Wednesday, April 24, 2019

Dibrugarh University B.Com 6th Sem: Income Tax Solved Question Papers (May' 2017 Old Course)


Income Tax (May' 2017 Old Course)
(Old Course)
Full Marks: 80
Pass Marks: 32
1. (a) Write ‘True’ or ‘False’:                                       1x4=4
a)      Total income of a person is determined on the basis of his citizenship in India.   False, Residential status

b)      ‘Leave Travel Concession’ is a tax-free perquisite for one journey in a block of 4 years.  False, two journey
c)       Tiffin allowance is fully exempted allowance.                              False, taxable
d)      Capital gain arises from the transfer of any capital asset.                       True
(b) Fill in the blanks:                                                        1x4=4
a)      A new business was commenced on 01.01.2016. The first ‘previous year’ in this case shall be 01.01.2016 to 31.03.2017.
b)      Residential status is to be determined for income calculation.
c)       Dividend declared by a domestic company shall be exempted from tax.
d)      Deduction for interest on loan taken for construction of self-occupied house after 01.04.1999 is allowed up to actual amount or Rs. 2,00,000 whichever is less.
2. Write short notes on any four of the following:                                           4x4=16
a)      Charge of Income tax.
Ans: Section 4 is the charging section for the Income tax Act, 1961 (the Act). It provides for the charge and collection/ payment of Income Tax India. The important Provisions of this section are:
Ø  Where any Central Act enacts for any Assessment Year that income-tax shall be charged at any rate or rates,
Ø  Income-tax at that rate or rates (including additional tax) shall be charged for that year in accordance with and subject to all the provisions of the Act.
Ø  In respect of the Total Income of the Previous Year of every Person
Ø  However, if by virtue of any provision of the Act, Income Tax India is to be charged in respect of the income of a period other than the previous year, then it shall be charged accordingly.
Ø  The Income-tax chargeable as above shall be deducted at source or paid in advance, if so required under any provision of the Act.

b)      Method of accounting.
Ans: As per section 145, for income-tax purposes, only one of the following two methods of accounting can be followed:
a)      Mercantile system;
b)      Cash system.
Further, the profits from business and profession will have to be computed in accordance with accounting standards which may be prescribed by the Central Government from time to time. The Central Government has since notified the following two accounting standards to be followed by all assessee who are following mercantile system of accounting:
a)      Accounting Standard I relating to disclosure of accounting policies.
b)      Accounting Standard II relating to disclosure of prior period and extraordinary items and changes in accounting policies.

c)       Capital expenditure.
Ans: Capital Expenditure: Capital expenditure represents outlay on fixed assets. Capital expenditure can be outlay of resources on the investment of long-term income generating capability of the company. Investment in fixed assets will lead to an increase or improvement in the investing company's revenue generating capacity. Capital expenditure can also be in the form of significant acquisitions or purchases of more expensive items of equipment that will last longer than a financial year.
All capital expenditure is recorded on the balance sheet. Capital expenditure will be depreciated or amortised annually to ensure that an expense is charged to the profit and loss account to reflect the capital expenditure's usage by the company.
Some of the examples of capital expenditure include outlay on land and buildings, plant and equipment, vehicles, computer equipment, product development costs, finance leases and software development costs.

d)      Salary.
Ans: Meaning of Salary under Sec. 17: "Salary" is the remuneration received by or accruing to an individual, periodically, for service rendered as a result of an express or implied contract. The actual receipt of salary in the previous year is not material as far as its taxability is concerned. The existence of employer-employee relationship is the sine-qua-non for taxing a particular receipt under the head “salaries.”
For the purpose of Income Tax, “Salary” includes [Sec. 17(1)]:
a)      Wages
b)      Annuity or pension
c)       Gratuity
d)      Fees, Commission, perquisites or profits in lieu of salary
e)      Advance of Salary
f)       Receipt from Provident Fund
g)      Contribution of employer to a Recognised Provident Fund in excess of the prescribed limit
h)      Leave Encashment
i)        Compensation as a result of variation in Service contract etc.
The following points are taken into consideration while calculating salary income
a.       only receipts from employer are taxable under this head, others excluded.
b.      If salary forgone under legal obligations it is exempted, but if foregone voluntarily, it is taxable.
c.       salary received after cessation of employment is taxable.
d.      Salary in lieu of notice is taxable.
e.      Salary is always shown on gross basis i.e. after adding amount of contribution already deducted with salary.

e)      Special Economic Zone.
Ans: Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's typical economic laws. The category 'SEZ' covers a broad range of more specific zone types, including Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and others. Usually the goal of an SEZ structure is to increase foreign investment.
One of the earliest and the most famous Special Economic Zones were founded by the government of the People's Republic of China under Deng Xiaoping in the early 1980s. The most successful Special Economic Zone in China, Shenzhen, has developed from a small village into a city with a population over 10 million within 20 years. Following the Chinese examples, Special Economic Zones have been established in several countries, including Brazil, India, Iran, Jordan, Kazakhstan, Pakistan, the Philippines, Poland, Russia, and Ukraine.
SEZ AT INDIA
India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000. 
This policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations.
3. (a) Enumerate the special provisions in respect of newly established units in Social Economic Zone as per the Income –tax Act, 1961.                     14
Ans: SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED UNITS IN SPECIAL ECONOMIC ZONE [SECTION 10AA]:
 1. CONDITIONS TO BE SATISFIED: The following conditions should be satisfied to claim deduction u/s 10AA:
Condition 1 :  Assessee, being an entrepreneur as referred to in clause (j) of section 2 of the Special Economic Zones Act, 2005. Entrepreneur is a person who has been granted a letter of approval by the Development Commissioner to set a unit in a Special Economic Zone.
Conditions 2 :  The Unit in Special Economic Zone who begins to manufacture or produce articles or things or provide any services during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2006.
Conditions 3 :  It is not formed by the splitting up, or reconstruction, of a business already an existence.
Conditions 4 :  It not formed by the transfer to a new business, of old plant and machinery. However, it can be formed by transfer of old plant or machinery to the extent of 20%.
Condition 5 :   The assessee has income from export of articles or thing or from services from such unit. In other words, the assessee has exported goods or provided services out of India from the Special Economic Zone by land, sea , air, or by any other mode, whether physical or otherwise.
Conditions 6 :  Books of Accounts of the taxpayer should be audited. The Tax payer should submit Audit Report in Form No.56F along with the return of income.
2. AMOUNT OF DEDUCTION: Deduction depends upon quantum of Profit derived from Export of Articles or things or services (including computer software). It is calculated as under: (Profit of the Business of the undertaking X Export turnover)/Total Turnover of the business
Deduction for First 5 Assessment Years –   100% of Profits and Gains derived for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the Unit begins to manufacture or produce such articles or things or provide services.
Deduction for 6th Assessment Year to 10th Assessment Years:  50% of such Profits and Gains for further five assessment years and thereafter;
Deduction for 11th Assessment Year to 15th Assessment Year:  Amount not exceeding 50% of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be created and utilized for the purposes of the business of the assessee.
3. CONSEQUENCES FOR MERGER AND DEMERGER: Where any undertaking is transferred, before the expiry of the period specified in this section, to another undertaking, under a scheme of amalgamation or demerger, no deduction shall be admissible under this section to the amalgamating or the demerged Unit for the previous year in which the amalgamation or the demerger takes place.
Or
(b) Explain in brief various incomes which are exempt u/s 10 of the Income-tax Act, 1961.                          14
Ans: Income Exempted from tax under Sec. 10:
1. Agricultural Income: Income from agriculture is exempt. However, if the net agricultural income exceeds Rs.5,000, it is taken into account for determining the rates of income-tax on incomes liable to tax. [Sec.10 (1)]
2. Receipt from Hindu Undivided Family: Any sum received by an individual as a member of Hindu Undivided Family where such sum has been paid out of the income of the family or in the case of any impartibly estate, where such sum has been paid out of the income of the estate belonging to the family, irrespective of whether tax is payable or not by the HUF on its total income. However, certain receipts from HUF are liable to be clubbed in the hands of an individual member u/s 64(2). [Sec.10 (2)]
3. Partner’s Share in the Firm’s Income: In the case of a person being a partner of a firm which is separately assessed as such, partner’s share in the total income of the firm is exempt. Share of a partner of the firm shall be computed by dividing the total income of the firm in the profit sharing ratio mentioned in the Partnership Deed. [Sec.10 (2A)]
4. Value of Leave Travel Concession: Value of any leave travel concession or assistance received by or due from the employer to employee (including noncitizens) and his family (spouse, children and dependent- father, mother, brother, sister dependent on him) in connection with his proceeding on leave or after retirement or termination of his service to any part of India. [Sec.10(5)]
5. Leave Encashment : Any payment received by a Central/State Govt. employee, as cash equivalent of leave salary in respect of period of earned leave at his credit at the time of his retirement whether o superannuation or otherwise. However, in case of other employees the exemption is available subject to specified limits. For details see ‘Receipts Exempt from Income Tax’ in the chapter ‘Salary’. [Sec.10(10AA)]
6. Compensation to Employee: Any compensation received by a workman under Industrial Disputes Act or under any other Act or rules, order or notification issued there under or under any standing order or under any award, contract of service or otherwise at the time of his retrenchment is exempt to the extent such compensation is in accordance with Section 25F (b) of Industrial Disputes Act, subject to a maximum of Rs.5,00,000.
7. Payment from Provident Fund: Any payment (including interest) from a provident fund under Provident Fund Act, 1925 or Public Provident Fund Scheme, 1968. [Sec.10(11)]
8. Payment from Sukanya Samriddhi Account: Any payment from an account under the Sukanya Samriddhi Account Rules, 2014 [Sec.10(11A)]
9. Accumulated Balance of Recognised Provident Fund: Any accumulated balance due and becoming payable to an employee from a recognised provident fund, on fulfillment of any of the following conditions:
(i) If he has rendered a continuous services of five years or more; or
(ii) If his service, though not as stated in (i) above, has been terminated due to his ill-health or by the contraction or discontinuation of his employer’s business or any other cause beyond his control; or
(iii) If on cessation of his employment, his accumulated balance is transferred to recognised provident fund maintained by his new employer;
10. House Rent Allowance: Any special allowance granted to an assessee by the employer to meet expenditure incurred on payment of rent for residential accommodation subject to prescribed limits and conditions. [Sec.10(13A)]
4. (a) Mr. X has the following Income during the previous year, 2015 – 16:
a)      Basic salary Rs. 1,50,000
b)      Dearness allowance (forming part of salary) Rs. 50,000
c)       Medical allowance (actual expenditure Rs. 10,000) Rs. 16,000
d)      Educational allowance (for two children) Rs. 4,000
e)      He has been provided with motorcar of 1.6 litre engine capacity along with a driver for the official and personal use. All expenses of the motorcar are borne by the employer.
f)       He contributes 15% of his salary to a recognized provident fund and his employer also contributes the same amount.
g)      The Company paid Rs. 6,000 on his training programme.
h)      He was given cloth worth Rs. 4,000 by his employer free of cost.
i)        A cook and a watchman have been provided by the company who are paid @ Rs. 600 each per month.
j)        Compute the Income from salary for the Assessment year, 2016 – 17.                                            14
Computation of salary income for the Assessment Year 2018-19
Particulars
Amount
Amount
1. Basic Salary
2. Dearness Allowance
3. Medical Allowance (Fully taxable irrespective of actual expenditure)
4. Children Education allowance
Less: Exempted @ Rs. 100 per month per child for a maximum of two children
5. Value of Motor car (1,800*12)
Add: Salary to driver (900*12)
6. Training programme
7. Free cloth
8. Salary to watchman
9. Salary to cook
10. Employer’s contribution to RPF @ 15% of salary
Less: Exempted upto 12% of salary (Salary = 1,50,000+50,000)



4,000
2,400
21,600
10,800




30,000
24,000
1,50,000
50,000
16,000

1,600

32,400
Exempt
Exempt
7,200
7,200

6,000
Gross Salary
Less: Deduction u/s 16

2,70,400
Nil
Income from Salary

2,70,400
Or
(b) Explain in detail as to how the following items are treated in computing taxable income:    4+6+4=14
a)      Commuted value of pension.
Ans: Commuted Pension: Exemption of commuted pension u/s 10(10A)
Govt. Employees
Any other employee
Fully exempt
(a) If gratuity is not received: Commuted value of 1/2 of pension which he is normally entitled to receive is exempt.
(b) If gratuity is also received: Commuted value of 1/3rd of pension which he is normally entitled to receive is exempt.

b)      Relief u/s 89 (1) of the Income-tax Act.
Ans: If employee received any portion of salary in arrears or on advance or received profit in lieu of salary, relief can be claimed u/s 89 (1). Salary in arrears or advance, received in lump-sum is liable to tax in the year of receipt. Some relief is however allowed from tax on such receipts. Claiming of relief is optional and should be claimed only when it is advantageous to the claimant.
Calculation of relief u/s 89 when salary has been received in arrears or in advance
The relief on salary received in arrears or in advance (hereinafter to be refereed as additional salary is computed in the manner laid down in rule 21A (2) as under;
Ø  Calculate the tax payable on the total income, including the additional salary, of the relevant previous year in which the same is received.
Ø  Calculate the tax payable on the total income, excluding the additional salary, of the relevant previous year in which the additional salary is received.
Ø  Find out the difference between the tax at (1) and (2).
Ø  Compute the tax on the total income after including the additional salary in the previous year to which such salary relates.
Ø  Compute the tax on the total income after additional salary in the previous year to which such salary relates.
Ø  Find out the difference between tax at (4) and (5)
Ø  The excess of tax compute at (3) over tax computed at (6) is the amount of relief admissible under section 89. No relief is, however, admissible if tax computed at (3) is less then tax computed at (6). In such a case, the assessee- employee need not apply for relief.
If the additional salary relates to more than one previous year, salary would be spread over the previous year to which it pertains in the manner explained above.

c)       Recognized Provident Fund.
Ans: Recognized Provident Fund (RPF): This scheme is applicable to an organization which employs 20 or more employees. An organization can also voluntarily opt for this scheme. All RPF schemes must be approved by The Commissioner of Income Tax. Here the company can either opt for government approved scheme or the employer and employees can together start a PF scheme by forming a Trust. The Trust so created shall invest funds in specified manner. The income of the trust shall also be exempt from income taxes.
Taxability of Recognised Provident Fund
Particulars
Treatment
1. Employee's/ assessee's contribution
Deduction u/s 80C is available from gross total income subject to the limit specified therein
2.Employer's contribution
Exempt up to 12% of salary. Amount in excess of 12% is included in gross salary.
3. Interest on Provident Fund
Exempt u/s 10 up to 9.5% p.a. Interest credited in excess of 9.5% p.a. is included in gross salary
4.Repayment of lump sum amount on retirement / resignation /termination
Exempt if the employee has rendered minimum 5 years of continuous service

5. (a) Mr. P has two house properties situated in Guwahati. Property A is self-occupied for first six months from 01.04.2015 to 30.09.2015 and with effect from 01.10.2015 it was let out for Rs. 12,000 per month. Property B is let out w.e.f. 01.04.2015 at a rent of Rs. 15,000 per month and w.e.f. 01.10.2015 it was self-occupied as Mr. P shifted his residence from property A to B. The other details of the above two house properties are as under:

Property A
Property B
Municipal tax paid
Insurance premium paid
Interest on money borrowed for purchase of house property
35,000
5,000
40,000
29,000
6,000
45,000
 Compute the income from house property for the Assessment year, 2016 – 17.                                                               14
Ans: Computation of Income from house property of Mr. P for the assessment year 2016-17 (Previous Year 2015-16)
Particulars
House – A
House – B
1. Expected Rental Value
2. Actual Rent received or receivable (6 MONTHS)
3. Gross Annual Value (higher of 1 OR 2)
7. Less: Municipal taxes paid
1,44,000
72,000
1,44,000
35,000
1,80,000
90,000
1,80,000
29,000
8. Net Annual value (6-7)
Less: Deduction under section. 24
(a) Standard Deduction @ 30%
(b) Interest on money borrowed
1,05,000

31,500
40,000
1,51,000

45,300
45,000
Income/ (Loss from house property)
33,500
60,700
Note:
1. In the given question both the properties are partly let out and partly self occupied. No benefit is allowed for partly letout and partly self occupied house property.
2. In this question ERV is the 12 months rent of the house which both house property can generate.
Or
(b) Who are the persons liable to pay tax on income from house property? Explain briefly the various types of incomes from house property not chargeable to tax.                        4+10=14
Ans: Basis of charge of tax on income generated under the “income from house property”
Under section 22 of the income tax act, The annual value of a property, consisting of any buildings or lands appurtenant thereto, of which the assessee is the owner, is chargeable to tax under the head ‘Income from house property’. However, if a house property, or any portion thereof, is occupied by the assessee, for the purpose of any business or profession, carried on by him, the profits of which are chargeable to income-tax, the value of such property is not chargeable to tax under this head.
Thus, three conditions are to be satisfied for property income to be taxable under this head
1) The property should consist of buildings or lands appurtenant thereto: The scope of this head of income is limited to the income from building or land appurtenant thereto. Land which is not appurtenant to any buildings does not come within the scope of this section.
2) The assessee should be the owner of the property: It is only the owner of the house property who can be tax under this head of income. The tax under this section is in respect of the legal or beneficial owner and not the occupation or possession of house property.
Again, the assessee who is deemed to be the owner of the house property is also is also chargeable to tax under this head.  Under Section 27 of the Income Tax Act the assessee in the following cases is deemed to be the owner of the house property, though not owner of the house property:-
(a)   If an individual transfers a house property to his or her spouse (except in connection with an agreement to live apart) or to a minor child (except a married daughter) without adequate consideration, he is deemed as the owner of the property for tax purposes.
(b)   The holder of an Impartibly Estate is deemed to be the owner of all the properties comprised in the estate.
(c)    A member of a co-operative society, company or association of persons, to whom a property or a part thereof is allotted or leased under a house building scheme of the society, company or association, is deemed to be the owner of such property.
(d)   A person who has acquired a right in a building by way of a lease for a term of not less than 12 years, is the deemed owner of the property. This provision does not cover any right by way of a lease renewable from month to month or for a period not exceeding one year.
3) The property should not be used by the owner for the purpose of any business or profession carried on by him, the profits of which are chargeable to income-tax. But where the profits of such business or profession are not chargeable to tax, the annual value of the house property is chargeable under this head.
Properties exempted from tax under the head income from house property (Sec. 10)
1) Income from a farm house.
2) Annual value of one palace in the occupation of an ex-ruler.
3) Property income of a local authority.
4) Property income of an approved scientific research association.
5) Property income of an educational institution and hospital.
6) Property income of a registered trade union.
7) Income from property held for charitable purposes.
8) Property income of a political party.
9) Income from property used for own business or profession.
10) Annual value of two self occupied properties.
6. (a) Discuss in detail the provisions of Income-tax Act, 1961 for determination of income from capital gain.    14
Ans: Ans: Capital Gain: Capital gain is the gain which arises from the transfer of a capital asset. Any profit or gain, which arises during a previous year, is chargeable under the head "capital gains" under Section 45. For a gain to be charged under the head "capital gain," it should arise due to a transfer of a capital asset. Such a profit or gain should not be exempt from tax under sections 54, 54B, 54D, 54EC, 54ED, 54FD, and 54G of Income Tax Act.
TYPE OF CAPITAL GAINS
a)      Long term capital gains:  When a capital asset is transferred by an assessee after having held it for 36 months/24months/12 months, as the case may be, the capital gains arising from this transfer is known as Long Term Capital Gains.
b)      Short term capital gain: If the period of holding of capital asset before transfer is less than 36 months/24months/12 months, as the case may be, the capital gains arising from such transfer are known as Short Term Capital Gains.
Basis of Charge of Capital Gains
Any profits or gains arising from the transfer of a capital asset effected in the previous year, shall be chargeable to income-tax under the head 'Capital Gains' and shall be deemed to be the income of the previous year in which the transfer took place unless such capital gain is exempt u/s 54, 54B, 54D, 54EC, 54F, 54G or 54GA. The following are the essential conditions for taxing capital gains:
a)      there must be a capital asset;
b)      the capital asset must have been transferred;
c)       there must be profits or gains on such transfer, which will be known as capital gain;
d)      such capital gain should not be exempt u/s 54, 54B, 54D, 54EC, 54F, 54G or 54GA.
Mode of Computation of Capital Gain [Sec. 48]
Computation of Short-term Capital Gains
A. Full value of consideration
Less:(a) Expenditure incurred in such a transfer
b)Cost of acquisition
(c) Cost of improvement
B. Gross short-term capital gains (A – (a) – (b) – (c))
C. Less: Exemption, if available, u/s 54B/54D/54G/54GA
D. Taxable Short-term capital gains (B – C)
Computation of Long-term Capital Gains
A. Full value of consideration
Less:(a) Expenditure incurred in such a transfer
b)Indexed Cost of acquisition
(c) Indexed Cost of improvement
B. Gross short-term capital gains (A – (a) – (b) – (c))
C. Less: Exemption, if available, u/s 54B/54D/54G/54GA
D. Taxable Long -term capital gains (B – C)
Note: No deduction shall be allowed on account of securities transaction tax. (Sec. 48)
Sales Consideration: The total amount, received by the assessee from the asset transferred by him, is known as full value of consideration. This consideration can be in cash or in kind. If it is received in kind, then the fair market value of such asset is taken as full value of consideration. Even if the full consideration is received is the same, the entire value of consideration is considered for computing the capital gain.
Expenditure, which is necessary for the purpose of transfer, is considered as expenditure incurred wholly and exclusively in connection with transfer of capital asset. Expenditure, which is wholly and exclusively in connection with transfer of a capital asset, is deductible from the full value of consideration. Transfer expenses include brokerage paid for arranging the deal, legal expenses incurred for preparing conveyance deed and other documents, cost of inserting advertisement in newspapers for sale of the asset and commission paid to auctioneer. However, it is necessary that the expenditure should have been incurred wholly and exclusively in connection with the transfer. Expenditure incurred primarily for some other purpose but which has helped in effecting the transfer does not qualify for deduction. For instance, salary of an employee who helps in maintenance of capital assets, carries out works in connection with transfer, maintains accounts for the capital assets and capital gains, etc., is not deductible.
Cost of acquisition is the amount for which the capital asset was originally purchased by the assessee. Expenditure incurred in connection with such purchase, exchange or other transaction e.g. brokerage paid, registration charges and legal expense, is added to price or value of consideration for the acquisition of the asset. Interest paid on moneys borrowed for purchasing the asset is also part of its cost of acquisition. In case of depreciable asset of an undertaking engaged in generation or generation and distribution of power, its written down value shall be taken as its cost of acquisition.
Cost of improvement: Cost of improvement means all capital expenditure incurred in making additions or alternations to the capital asset, by the assessee (or the previous owner). Betterment charges levied by municipal authorities also constitute cost of improvement. Compensation paid to tenants for getting vacant possession amounts to cost of improvement. However, only the capital expenditure incurred by the assessee on or after 1.4.2001, is to be considered and that incurred before 1.4.2001 is to be ignored. Improvement should be to the capital asset; expenditure incurred on improving the owner’s title to the asset is not being included in ‘cost of improvement’. In case of in tangible assets like goodwill, right to manufacture, etc. cost of improvement shall be nil.
Indexed cost of acquisition and improvement: For computing long-term capital gains, ‘Indexed Cost of Acquisition’ and ‘Indexed Cost of Improvement’ are required to be deducted from the full value of consideration of the capital asset. Both these costs are thus required to be indexed with respect to the Cost Inflation Index pertaining to the year of transfer. Accordingly, ‘Indexed Cost of Acquisition’ and ‘Indexed Cost of Improvement’ shall be computed as under:
Indexed Cost of Acquisition = (Cost of Acquisition x Cost Inflation Index for the year of transfer)/ Cost Inflation Index for the year of acquisition or 2001-02, whichever is later
Or
(b) Discuss in detail the provisions of Income-tax Act, 1961 for determination of income from other sources.    14
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 gain. 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)]
B. Specific Incomes [Sec. 56(2)]
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.
[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 a 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 form 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. Wealth Tax : Any sum paid on account of wealth tax is not deductible.
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.
7. Expenditure in respect of winnings from Lotteries : No deduction in respect of any expenditure or allowance in connection with income under the head “Income from other sources’’ allowed in computing the income by way of any winnings 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, 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.

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