Income From Other Sources Notes, Sec. 56 to Sec. 58, Income Tax Law and Practice Notes, B.Com 3rd Sem CBCS Pattern

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.


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.