Income From other Sources
Sec. 56 to Sec. 58
Income Tax Law and Practice Notes
B.Com 3rd Sem CBCS Pattern
Q.
What are the incomes and deemed incomes chargeable under the head “Income from
other sources”? 2021
Q.
What do you mean by Income from other sources? Explain the allowed (2016) and
disallowed deductions (2017SN) under the head income from other sources.
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Income from other sources (Basis of
Charge – Sec.56)
Income from
other sources is the last and residual head of income. A source of income that
does not specifically fall under any one of the other four heads of income
(viz., “Salaries ”, income from house property ”, profits and gain of business
or profession ’’, Capital gain ’’) is to be computed and brought to charge
under section 56 under the head ’’Income from other source’’.
To put the
aforesaid matter differently, the residuary heads of income can be invoked only
if all the following conditions are satisfied:
1. Income –There
is an income.
2. Income shall
not be exempt – That income is not exempt from tax under section 10 to 13 A.
3. Not covered by
other heads -That income is neither salary income, nor income from house
property, nor income from business /profession, and neither capital gains.
These four categories of income are not chargeable to tax under head ‘‘Income
from other sources’’.
If the
above three condition are satisfied, the income is taxable under the head
‘‘Income from other sources’’. All incomes chargeable to tax under this head
are divided into 2 categories:
A. General Incomes [Sec. 56(1)]
Sec.
56(1): General Incomes: Following are the popular and general incomes
that are offered for tax under the head “income from other sources”:
a)
Income from subletting;
b)
Interest on bank
deposits and loans;
c)
Income from
royalty (if it is not an income from business/profession);
d)
Director’s fee;
e)
Ground rent;
f)
Agriculture
income from a place outside India;
g)
Directors ‘s
commission for standing as guarantor to bankers;
h)
Director’s
commission underwriting shares of new company;
i)
Examination fees
received by a teacher from a person other than his employer
j)
Rent of plot of
land
k)
Insurance
commission;
l)
Mining rent and
royalties
m)
Casual income;
n)
Annuity payable a
will, contact trust deed (excluding annuity payable by employer which is
chargeable under the head ‘’
o)
Salary to payable
to member of parliament;
p)
Interest on
securities issued by a foreign Government;
q)
Family pension
received by family members of a deceased employee;
r)
In case of
retirement, interest on employee’s contribution if provident fund is
unrecognized;
s)
Income from
undisclosed sources;
t)
Gratuity paid to
a director who is not an employee of the company;
u)
Income from
racing establishments;
v)
Compensation
received for use of business assets;
w)
Annuity payable
to the lender of a trademark.
B. Specific Incomes [Sec. 56(2)]
[Sec. 56(2)]: Specific Incomes: Following
incomes are the specific incomes which are chargeable to tax under the head
“Income from other sources”
a)
Dividend : if
such income is not chargeable to income-tax under the head "Profits and
gains of business of profession.
b)
Winning from
Lotteries , etc.: it includes any winning from lotteries, crossword puzzle,
races including horse races, card games and other games of any sort or from
gambling or betting of any form or nature whatsoever.
c)
Interest on
securities : Interest on Debentures, Government securities / bonds is taxable
under the head “ Income from other sources”
d)
Rental income of
machinery, plant or furniture: Rental income from machinery, plant, or furniture
let on hire is taxable as income from other sources.
e)
Rental income of
letting out of plant, machinery or furniture along with letting out of building
and the two meetings are not separable.
f)
Sum received
under Keyman Insurance Policy :
g)
Gift : if any sum
of money is received during a previous year without consideration by an
individual or a HUF from any person or persons exceeds Rs. 50,000 the whole of
such amount is taxable in the hands of the recipient as income from other
sources.
Income chargeable
under this head is computed in accordance with the method of accounting
regularly employed by the taxpayer. For instance, if book of accounts are kept
on basis of mercantile system, income is taxable and expenditure is deductible
on ‘‘due basis, whereas if books of account are kept on the basis of cash
system, income is taxable on ‘‘receipt ’’basis and expenditure is deductible on
‘‘payment ’’basis.
Deduction
Allowed from Income from other sources (Sec. 57)
The following deductions are allowed from
income from other sources:
A)
Deductions for Interest on Securities, Dividends etc.:
(a) Collection charges [Section 57(i)] : Any
reasonable sum paid by way of commission or remuneration to a banker, or any
other person for the purpose of realizing the interest.
(b) Interest on Loan [Section 57(iii)] :
Interest on money borrowed for investment in securities is allowed as
deduction.
(c) Any other expenditure [Section 57(iii)] :
Any other expenditure, not being an expenditure of a capital nature, expended
wholly and exclusively for the purpose of making or earning such income is
allowed as deduction.
B)
Deductions permissible from letting out of machinery, plant or furniture and
buildings [Section 57(ii) and (iii)]: The following deductions are allowable:
a.
current repairs, to the premises
b.
Insurance premium against risk of damage or
destruction of the premises
c.
Repairs and insurance of machinery, plant or
furniture
d.
Depreciation based upon lock of assets, in the
same manner as allowed under section 32.
e.
Any other expenditure not being an expenditure
of a capital nature, laid out or expended wholly and exclusively for the
purpose of making or earning such income is to be given as deduction
C)
Deductions in respect of employee’s contribution towards staff welfare schemes
[Section 57(ia)]:
Deduction in respect of any sum received by an
employer as contribution from his employees towards any welfare fund of such
employee is allowable only if such sum is credited by the employer to the
employee’s account in the relevant fund before the due date.
D) Family
pension payments received by the legal heirs of a deceased employee
[Sec.57(iii)]
Family pension is taxable under the `Income
from other sources’. On such family pension a standard deduction is to be
allowed to the legal heir at 33 1/3% of such pension, or ` 15,000 whichever is
less.
Deductions Not allowed from income from other
sources (Sec. 58)
The following are not allowed as deduction in
computing income from other sources .
1. Personal expenses : Any personal expenses
of the assessee are not deductible.
2. Interest : Any interest chargeable under
the Act which is payable outside India on which tax has not been deducted at
source is not deductible.
3. Salary without TDS : Any payment chargeable
under the head ``Salaries’’ and payable outside India is not deductible if tax
has not been paid or deducted there from.
4. Income from betting, gambling and
speculation: In case an assessee has income from lotteries, crossword puzzles,
races including horse races, card games, betting, gambling etc., such assessee
shall not be allowed any deduction in respect of any expenditure or allowance
in connection with such income. However, in the case of income from the
activity of owning and maintaining race horses, the expenses incurred on the maintenance
of horse is allowed as deduction.
5. Amount specified by Section 40A : Any
amount specified by section 40A under the head profit or gain from business or
profession is not deductible while calculating income under the head ``Income
from other sources’’.
6. Expenditure in respect of Royalty and
Technical fees received by a foreign company : In the case of foreign
companies, expenditure in respect of royalties and technical service fees as
specified by section 44D is not deductible.
Undisclosed
income and Investments taxed as Deemed Incomes
The following are the deemed incomes.
1. Cash Credits [Section 68]: Where any sum is
found credited in the books of an assessee maintained for any previous year and
the assessee offers no explanation about the nature and source thereof or the
explanation offered by him is not in the opinion of Assessing Officer (A.O),
satisfactory, the sum so credited may be charged to income-tax as the income of
assessee of that previous year. Such cash credits may be assessed either as
business profits or an income from other sources. In the case of business
community it is normally considered as business profit.
2. Unexplained Investments [Section 69]:
Where, in the financial year immediately preceding the assessment year, the
assessee has made investments which are not recorded in the books of accounts
and the assessee fails to furnish any satisfactory explanation as and from
where this money came or if the Assessing Officer is not satisfied with the
explanation the value of such unexplained investment may be deemed to be the
income of the assessee of such financial year.
3. Unexplained Money etc. [Section 69A]:
Where, in any financial year the assessee is found to be the owner of any
money, bullion and jewellery or other valuable articles the assessee either
does not furnish any explanation as to how he acquired these things or his
explanation, if furnished is not up to the satisfaction of the Assessing
Officer, the money, bullion, jewellery or other valuable articles may be deemed
to be the income of the assessee for such financial year.
4. Investments, Jewellery etc. not fully
disclosed in Books of Accounts [Section 69B]: In case the assessee acquired
certain investments, jewellery, valuable article etc. and the actual money spent
on these items is more than what is shown or recorded in his books of accounts
and the assessee either does not furnish any explanation for this or with his
explanation the A.O. is not satisfied, the excess amount under section 69B may
be deemed to the income of the assessee for such financial year.
5. Unexplained Expenditure [Section 69C]:
According to Section 69C, where in any financial year an assessee has incurred
any expenditure and he offers no explanation about the source of such
expenditure or part thereof or the explanation offered by him is not
satisfactory according to the opinion of A.O., the amount covered by such
expenditure or part thereof, as the case may be, is deemed to be the income of
the assessee for such financial year. The amount of unexplained expenditure
which is deemed as income of the assessee, shall not be allowed to be deducted
under any head of income
6. Payment of Hundi Money in Cash [Section
69D] : According to this section any amount borrowed on `hundi’ or repaid on
hundi otherwise than in account payee cheque drawn upon a bank, shall be deemed
to be the income of the person borrowing or repaying the amount for the
previous year in which such amount was borrowed or repaid.
