding
Rs.50000, the aggregate fair market value of
such property as exceeds such consideration
shall be taxable in the hands of the recipient.
 Gift of Money or Property from
unrelated persons
Meaning of Property – Property means
i. Immovable property being land or building or both
ii. Shares and securities
iii.Jewellery
iv.Archaeological collections
v. Drawings
vi.Paintings
vii.Sculptures
 Gift of Money or Property from
unrelated persons
viii. Any work of art
ix. Bullion
x. Where a firm or a company, not being a
company in which the public are substantially
interested, receives in any P.Y, from any person
or persons (on or after 1/6/2010), any property,
being shares of a company not being a company
in which the public are substantially interested,
a) Without consideration, the aggregate fair
 Gift of Money or Property from
unrelated persons
market value of such property
b) For a consideration which is less than the
aggregate fair market value of the property by an
amount exceeding Rs.50000, the aggregate fair
market value of such property as exceeds such
consideration.
However the transactions undertaken for business
reorganisation, amalgamation and demerger
shall be excluded from the application of this
clause.
 Gift of Money or Property from
unrelated persons
Circumstances when such gift shall not be
treated as income
Where the sum of money or any property is
received
i) From any relative or
ii) On the occasion of the marriage of the
 Gift of Money or Property from
unrelated persons
individual or
iii) Under a Will or by way of inheritance or
iv) In contemplation of death of the payer or
donor as the case may be or
v) From any local authority or
vi) From any fund, foundation, university,
other educational institution, hospital,
medical institution, any trust or institution
referred to in Sec 10(23C) or
 Gift of Money or Property from
unrelated persons
vii) From charitable institutions registered u/s
12AA,
the amount so received shall not be
chargeable to income tax.
Definition of relative:
1. Spouse of the individual
2. Brothers or sisters of the individual
3. Brothers or sisters of the spouse of the
individual
 Gift of Money or Property from
unrelated persons
4. Brother or sister of either of the parents
of the individual
5. Any lineal ascendant or descendant of
the individual
6. Any lineal ascendant or descendant of
the spouse of the individual
7. Spouse of the person referred to in
clauses 2 to 6 above.
 Interest on compensation or
enhanced compensation
Any interest received by an assessee on
compensation or enhanced compensation,
as the case may be, shall be deemed to be
the income of the year in which it is
received.
A deduction of a sum equal to 50% of such
income shall be allowed to the asessee and
no deduction shall be allowed under any
other clause of Section 57.
 Family Pension
After the death of the employee, if there is any
family pension received by the legal heirs of
the deceased, it will be deemed to be income
of the legal heir and will be taxable under the
head Income from Other Sources.
On such pension, a standard deduction shall be
allowed to the legal heir @ 33.33% of such
pension or Rs.15000 whichever is less.
 Example
Q.1 - Mr.Ashok received a sum of Rs.500000 as gift during
the financial year 2007-2008, the details of which are
as follows:
a. From relatives on the occasion of birthday Rs.100000
b. From an unregistered charitable institution in
connection with compensation for floods Rs.50000
c. Rs.150000 received from friends on the occasion of
birthday
d. Rs.200000 received from a neighbour who is in death
bed.
 Inadmissible Expenses – Sec 58
i) Personal Expenses
ii) Interest and salary payable outside India, if tax
has not been paid or deducted at source.
iii) Income tax/Wealth tax paid
iv) Expenses of the nature specified in Sec 40A
(excessive or unreasonable payments to
certain specified persons) and payments
exceeding Rs.20000 otherwise than by way of
a/c payee cheque or draft.
 Inadmissible Expenses – Sec
58
v) No deduction shall be allowed in respect
of winnings from lotteries, crossword
puzzles, card games, races including
horse race, gambling, betting etc.
However expenditure on the activity of
owning and maintaining race horses
shall be allowed as a deduction while
computing the income from this activity.
 Deemed Income – Sec 59
Any amount received or benefit derived in
respect of expenditure incurred or loss or
trading liability allowed as deduction shall
be deemed as income in the year in which
the amount is received or the benefit is
accrued.
 Interesting Case Laws
1. Amenity charges can be charged under
the head Income from Other sources
only in cases where it is collected
independent of rent from the building. In
case where the composite income is
received towards rent and amenities, the
entire income shall be charged to tax
under the head ‘Income from House
Property’ – SC decision in Shambhu
Investment Pvt Ltd.
 Interesting Case Laws
2. When an assessee borrows for the purpose of
investing in securities, interest on loan is
deductible from the income derived from such
investment in the computation of taxable
income. Even if there is no income in a particular
year, the assessee can claim deduction of such
interest, resulting in loss, so long as the purpose
of such expenditure is making or earning income
– CIT vs Rajendra Prasad Moody (SC)
 Some examples of income
chargeable under this head
 Interest on bank deposits and loans
 Income from sub letting
 Director’s fee
 Agricultural income from outside India
 Rent of plot of land
 Insurance Commission
 Interest on unrecognised provident fund received at the
time of retirement by an employee
 Income from private tuition