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INCOME FROM OTHER SOURCES

TAXATION ASSIGNMENT

PRESENTED BY- PRESENTED TO-

AVINASH KUMAR PASARI MR. BINEET KEDIA

ROLL NO. 1582130 MS. AMRITA JHA

B.B.A., LL.B. (B) MS. NILIMA PANDA

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ACKNOWLEDGEMENT

The satisfaction that accompany the successful completion of the study would be incomplete

without the mention of those people who made it possible, without their valuable guidance and

encouragement success would not have been possible.

I owe a deep gratitude to the faculties, Mr. Bineet Kedia (Assistant Professor); Mr. Nilima Panda

(Assistant Professor); Ms. Amrita Jha (Faculty Associate) who have supported me with the

guidance at each step about the procedure of carrying out research study and guiding me

throughout the project work.

I would also like to express my gratitude to my family members and friends, for being

immeasurably accommodating the requirements of this humble endeavor.

AVINASH KUMAR PASARI

1582130 BBA, LLB (B)

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CONTENT

SERIAL PARTICULARS PAGE

NO. NO.
1 ACKNOWLEDGEMENT 2
2 INTRODUCTION 4-5
3 DIVIDEND 6-7
4 WINNING FROM LOTTERIES 8
5 INTEREST ON SECURITIES 8
6 KEYMAN INSURANCE POLICY 8
7 CONTRIBUTION TO PROVIDENT FUND 9
8 RENTAL INCOME OF MACHINARY 9
9 RENTAL INCOME OF LETTING OUT OF PLANT 9
10 GIFTS 10
11 INCOME AFTER DEDUCTION 11-12
12 CONDITIONS TO BE SATISFIED AFTER CLAIMING DEDUCTION 13
13 BIBLIOGRAPHY 14
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INTRODUCTION

As given under section 14 of the Income Tax Act1 that the heads of the income shall, for all the
purpose of charge of income-tax and computation of total income, be classified under the following
head of income:-

A. Salaries.
B. Repealed.
C. Income from house property.
D. Profit and Gains from business and profession.
E. Capital Gains.
F. Income from other sources.

The present assignment will include the last Head of Income under Section 14 of the act that is
Income from Other Sources. The topic is well defined in Section 56 of the act where it states
about the scope of income, and also in Section 57 & 58 of the act specify the basis of computation
of such income.

To sum up the residuary head of income or the income from other sources can be invoked only if
all the following conditions are satisfied:

Income: There should be an income.

Income shall not be exempt: Under section 10 to 13A if the act, that the income should not
be exempted.
Not covered by any other head: The income provided should not be covered under any
head of section 14 of the act except the residual head.

Under Section 56 (1) of the act it states that any income which does not fall under any other head
and also under sub section 2 of the same act specifies nine heads which are taxable under the head
are:

1. Dividend
2. Winning from lotteries, gambling etc.
3. Employees contribution towards staff welfare scheme.

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The project will refer this everywhere.
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4. Interest on securities.
5. Rental income of machinery, plant or furniture.
6. Rental income of letting out of plant, machinery or furniture along with letting out of
building and the two lettings are not separable.
7. Sum received under Keyman insurance policy.
8. Gift.
9. Contribution to Provident fund.
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DIVIDEND

According to section 56(2)(i), a dividend from an Indian company is not taxable under in the tax of
shareholder (company declaring dividend will have to pay dividend tax under section 115-O). however,
deemed dividend under section 2(22)(i) from an Indian company or any dividend from a foreign company
is taxable in the hands of shareholders under the head Income from other sources, regardless of the fact
whether shares are held by the assessee as investment or as a stock in trade.

Also dividend in its ordinary connation means the amount paid to or received by a shareholder in proportion
to his shareholder in a company, out of the total sum so distributed.

In the case of Kantilal Manilal v. CIT2, it is stated that if, a particular shareholder is not regarded as a
dividend within the extended meaning of the expression in section 2(22), it may still be dividend provided
it is dividend under the ordinary meaning of the expression. Under section 2(22), the following payment
or distribution by a company to its shareholders are deemed as dividend to the extent of accumulated profits
of the company (it may be noted that these payments may not be dividend under the companies Act):

Any distribution entailing the release of companys asset.

Any distribution of debentures, debenture-stock, deposit, deposit certificate and bonus to
preference shareholder.
Distribution on liquidation of company.
Distribution on reduction of capital.
Any payment by way of loan or advance by a closely-held company to a shareholder, holding
substantial interest, provided the loan should not have been in the ordinary course of business and
money lending should not be substantial part of the companys business.

Before proceeding further let understand what accumulated profit is. Accumulated profit is the profit
available to the company at the time of payment and distribution (in case of liquidation not in role). But in
case of liquidation, profit available to the company till date of liquidation but also if the liquidation is the
consequent of government company or government, then the profit will not include the consecutive three
preceding year from date of liquidation.

Now, in the case of any distribution entailing the release of companys assets under section 2(22)(a) it says
that distribution should be from accumulated profits(not from capital) and also, such distribution must result
on the release of the assets by the company. For instance, when a company distributes bonus share to equity

2
[1961] 41 ITR 275 (SC).
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shareholders by capitalizing its profits, then there is no release of assets and consequently, bonus share are
not treated as dividend.

Then, under section 2(22)(b) it is given that any distribution of accumulated profits of debentures,
debenture-stock, deposit, deposit certificate and bonus to preference shareholder means that distribution by
a company to its shareholders (whether equity shareholder or preference shareholder) of debentures,
debenture stock, or deposit certificates in any form, whether with or without interest and distribution by a
company to its preference shareholder of bonus share.

Under section 2(22)(c) it is says about distribution of accumulated profits on liquidation of company that
is any distribution in respect of preference shares issued for full cash consideration and any distribution
insofar as such distribution is attributable to the capitalized profits of the company representing bonus
shares allotted to its equity shareholders during 1964-65 are not treated as a dividend.

Section 2(22)(d) speaks about distribution of accumulated profits on the reduction of its capital which says
that followings are not included as dividend:

Any distribution out of accumulated profits which arose up to the previous year 1932-33.
Any distribution in respect of preference share issued for full cash consideration.
Any distribution in so far as such distribution is attributable to the capitalized profits of the company
representing bonus shares allotted to its equity shareholders during 1964-65.

In section 2(22)(e)it is mentioned about distribution of accumulated profits by way of advance or loan
which state that if after giving loan or advance to a shareholder, the company declares normal dividend and
such dividend is set off against loan/advance, the amount so set off will not be taken as dividend. Also,
where a money-lending is a substantial part of business of the company (giving loan), the above provisions
are not applicable.
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WINNIGS FROM LOTTERIES, CROSSWORD PUZZLES, HORSE RACES

AND CARD GAMES, ETC.

According to section 56(2)(ib) it is stated that amount taxable is winning from lotteries, crossword
puzzles, races, winnings from betting ,etc., are chargeable to tax. If a receipt is not winnings, then it is not
taxable under section 56(2)(ib). Also, gambling or betting of any nature whatsoever are chargeable to
income tax at flat rate of 30 percent3 on the gross winnings. And also under section 194B and 194BB, tax
is deductible @30 percent on payment in respect of winnings from lotteries or crossword puzzle or card
games or other games exceeding Rupee 100004. In case of winnings from horse races, payment exceeding
rupee 50005 are subject to tax deduction at source at the rate of 30 percent.

INTEREST ON SECURITIES

Under section 56(2)(id) it says that income by way of interest on securities is taxable under the
head income from other sources, if same is not taxable as business income under section 28.

In general securities means a document held by a creditor as guarantee of his right to payment.6
Also, under section 2(28) of the act interest on securities means interest on any security of the
central Government or a state government and also the interest on debentures or other securities
for money issued by or on behalf of a local authority or a company or a corporation established by
a central, state or provincial act.

KEYMAN INSURANCE POLICY

Amount received under a Keyman insurance Policy, including bonus on each Policy, if it is not
taxable under any other head of income shall be chargeable under Income from other sources.

3
For surcharge, education cess and secondary & higher education cess.
4
Rupee 5000 up to June 30, 2010.
5
Rupee 2500 up to June 30, 2010.
6
Shorter Oxford English Dictionary.
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CONTRIBUTION TO PROVIDENT FUND

Income of the nature referred to in Section 2(24)(x) (relating to certain contributions to any
provident fund or superannuation fund or any fund set up under the provisions of the ESI Act or
any other fund for the welfare of such employees received by the assessee from his employees in
his capacity as an employer) will be chargeable to income-tax under the head income from other
sources if such income is not chargeable to income-tax under the head profits and gains of
business or profession. But if the employer deposits such amount on or before due date of deposit
applicable for such contribution, he will be allowed a deduction on account of the same according
to Section 56(2)(ic) of the act.

RENTAL INCOME OF MACHINERY, PLANT OF FURNITURE

Income from machinery, plant or furniture belonging to the assessee and let on hire if the income
is not chargeable to income-tax under the head profits and gains of business or profession shall
be taxable under Income from other sources.

RENTAL INCOME OF LETTING OUT OF PLANT, MACHINERY OR

FURNITURE ALONG WITH LETTING OUT OF BUILDING AND THE
TWO LETTINGS ARE NOT SEPARABLE
Where an assessee lets on hire machinery, plant or furniture belonging to him and also building
and the letting of the building 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 shall be taxable under Income from other sources.
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GIFTS
Where any sum of money, the aggregate value of which exceeds fifty thousand rupees, is received
without consideration, by an individual or a Hindu undivided family, in any previous year from
any person or persons on or after the 1st day of April, 2006 but before 1st day of October,
2009, the whole of the aggregate value of such sum shall be taxable under the head Income from
other sources according to Section 56(2)(vi) of the act.
Also, provided under the section that this clause shall not apply to any sum of money received
(a) From any relative;
(b) On the occasion of the marriage of the individual;
(c) Under a will or by way of inheritance;
(d) In contemplation of death of the payer;
(e) From any local authority as defined in the Explanation to clause (20) of section 10;
(f) 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;
(g) From any trust or institution registered under section 12AA.
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THE INCOME CHARGEABLE UNDER THE HEAD INCOME FROM

OTHER SOURCES IS THE INCOME AFTER MAKING THE
FOLLOWING DEDUCTIONS

1. From interest on securities [Section 57(i) and (iii)]: any reasonable sum paid by way of
commission or remuneration to a banker or any other person for the purpose of realising such
interest on behalf of the assessee. Interest on money borrowed for investment in securities can be
claimed as a deduction. During the previous year the assessee withdrew a fixed deposit before
maturity and had to refund ` 3,500 to the bank. The amount withdrawn was invested in shares. It
was held by Karnataka High Court under the earlier regime that the amount paid to the Bank was
an expenditure laid out wholly and exclusively for the purpose of earning the dividend income and
deduction thereof while computing income from dividend is in order from the case of C.I.T. v.
Master Sabraya M. Pai7.

2. From the contributions received by employer from employees towards

P.F./Superannuation/other funds[Section 57(ia)]: In the case of income of the nature referred
to in Section 2(24)(x), which is chargeable to income-tax under the head Income from other
sources deduction shall be allowable in accordance with the provisions of Section 36(1)(va), i.e.,
if the employer has credited the employees accounts in the respective funds with the amounts of
contributions received, the employer shall be allowed credit thereof.

3. Income derived from letting [Section 57(ii)]: Where income is derived from letting out of
machinery, plant or furniture on hire and also buildings where the letting of building is inseparable
from the letting of such machinery, plant or furniture and the income from such letting is not
chargeable to Income-tax under the head Profits and
Gains of Business or profession, the following expenses incurred in respect of those assets:
(a) Current repairs of buildings.
(b) Insurance premium against risk of damage or destruction of the premises.
(c) Repairs and insurance of machinery, plant or furniture.

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1984 150 ITR 251 Karnataka
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(d) Depreciation.
Where the expenses referred to at (a) to (d) hereinabove are incurred on property used partly for
the business of the assessee, a proportionate deduction shall be allowed.

4. Income in the nature of family pension [Section 57(iia)]: Where a regular monthly amount is
payable by an employer to a person belonging to the family of an employee in the event of his
death, i.e., family pension, a sum equal to 33-1/3% of the income or ` 15,000, whichever is less,
is allowable as a deduction. All these expenses will be allowed only when the prescribed particulars
are furnished by the assessee.

5. Interest on compensation or enhanced compensation [Section 56(2)(viii)]: A deduction of a

sum equal to 50% of such income and no deduction shall be allowed under any other clause of this
section.
6. Other deductions [Section 57(iii)]: Any other expenditure (not being in the nature of capital
expenditure) laid out or expended wholly and exclusively for the purpose of making or earning
such income as stated in the case of Smt. Virmati Ramkrishna v. C.I.T.8

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1981 131 ITR 659 Gujarat
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CONDITIONS TO BE SATISFIED FOR CLAIMING DEDUCTIONS

Deductions under this clause will, therefore, be allowed only if the following conditions are
satisfied:
(a) The expenditure is laid out wholly and exclusively for the purpose of earning such income. If
the purpose of earning income is coupled with some other extraneous purpose, it will not be
possible to say that the deduction under Section 57 (iii) is earned by the assessee as stated in Smt.
Padmavati Jaykrishna v. C.I.T.9
(b) It is not in the nature of capital expenditure.
(c) It is not a personal expenditure.
(d) It is incurred in the accounting year itself and not in any prior or subsequent year mentioned in
the case of C.I.T. v. Basant Rai Takhat Singh10. The section does not say that the expenditure shall
be deductible only if income is made or earned. Interest on Money borrowed for investment in
shares which had not yielded any income was admissible as a deduction under the section stated
in the case of C.I.T. v. Gopal11.AMOUNTS NOT DEDUCTIBLE (SECTION 58)

The following amounts shall not be deducted in computing income chargeable under the
head Income from other sources:
In the case of any assessee:
(i) Any personal expenses of the assessee.
(ii) Any interest chargeable under the Income-tax Act which is payable outside India and from
which income-tax has not been paid or deducted at source.
(iii) Any payment which is chargeable under the head Salaries if it is payable outside India unless
tax has been paid thereon or deducted therefrom at source.
(iv) Any expenditure referred to in Section 40A of Income-tax Act.

9
1975 101 ITR 153
10
1922 ITR 197
11
1978 111 ITR 86
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BIBLIOGRAPHY

ICSI TAX LAW AND PRACTICE

TAXMANNS DIRECT TAX LAW AND PRACTICE BY DR. VINOD K.

SINGHANIA AND KAPIL SINGHANIA

TAXMANNS INCOME TAX ACT, AS AMENDED BY FINANCE ACT 2017

http://www.archive.india.gov.in/business/taxation/other_sources.php