Chapter 4 – Income from Other Sources

Section 56: Charging Section

• As per Section 56(1), income of every kind which is includible in the total income, but not
taxable under any of the other four heads, is taxed under the head “Income from Other
Sources”.
• Therefore, following conditions must be satisfied to tax any receipt under this head:
o Such receipt must be income;
o Such income must not be exempt as per any of the provisions of the Act;
o Such income must not be taxed as an income under any other heads of income.

Taxability of Gifts [Section 56(2)(x)]

Gifts can be received by a person in three ways:

• Money
• Moveable Property
• Immovable Property

Taxability of Receipt of Money

If the aggregate cash gifts received by a person in a Financial Year exceeds ₹50,000, then the entire
sum is chargeable to tax under the head Income from Other Sources.

Taxability of Moveable Property

• If any moveable property is received free of cost, i.e., without any consideration, and the
aggregate fair market value of this moveable property exceeds ₹50,000, then the entire FMV
is chargeable to tax under the head Income from Other Sources.
• If any moveable property is received for inadequate consideration, i.e., at a discount, and
aggregate FMV – Consideration > ₹50,000, then the difference is chargeable to tax under the
Income from Other Sources.

Meaning of Moveable Property

• Shares
• Securities
• Jewelry
• Drawings
• Paintings
• Sculpture
• Archaeological Collections
• Any Other Work of Art
• Bullion

This is an exhaustive list. Any movable property other than the above shall not attract the provisions
of Section 56(2)(x).

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Taxability of Immovable Property
• If any immovable property is received free of cost, i.e., without any consideration, and the SDV
of this immovable property exceeds ₹50,000, then the entire SDV is chargeable to tax under
the head Income from Other Sources
• If any immovable property is received at a discount, i.e., for inadequate consideration, SDV –
Consideration is taxed as Income from Other Sources if:
o (SDV – Consideration) > ₹50,000, AND
o SDV > 110% of Consideration

Non-Applicability of Section 56(2)(x)

If cash, moveable property, or immovable property is received under any of the following
circumstances, it would not be taxed under IFOS:

• from any relative; or

• on the occasion of the marriage of the individual; or
• under a will or by way of inheritance; or
• in contemplation of death of the payer or donor, as the case may be; or
• from any local authority; or
• from any fund or foundation or university or other educational institution or hospital or other
medical institution or any trust or institution; or
• from or by any trust or institution registered; or
• by any fund or trust or institution or any university or other educational institution or any
hospital or other medical institution.
• by way of transaction not regarded as transfer under section 47(i)/(iv)/(v)/(vi)/(vib)/(vid)/(vii)
• from an individual by a trust created or established solely for the benefit of relative of the
individual.
• from such class of persons and subject to such conditions, as may be prescribed.
• Any sum of money received by an individual, from any person, in respect of any expenditure
actually incurred by him on his medical treatment or treatment of any member of his family,
for any illness related to COVID-19 would not be chargeable to tax, subject to conditions
notified by the Central Government.
Accordingly, the Central Government has specified that for such purpose, the individual has to
keep a record of the following documents, namely:
o the COVID-19 positive report of the individual or his family member, or medical report
if clinically determined to be COVID-19 positive through investigations in a hospital or
an inpatient facility by a treating physician for a person so admitted;
o all necessary documents of medical diagnosis or treatment of the individual or family
member due to COVID-19 or illness related to COVID-19 suffered within 6 months from
the date of being determined as a COVID-19 positive;
The details of the amount so received in any financial year has to be furnished in the prescribed
form to the Income-tax Department within 9 months from the end of such financial year or
31.12.2022, whichever is later.
• Any sum of money received by a member of the family of a deceased person:
o from the employer of the deceased person (without any limit); or
o from any other person or persons to the extent that such sum or aggregate of such
sums ≤ ₹10 lakhs,

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 would not be chargeable to tax, where the cause of death of such person is illness related to
COVID-19 and the payment is:
o received within 12 months from the date of death of such person; and
o subject to such other conditions notified by the Central Government.
Accordingly, the Central Government has specified the following conditions:
o
▪ the death of the individual should be within 6 months from the date of testing
positive or from the date of being clinically determined as a COVID-19 case,
for which any sum of money has been received by the member of the family;
▪ the family member of the individual has to keep a record of the following
documents:
• the COVID-19 positive report of the individual, or medical report if
clinically determined to be COVID-19 positive through investigations
in a hospital or an inpatient facility by a treating physician;
• a medical report or death certificate issued by a medical practitioner
or a Government civil registration office, in which it is stated that
death of the person is related to corona virus disease (COVID-19).
o The details of such amount received in any financial year has to be furnished in the
prescribed form to the Assessing Officer within 9 months from the end of such
financial year or 31.12.2022, whichever is later.

Meaning of Relative
• For Individuals

• For HUFs – Any member of HUF

Important Notes
• Cash gifts include cheque, drafts, fixed deposit receipts or an NSC since it represents a sum of
money, though not in cash.
• The provisions of section 56(2)(x) would apply only to property which is the nature of a capital
asset of the recipient and not stock-in-trade, raw material or consumable stores of any
business of the recipient.
• Therefore, only transfer of a capital asset, without consideration or for inadequate
consideration would attract the provisions of section 56(2)(x).

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 • If gift is given by a Resident Indian to a Non-Resident (other than a company, or a foreign
company), the gift received by such non-resident shall be deemed to accrue or arise in India.

Summary of Gifting Provisions

Money

Aggregate > ₹50,000 p.a. Otherwise

Fully Taxable Exempt

Movable Property [SSJDPSAOB]

Without Consideration Low Consideration

Aggregate (FMV –
Aggregate FMV >
Otherwise Consideration) > Otherwise
₹50,000
₹50,000

Fully Taxable Exempt Difference is Taxable Exempt

Immovable Property

Without Consideration Low Consideration

Per Property (SDV –
Per Property SDV > ₹50,000 Otherwise Consideration) > ₹50,000 AND Otherwise
SDV > 110% of Consideration

Difference between SDV and

Fully Taxable Exempt Exempt
Consideration is Taxable

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Question 1

The following details have been furnished by Mrs. Hemali pertaining to the year ended 31.3.2023:

1. Cash gift of ₹51,000 received from her friend on the occasion of her “Shastiaptha Poorthi”, a
wedding function celebrated on her husband completing 60 years of age. This was also her
25th wedding anniversary.
2. On the above occasion, a diamond necklace worth ₹2 lacs was presented by her sister living in
Dubai.
3. When she celebrated her daughter's wedding on 21.2.2023, her friend assigned in Mrs.
Hemali's favour, a fixed deposit held by the said friend in a scheduled bank; the value of the
fixed deposit and the accrued interest on the said date was ₹52,000.

Compute the income, if any, assessable as income from other sources.

Solution

Computation of Income from Other Sources of Mrs. Hemali for A.Y. 2023-24
Particulars ₹
Cash gift from friend on the occasion of wedding function/anniversary (Note 1) 51,000
Diamond necklace received from sister (Note 2) -
Gift from friend on the occasion of marriage of daughter (Note 3) 52,000
Income from Other Sources 1,03,000
Notes:

1. Any sum of money received by an individual on the occasion of the marriage of the individual
is exempt. This provision is, however, not applicable to a cash gift received during a wedding
function celebrated on completion of 60 years of age.
The gift of ₹51,000 received from a non-relative is, therefore, chargeable to tax under section
56(2)(x) in the hands of Mrs. Hemali, since the same exceeds ₹50,000.
2. The provisions of section 56(2)(x) are not attracted in respect of any sum of money or property
received from a relative. Thus, the gift of diamond necklace received from her sister, being a
relative, is not taxable under section 56(2)(x), even though jewellery falls within the definition
of “property”.
3. To be exempt from applicability of section 56(2)(x), the property should be received on the
occasion of the marriage of the individual, not that of the individual’s son or daughter.
Therefore, this exemption provision is not attracted in this case.
Any sum of money received without consideration by an individual is chargeable to tax under
section 56(2)(x), if the aggregate value exceeds ₹50,000 in a year. “Sum of money” has,
however, not been defined under section 56(2)(x).
Therefore, there are two possible views in respect of the value of fixed deposit assigned in
favour of Mrs. Hemali –
a. The first view is that fixed deposit does not fall within the meaning of “sum of money”
and therefore, the provisions of section 56(2)(x) are not attracted. It may be noted
that fixed deposit is also not included in the definition of “property”.
b. However, another possible view is that fixed deposit assigned in favour of Mrs. Hemali
falls within the meaning of “sum of money” received.
Income assessable as “Income from other sources”
a. If the first view is taken, the total amount chargeable to tax as “Income from other
sources” would be ₹51,000, being cash gift received from a friend on her Shastiaptha
Poorthi.

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 b. As per the second view, the provisions of section 56(2)(x) would also be attracted in
respect of the fixed deposit assigned and the “Income from other sources” of Mrs.
Hemali would be ₹1,03,000 (₹51,000 + ₹52,000).

Question 2

Mr. Sharma asks you to compute his taxable income from the following transactions which took place
with his friends during January, 2023:

1. Cash gifts received by him from Mr. A, and Mr. Z: ₹32,000 each.
2. Two plots of land gifted to him by Mr. B and Mr. C, whose stamp values are ₹3,50,000 and
₹50,000 respectively.
3. He purchased a residential house at ₹6,00,000 from Mr. D, which was not registered, but the
prevalent stamp value of which was ₹7,50,000.
4. A sculpture and jewelry worth ₹50,000 and ₹35,000 respectively were gifted by Mr. E and Mr.
F.
5. A silver coin purchased by him at ₹10 lakhs from Mr. G, when prevalent market value is ₹10.5
lakhs and shares purchased by him at ₹3 lakhs from Mr. H, when fair market value thereof was
₹3.3 lakhs.
6. A diamond ring purchased at ₹50 lakhs from M/s Pearl Jewels (a jewelry shop of his close
friend) when the fair market value was ₹55 lakhs for the purpose of Sharma Gem and Jewelry
Mart (a jewelry shop owned by Mr. Sharma).

Solution

Computation of Total Income of Mr. Sharma for A.Y. 2023-24

Particulars ₹
Cash gifts received from Mr. A and Mr. Z (Note 1) 64,000
Plot of Land received from Mr. B (Fully taxable as SDV exceeds ₹50,000) 3,50,000
Plot of Land received from Mr. C (Not taxable as SDV does not exceed ₹50,000) -
Residential House purchased for inadequate consideration (Note 2) 1,50,000
Sculpture and Jewellery received from Mr. E and Mr. F (Note 3) 85,000
Silver coin and shares purchased by him from Mr. G and Mr. H (Note 4) 80,000
Diamond ring purchased from M/s Pearl Jewels (Note 5) -
Total Income 7,29,000
Notes:

1. Since aggregate of cash gifts received by Mr. Sharma exceeds ₹50,000, it is fully taxable.
2. In case of acquisition of immovable property for inadequate consideration, difference
between SDV and consideration is taxable, if:
a. (SDV – Consideration) > ₹50,000, AND
b. SDV > 110% of Consideration
In the present case, SDV – Consideration is ₹7,50,000 – ₹6,00,000 = ₹1,50,000, which is greater
than ₹50,000.
Also, 110% of consideration = 110% × ₹6,00,000 = ₹6,60,000. SDV is greater than this.
Therefore, difference between SDV and consideration is taxable.
3. Since the aggregate value of movable properties received as gift exceeds ₹50,000, the entire
amount is taxable.
4. If movable properties are acquired for inadequate consideration, the difference between the
FMV and consideration is chargeable to tax if aggregate (FMV – Consideration) exceeds

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 ₹50,000. In the present case, the difference between FMV and consideration of silver coin =
₹50,000, and difference between FMV and consideration of shares = ₹30,000. Therefore, total
difference is ₹80,000, which exceeds ₹50,000. Hence, entire ₹80,000 is taxable.
5. Since it purchased for the purpose of Sharma Gem and Jewelry, which is a Jewelry Mart owned
by Mr. Sharma, it will become stock in trade, and not any property in possession of Mr. Sharma.
Therefore, inadequacy of consideration won't be taxable.

Question 3

Decide the following transactions in the context of Income-Tax Act, 1961:

1. Mr. B transferred 500 shares of Reliance Industries Ltd. to M/s B Co. (P) Ltd. on 10-10-2022 for
₹3,00,000 when the market price was ₹5,00,000. The indexed cost of acquisition of shares for
Mr. B was computed at ₹4,45,000. The transfer was not subjected to securities transaction tax.
Determine the income chargeable to tax in the hands of Mr. B and M/s B Co. (P) Ltd. because
of the above said transaction.
2. Ms. Chhaya transferred a vacant site to Ms. Dayama for ₹4,25,000. The stamp valuation
authority fixed the value of vacant site for stamp duty purpose at ₹6,00,000. The total income
of Chhaya and Dayama before considering the transfer of vacant site are ₹50,000 and
₹2,05,000 respectively. The indexed cost of acquisition for Mr. Chhaya in respect of vacant site
is ₹4,00,000 (computed). Determine the total income of both Ms. Chhaya and Ms. Dayama
taking into account the abovesaid transaction.
3. Mr. Chezian is employed in a company with taxable salary income of ₹5,00,000. He received a
cash gift of ₹1,00,000 from Atma Charitable Trust (registered under section 12AB) in December
2022 for meeting his medical expenses.
Is the cash gift so received from the trust chargeable to tax in the hands of Mr. Chezian?

Solution

1. Any movable property received for inadequate consideration by any person is chargeable to
tax under section 56(2)(x), if the difference between aggregate Fair Market Value of the
property and consideration exceeds ₹50,000.
Thus, share received by M/s B. Co. (P) Ltd. from Mr B for inadequate consideration is
chargeable to tax under section 56(2)(x) to the extent of ₹2,00,000.
As per section 50CA, since, the consideration is less than the fair market value of unquoted
shares of R (P) Ltd., fair market value of shares of the company would be deemed to be the full
value of consideration. It is presumed that the shares of R (P) Ltd are unquoted shares.
The full value of consideration (₹5,00,000) less the indexed cost of acquisition (₹4,45,000)
would result in a long term capital gains of ₹55,000 in the hands of Mr. B.
2. Total income of Chhaya = ₹50,000 + LTCG (₹6 lakhs, being stamp value u/s 50C – ₹4 lakhs) =
₹2,50,000.
Total income of Dayama = ₹2,05,000 + ₹1,75,000 = ₹3,80,000 [Difference between the stamp
duty value of ₹6,00,000 and the actual consideration of ₹4,25,000 paid is taxable u/s 56(2)(x)
since the difference exceeds ₹50,000 being, the higher of ₹50,000 and 10% of consideration,
i.e., ₹42,500]
3. The provisions of section 56(2)(x) would not apply to any sum of money or any property
received from any trust or institution registered under section 12AB. Therefore, the cash gift
of ₹1 lakh received from Atma Charitable Trust, being a trust registered under section 12AB,

CA NISHANT KUMAR 7
 for meeting medical expenses would not be chargeable to tax under section 56(2)(x) in the
hands of Mr. Chezian.

Question 4

Ms. Mohini transferred a house to her friend Ms. Ragini for ₹35,00,000 on 01-10-2022. The Sub-
Registrar valued the land at ₹60,00,000. Ms. Mohini contested the valuation, and the matter was
referred to Divisional Revenue Officer, who valued the house at ₹55,50,000. Accepting the said value,
differential stamp duty was also paid, and the transfer completed.

The total income of Mohini and Ragini for the assessment year 2023-24, before considering the
transfer of the said house are ₹2,80,000 and ₹3,45,000 respectively. Ms. Mohini had purchased the
house on 15th May 2010 for ₹25,00,000 and registration expenses were ₹1,50,000.

You are required to explain provisions of Income-tax Act, 1961 applicable to present case and
determine the total income of both Ms. Mohini and Ms. Ragini considering the above said transactions.

CII for F.Y. 2010-11 = 167

Solution

In the Hands of Ms. Mohini

When the stamp duty value exceeds 110% of the sale consideration, the stamp duty value is considered
to be the full value of consideration. However, if the stamp value adopted by the stamp valuation
authority is disputed in appeal and the same is reduced by the appellate authority, the reduced value
shall be taken to be the full value of consideration for computing the capital gains chargeable to tax.
Therefore, in the present case, the value of ₹55,50,000 shall be taken to be the full value of
consideration.

Computation of Total Income of Ms. Mohini for A.Y. 2023-24

Particulars ₹
Full Value of Consideration 55,50,000
Less: Transfer Expenses -
Net Consideration 55,50,000
Less: Indexed Cost of Acquisition 52,52,395

Capital Gains 2,97,605

Add: Income from Other Sources 2,80,000
Total Income 5,77,605
Total Income (Rounded Off) 5,77,600

In the Hands of Ms. Ragini

As per Section 56(2)(x), if any immovable property is received for inadequate consideration, the
difference between SDV and consideration is taxable under the head Income from Other Sources, if:

1. SDV > 110% of the Sale Consideration

2. SDV – Consideration > ₹50,000

In the present case, the stamp duty value of the house is ₹55,50,000, while the consideration paid by
Ms. Ragini is only ₹35,00,000.

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Therefore, SDV exceeds 110% of the sale consideration, i.e., 110% of ₹35,00,000 = ₹38,50,000; and the
difference between SDV and Consideration = ₹55,50,000 – ₹35,00,000 = ₹20,50,000, which exceeds
₹50,000.

Therefore, ₹20,50,000 shall be taxable in the hands of Ms. Ragini under the head Income from Other
Sources for this transaction. Adding the other income of Ms. Ragini of ₹3,45,000, the total income of
Ms. Ragini = ₹20,50,000 + ₹3,45,000 = ₹23,95,000.

Cost of Acquisition and Date of Acquisition for the Receiver of Gift

Particulars Cost of Acquisition Date of Acquisition
Tax Paid Under IFOS SDV Date of Receiving the Gift
Tax Not Paid Under IFOS Cost to Previous Owner Date of Acquisition of the Previous Owner

Question 5

Mr. Subramani sold a house plot to Mrs. Vimala for ₹45 lakhs on 12-05-2022. The valuation determined
by the stamp valuation authority was ₹53 lakhs. Discuss the tax consequences of above, in the hands
of each one of them, viz., Mr. Subramani & Mrs. Vimala. Mrs. Vimala has sold this plot to Ms. Padmaja
on 21-03-2023 for ₹55 lakhs. The valuation as per stamp valuation authority remains the same at ₹53
lakhs. Compute the capital gains arising on sale of the house plot by Mrs. Vimala.

Note: None of the parties viz Mr. Subramani, Mrs. Vimala, and Ms. Padmaja are related to each other;
the transactions are between outsiders.

Solution

In the Hands of Mr. Subramani

If the stamp duty value exceeds 110% of the consideration, then the stamp duty value is taken to be
the full value of consideration. In the present case, 110% of consideration is 110% × ₹45,00,000 =
₹49,50,000. Clearly, the stamp duty value, i.e., ₹53,00,000 exceeds it, and therefore, ₹53,00,000 shall
be taken to be the full value of consideration for computation of capital gains.

In the Hands of Mrs. Vimala

On Acquisition of Property from Mr. Subramani

As per Section 56(2)(x), if any immovable property is received for inadequate consideration, the
difference between SDV and consideration is taxable under the head Income from Other Sources, if:

1. SDV > 110% of the Sale Consideration

2. SDV – Consideration > ₹50,000

In the present case, the stamp duty value of the house is ₹53,00,000, while the consideration paid by
Mrs. Vimala is only ₹45,00,000.

Therefore, SDV exceeds 110% of the sale consideration, i.e., 110% of ₹45,00,000 = ₹49,50,000; and the
difference between SDV and Consideration = ₹53,00,000 – ₹45,00,000 = ₹8,00,000, which exceeds
₹50,000.

Therefore, ₹8,00,000 shall be taxable in the hands of Mrs. Vimala under the head Income from Other
Sources for this transaction.

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On Transfer of Property to Ms. Padmaja

Since the property is not held for more than 24 months, it shall be treated as a short-term capital asset,
and any gains arising from the transfer of such asset shall be short-term capital gain.

Here, since, the stamp duty value, i.e., ₹53,00,000 is less than the sale consideration, i.e., ₹55,00,000,
the actual sale consideration would be treated as the full value of consideration. The cost of acquisition
in the hands of Mrs. Vimala would be ₹53,00,000 since she has already paid tax under the head Income
from Other Sources. Therefore, short term capital gains arising on the transfer of this property to Ms.
Padmaja = ₹55,00,000 – ₹53,00,000 = ₹2,00,000

Dividend, Deemed Dividend, and its Taxability

• From P.Y. 2020-21, dividend received from Domestic Company is taxed in the hands of
shareholders under the head Income from Other Sources.
• Dividend received from Foreign Company is taxed in the hands of shareholders under the head
Income from Other Sources.

Deemed Dividend
As per section 2(22), following are included in the definition of dividend to the extent of accumulated
profits of the company:

(a) Any distribution entailing the release of company’s assets

(b) Any distribution of debentures, debenture-stock, deposit certificates and bonus to preference
shareholders
(c) Distribution on liquidation of company
(d) Distribution on reduction of capital
(e) 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 made in the ordinary course of
business and moneylending should not be substantial part of the company’s business.

Section 2(22)(a): Any distribution of Assets

If any domestic company distributes its assets to shareholders, then it will be treated as Deemed
Dividend to the extent accumulated profits (capitalized or not) of company and taxable as dividend in
hands of shareholders.

Example: Suppose following is the balance sheet

Particulars ₹ Particulars ₹
Share Capital 30,00,000 Assets 54,00,000
(Bonus Shares ₹4,00,000)
Reserves 20,00,000
Liabilities 4,00,000
54,00,000 54,00,000
What would be the amount of deemed divided in the following cases of asset distribution:

Case Book Value of Asset Distributed Market Value of Asset Distributed Deemed Dividend
1 14,00,000 26,00,000 24,00,000
2 14,00,000 18,00,000 18,00,000
3 14,00,000 30,00,000 24,00,000
4 14,00,000 20,00,000 20,00,000

CA NISHANT KUMAR 10
 5 14,00,000 10,00,000 10,00,000

Section 2(22)(b): Distribution of Debentures, Deposit Certificates, etc.

If any domestic company distributes debentures, debenture stock, deposit certificates to any
shareholder OR Bonus shares to preference shareholders, then it will be treated as deemed dividend
to the extent of accumulated profit (capitalized or not) of company and taxable in hands of
shareholders.

Debentures/Debenture Stock/Deposit Certificate → Any Shareholder

Bonus Shares → Preference Shareholder

Example: Suppose following is the balance sheet

Particulars ₹ Particulars ₹
Share Capital 30,00,000 Assets 54,00,000
(Bonus Shares ₹4,00,000)
Reserves 20,00,000
Liabilities 4,00,000
54,00,000 54,00,000
In this case, the accumulated profits are ₹24,00,000. Now, suppose the company distributes
Debentures worth ₹18,00,000, it will be taken as deemed dividend.

Section 2(22)(c): Distribution of Assets on Liquidation

If any domestic company distributes assets to shareholders on its liquidation, then it will be treated as
deemed dividend to the extent of accumulated profits (capitalized or not) and taxable in the hands of
shareholder.

Section 2(22)(d): Reduction in Share Capital

If any domestic company reduces its share capital and distributes asset (money) to shareholder, then
it will be treated as deemed dividend to the extent of accumulated profit (capitalized or not) of
company and taxable in hands of shareholder.

Section 2(22)(e): Loans and Advances by Closely Held Companies

• Let’s take an example to understand it.
• Shuchita Prakashan Pvt. Ltd. is a closely held company, and I am a shareholder holding more
than 10% equity in this company.
o Now, if Shuchita Prakashan gives an amount as loan to me, then this loan shall be
treated as deemed dividend to the extent of accumulated profits.
o Suppose Shuchita Prakashan doesn’t give a direct loan to me, but gives loan to some
concern (Company, Firm, HUF, AOP, BOI), where I have a substantial interest (20% or
more shareholding/profit sharing); in this case also, it shall be deemed that Shuchita
Prakashan has distributed me dividend to the extent of its accumulated profit.
o Now, suppose, I ask Shuchita Prakashan to give some loan or advance to some other
person, on my behalf, or for my benefit. This amount shall also be deemed to be the
dividend distributed by Shuchita Prakashan to me, to the extent of its accumulated
profits.

CA NISHANT KUMAR 11
 • Notes:
o If the loan is repaid or the company charges market rate of interest, then also, loan is
treated as deemed dividend.
o If company is engaged in money lending business and loan is given in ordinary course
of business, then it is not treated as deemed dividend.
o If any advance is given for business purposes (trade advance), then it is not treated as
deemed dividend.
o If loan was treated as deemed dividend, and after some time if such loan is set off
(squared off) against actual dividend, then such set off is not treated as dividend.

Question 6

Rahul, a resident Indian, holding 28% of equity shares in a company, took a loan of ₹5,00,000 from the
same company. On the date of granting the loan, the company had accumulated profit of ₹4,00,000.
The company is engaged in some manufacturing activity.

1. Is the amount of loan taxable as deemed dividend, if the company is a company in which the
public are substantially interested?
2. What would be your answer, if the lending company is a private limited company (i.e., which
is not a company in which the public are substantially interested)?

Solution

Any payment by a company, other than a company in which the public are substantially interested, of
any sum by way of advance or loan to an equity shareholder, being a person who is the beneficial
owner of shares holding not less than 10% of the voting power, is deemed as dividend under section
2(22)(e), to the extent the company possesses accumulated profits.

1. The provisions of section 2(22)(e), however, will not apply where the loan is given by a
company in which public are substantially interested. In such a case, the loan would not be
taxable as deemed dividend.
2. However, if the loan is taken from a private company (i.e., a company in which the public are
not substantially interested), which is a manufacturing company and not a company where

CA NISHANT KUMAR 12
 lending of money is a substantial part of the business of the company, then, the provisions of
section 2(22)(e) would be attracted, since Rahul holds more than 10% of the equity shares in
the company.
The amount chargeable as deemed dividend cannot, however, exceed the accumulated profits
held by the company on the date of giving the loan. Therefore, the amount taxable as deemed
dividend would be limited to the accumulated profit i.e., ₹4,00,000, and not the amount of
loan which is ₹5,00,000.

Taxability of Dividend/Income from Units of Mutual Funds

• In the Hands of Shareholders/Unit Holders
o Rate: It is taxed at Normal Rates of Tax.
o Deductions Allowed:
▪ Interest expense incurred in earning the income by way of deemed
dividend/income from units of mutual fund is allowed.
▪ Maximum permissible deduction = 20% of Grossed Up Value
o Grossing Up:
▪ The income of dividend/units of mutual funds is subject to TDS u/s 194/194K
@ 10%, hence, this income needs to be grossed up before including in the
total income.
▪ For example, if you’re supposed to receive, say ₹10,00,000 as dividend from a
company, the company will deduct 10% tax at source on it, and will give you
only ₹9,00,000.
▪ In this case, the dividend income which is to be included in your total income
will be ₹10,00,000, i.e., the gross value, and not ₹9,00,000 (net value).
▪ Also, the interest expense of 20% will be taken of the gross value, i.e.,
₹10,00,000, and not the net value, i.e., ₹9,00,000.
▪ So, maximum interest expense allowed against the dividend income = 20% ×
₹10,00,000 = ₹2,00,000.
▪ The formula for Grossing Up is:
𝑁𝑒𝑡 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 × 100
𝐺𝑟𝑜𝑠𝑠 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 =
[100 − (𝑅𝑎𝑡𝑒 𝑜𝑓 𝑇𝐷𝑆, 𝑖. 𝑒. , 10)], 𝑖. 𝑒. , 90
• In the Hands of the Company/Mutual Funds
o The company/mutual fund is not liable to pay tax on distributed profits u/s
115O/115R.
o The company/mutual fund is liable to deduct tax at source @ 10% u/s 194/194K.
o However, if the following conditions are satisfied, there’s no need to deduct tax at
source by the company u/s 194, on distribution of dividend:
▪ The shareholder is an individual;
▪ Dividend is paid by the company in any mode other than cash; and
▪ Aggregate dividend paid/payable by the company to the shareholder in the
financial year ≤ ₹5,000.
o Similarly, the mutual fund is not liable to deduct tax at source if the aggregate income
payable by the person responsible for paying to the unit holder ≤ ₹5,000.

CA NISHANT KUMAR 13
Question 7

XYZ Ltd., a domestic company, declared dividend of ₹150 lakh for the Financial Year 2022-23 and
distributed the same on 31-07-2022. Mr. A, holding 10% share in XYZ Ltd. received net dividend of
₹13.5 lakh in July, 2022. Mr. B holding 5% share in XYZ Ltd. received net dividend of ₹6.75 lakh in July,
2022.

Discuss the tax liabilities in the hands of Mr. A and Mr. B assuming that Mr. A and Mr. B have not
received dividend from any other domestic company during the year.

Solution

In both the cases, dividend received from shares of Indian company shall be chargeable tot tax in the
hands of the shareholder. Gross dividend will be taxable in the hands of shareholders.

Dividend chargeable to tax in the hands of Mr. A:

13,50,000 × 100
= ₹15,00,000
90
Dividend chargeable to tax in the hands of Mr. B:
6,75,000 × 100
= ₹7,50,000
90

Question 8

Mr. X, a resident individual aged 45 years gives the following information pertaining to the assessment
year 2023-24:

Particulars ₹
Business Income 15,00,000
Dividend from shares of Indian Company (net) 9,00,000
Interest expenses incurred on making investment in shares 2,50,000
Long term capital gains on sale of building 18,60,000
Determine the amount of total income and tax liability for assessment year 2023-24.

Solution

Computation of Total Income and Tax Liability of Mr. X for A.Y. 2023-24
Particulars ₹
Business Income 15,00,000
Long Term Capital Gains on Sale of Building 18,60,000
Income from Other Sources:
Dividend from Shares of Indian Company (₹9,00,000 × 100 ÷ 90) 10,00,000
Less: Interest expenses incurred for making investment in shares 2,00,000
Less: (₹2,50,000; subject to maximum of 20% × ₹10,00,000) 8,00,000
Total Income 41,60,000
.
Computation of Tax Liability
Long Term Capital Gains @ 20% 3,72,000
Balance Income, i.e., ₹41,60,000 – ₹18,60,000 = ₹23,00,000
On First ₹2,50,000 -
From ₹2,50,000 till ₹5,00,000 (5% × ₹2,50,000) 12,500

CA NISHANT KUMAR 14
 From ₹5,00,000 till ₹10,00,000 (20% × ₹5,00,000) 1,00,000
From ₹10,00,000 till ₹23,00,000 (30% × ₹13,00,000) 3,90,000 5,02,500
8,74,500
Add: Health and Education Cess @ 4% 34,980
9,09,480
Less: TDS u/s 194 on Dividends (₹9,00,000 × 10 ÷ 90) 1,00,000
Tax Payable 8,09,480

Taxability of Shares Issued at Premium [Section 56(2)(viib)]

If a closely held company (private ltd.) issues shares in excess of their face value (at premium) to a
resident person, then the following is chargeable to tax under the head Income from Other Sources:

𝐼𝑠𝑠𝑢𝑒 𝑃𝑟𝑖𝑐𝑒 𝑜𝑓 𝑆ℎ𝑎𝑟𝑒𝑠 – 𝐹𝑎𝑖𝑟 𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑆ℎ𝑎𝑟𝑒𝑠

Question 9

The following are the details of the shares issued by different companies during the financial year 2022-
23. Discuss the applicability of provisions of section 56(2)(viib) in the hands of the company:

Issuing Number of Face Value of FMV of Issue Price of

Company Shares Shares Shares Shares
A (P) Ltd. 10,000 100 120 130
B (P) Ltd. 20,000 100 120 110
C (P) Ltd. 30,000 100 90 98
D (P) Ltd. 40,000 100 90 110

Solution

Issuing Number Face FMV of Issue Applicability of Section 56(2)(viib)

Company of Value Shares Price of
Shares of Shares
Shares
A (P) Ltd. 10,000 100 120 130 The provisions of section 56(2)(viib) are
attracted in this case since the shares are
issued at a premium (i.e., issue price
exceeds the face value of shares). The
excess of the issue price of the shares over
the FMV would be taxable under section
56(2)(viib). ₹1,00,000 [10,000 × ₹10 (₹130 -
₹120)] shall be treated as income in the
hands of A (P) Ltd.
B (P) Ltd. 20,000 100 120 110 The provisions of section 56(2)(viib) are
attracted since the shares are issued at a
premium. However, no sum shall be
chargeable to tax in the hands of B (P) Ltd.
under the said section as the shares are
issued at a price less than the FMV of
shares.

CA NISHANT KUMAR 15
 C (P) Ltd. 30,000 100 90 98 Section 56(2)(viib) is not attracted since the
shares are issued at a discount, though the
issue price is greater than the FMV.
D (P) Ltd. 40,000 100 90 110 The provisions of section 56(2)(viib) are
attracted in this case since the shares are
issued at a premium. The excess of the issue
price of the shares over the FMV would be
taxable under section 56(2)(viib).
Therefore, ₹8,00,000 [40,000 × ₹20 (₹110 -
₹90)] shall be treated as income in the
hands of D (P) Ltd.

Question 10

Discuss the taxability or otherwise in the hands of the recipients, as per the provisions of the Income-
tax Act, 1961:

1. ABC Private Limited, a closely held company, issued 10,000 shares at ₹130 per share. (The face
value of the share is ₹100 per share and the fair market value of the share is ₹120 per share).
2. Mr. A received an advance of ₹50,000 on 01-09-2022 against the sale of his house. However,
due to non-payment of instalment in time, the contract has cancelled and the amount of
₹50,000 was forfeited.
3. Mr. N, a member of his father’s HUF, transferred a house property to the HUF without
consideration. The value of the house is ₹10 lakhs as per the registrar of stamp duty.
4. Mr. Kumar gifted a car to his sister’s son (Sunil) for achieving good marks in CA Final exam. The
fair market value of the car is ₹5,00,000.

Solution

1. The provisions of section 56(2)(viib) are attracted in this case since the shares of a closely held
company are issued at a premium (i.e., the issue price of ₹130 per share exceeds the face value
of ₹100 per share) and the issue price exceeds the fair market value of such shares.
The consideration received by the company in excess of the fair market value of the shares
would be taxable u/s 56(2)(viib).
Therefore, ₹1,00,000 [i.e., (₹130 – ₹120) × 10,000 shares] shall be the income chargeable u/s
56(2)(viib) in the hands of ABC Private Limited.
2. If any sum is received as advance in the course of negotiations for transfer of a capital asset,
and it is forfeited, and the negotiations do not result in the transfer of such asset, the forfeited
amount is chargeable to tax under the head Income from Other Sources u/s 56(2)(ix).
3. Any property received without consideration by an HUF from its relative is not taxable u/s
56(2)(x). Since N is a member of his father’s HUF, he is a “relative” of the HUF. Therefore, if
HUF receives any property (house, in this case) from its member, i.e., N, without consideration,
then the stamp value of such property will not be chargeable to tax in the hands of the HUF,
since gift received from a relative is excluded from the scope of section 56(2)(x).
4. Car is not included in the definition of property as per section 56(2)(x), therefore, the same
shall not be taxable.

Taxability on Casual Income [Section 56(2)(ib)]

• Casual income means income in the nature of
o winnings from lotteries,

CA NISHANT KUMAR 16
 o crossword puzzles,
o races including horse races,
o card games and
o other games of any sort,
o gambling,
o betting etc.
• In the Hands of Recipient
o Rate: 30% (plus Surcharge, as applicable and Health and Education Cess)
o Deductions Allowed: No deduction is allowed against this income
o Grossing Up:
▪ This income is subject to TDS u/s 194B @ 30%, if it exceeds ₹10,000.
▪ Therefore, it needs to be grossed up before including in the total income.
▪ For example, if you’re supposed to receive, say ₹10,00,000 as winnings from
lotter, the payer will deduct 30% tax at source on it, and will give you only
₹7,00,000.
▪ In this case, the income from winnings from lotter which is to be included in
your total income will be ₹10,00,000, i.e., the gross value, and not ₹7,00,000
(net value).
▪ The formula for Grossing Up is:
𝑁𝑒𝑡 𝑊𝑖𝑛𝑛𝑖𝑛𝑔𝑠 × 100
𝐺𝑟𝑜𝑠𝑠 𝑊𝑖𝑛𝑛𝑖𝑛𝑔𝑠 =
[100 − (𝑅𝑎𝑡𝑒 𝑜𝑓 𝑇𝐷𝑆, 𝑖. 𝑒. , 30)], 𝑖. 𝑒. , 70
o Winnings from races (other than horse races) are not subject to TDS.
o Deduction under Chapter VI-A is not allowable from such income.
o Adjustment of unexhausted basic exemption limit is also not permitted against such
income.
• In the Hands of the Payer
o The payer is not liable to pay tax on distributed winnings.
o The payer is liable to deduct tax at source @ 30% u/s 194B/194BB.
o However, if the amount of winnings ≤ ₹10,000, there’s no need to deduct tax at source.

Taxability of Interest on Compensation/Enhanced Compensation

[Section 56(2)(viii)]
• Year of Taxability: Year in which such interest is received
• Deductions Allowed: 50% of Interest Received (as per Section 57)

Question 11

On 10-10-2022, Mr. Govind (a bank employee) received ₹5,00,000 towards interest on enhanced
compensation from State Government in respect of compulsory acquisition of his land effected during
the financial year 2014-15.

Out of this interest, ₹1,50,000 relates to the financial year 2016-17; ₹1,65,000 to the financial year
2017-18; ₹1,85,000 to the financial year 2018-19. He incurred ₹50,000 by way of legal expenses to
receive the interest on such enhanced compensation.

How much of interest on enhanced compensation would be chargeable to tax for assessment year
2023-24?

CA NISHANT KUMAR 17
Solution

As per the provisions of the Income Tax Law, interest received by the assessee on enhanced
compensation shall be deemed to be the income of the assessee of the year in which it is received,
irrespective of the method of accounting followed by the assessee and irrespective of the financial
year to which it relates.

Section 56(2)(viii) states that such income shall be taxable as “Income from Other Sources”. 50% of
such income shall be allowed as deduction by virtue of Section 57 and no other deduction shall be
permissible from such income.

Therefore, legal expenses incurred to receive the interest on enhanced compensation would not be
allowed as deduction from such income.

Therefore, taxable amount of interest on enhanced compensation = ₹5,00,000 – (50% × ₹5,00,000) =

₹2,50,000.

Question 12

Mr. A, a dealer in shares, received the following without consideration during the P.Y. 2022-23 from
his friend Mr. B, -

1. Cash gift of ₹75,000 on his anniversary, 15th April, 2022.

2. Bullion, the fair market value of which was ₹60,000, on his birthday, 19th June, 2022.
3. A plot of land at Faridabad on 1st July, 2022, the stamp value of which is ₹5 lakh on that date.
Mr. B had purchased the land in April, 2009.

Mr. A purchased from his friend Mr. C, who is also a dealer in shares, 1000 shares of X Ltd. @ ₹400
each on 19th June, 2022, the fair market value of which was ₹600 each on that date. Mr. A sold these
shares in the course of his business on 23rd June, 2022.

Further, on 1st November, 2022, Mr. A took possession of property (office building) booked by him
two years back at ₹20 lakh. The stamp duty value of the property as on 1st November, 2022 was ₹32
lakh and on the date of booking was ₹23 lakh. He had paid ₹1 lakh by account payee cheque as down
payment on the date of booking.

On 1st March, 2023, he sold the plot of land at Faridabad for ₹7 lakh.

Compute the income of Mr. A chargeable under the head “Income from other sources” and “Capital
Gains” for A.Y. 2023-24.

Solution

Computation of Income from Other Sources of Mr. A for A.Y. 2023-24

Particulars ₹
Cash Gift from Friend (Note 1) 75,000
Bullion received from Friend (Note 2) 60,000
Plot of Land at Faridabad (Note 3) 5,00,000
Shares purchased from C (Note 4) -
Possession of Property (Office Building) (Note 5) 3,00,000
Income from Other Sources 9,35,000

CA NISHANT KUMAR 18
 Computation of Capital Gains of Mr. A for A.Y. 2023-24
Particulars ₹
Full Value of Consideration 7,00,000
Less: Cost of Acquisition (Note 6) 5,00,000
Short Term Capital Gains 2,00,000
Notes:

1. Monetary gifts received from friends are taxable, if the aggregate value of such gifts exceed
₹50,000. Therefore, in this case, cash gift of ₹75,000 is taxable.
2. Any property received by a friend without consideration is taxable, if the aggregate fair market
value of the property exceeds ₹50,0000. Bullion is covered in the definition of property.
Therefore, in this case, bullion worth ₹60,000 is taxable.
3. Any immovable property received by a friend without consideration is taxable, if the stamp
duty value of such property exceeds ₹50,0000. Therefore, in this case, plot of land worth
₹5,00,000 is taxable.
4. Shares are covered in the definition of property. However, property received without
consideration or for inadequate consideration is taxable only if it is received as a capital asset,
and not if it is received as raw materials, consumable stores, stock in trade, etc. In the present
case, since Mr. A is a dealer in shares, these shares represent his stock-in-trade. Therefore,
receipt of such shares is not taxable.
5. Usually, stamp duty value as on the date of registration is to be considered. However, if the
date of agreement and date of registration are different, then stamp duty value on the date of
agreement can be considered provided whole or part of the consideration is received in any
specified mode. In the present case, stamp duty value on the date of agreement was
₹23,00,000, while the consideration agreed was ₹20,00,000. Since the stamp duty value
exceeds 110% of the sale consideration, and the difference between stamp duty value and sale
consideration exceeds ₹50,000, the difference between the stamp duty value and sale
consideration is taxable.
6. When an immovable property is acquired at a price less than the stamp duty value, but the
difference has been taxed under the head Income from Other Sources, the cost of acquisition
of this property is taken to be the stamp duty value which was considered for taxing it under
the head Income from Other Sources. The period of holding of this asset is counted from the
date the property became the asset of the assessee. Therefore, short term capital gains shall
arise.

Taxability of Certain Other Incomes

Particulars Description Chargeable Conditions
Under the
Head
1. Employees’ Any sum received by an employer- Income from If it is not
contribution assessee from his employees as Other taxable under
towards staff contributions to any provident Sources the head Profits
welfare schemes fund, superannuation fund or any or Gains from
[Section 56(2)(ic)] other fund for the welfare of the Business or
employees Profession
2. Interest on Any interest received on securities Income from If it is not
Securities [Section Other taxable under
56(2)(id)] Sources the head Profits
or Gains from

CA NISHANT KUMAR 19
 Business or
Profession
3. Hire income of Income from letting out on hire, Income from If it is not
Plant, Machinery, machinery, plant or furniture. Other taxable under
Furniture [Section Sources the head Profits
56(2)(ii)] or Gains from
Business or
Profession
4. Hire Income of Where letting out of buildings is Income from If it is not
Plant, Machinery inseparable from the letting out of Other taxable under
and Furniture along machinery, plant or furniture, the Sources the head Profits
with Building income from such letting or Gains from
[Section 56(2)(iii)] Business or
Profession
5. Keyman Insurance Any sum received under a Keyman insurance policy including the sum
Policy Receipts allocated by way of bonus on such policy
[Section 56(2)(iv)] a. Amount received by Profits and Gains from Business
Employer or Profession
b. Amount received by Income from Salaries
Employee
c. Amount received by Any Income from Other Sources
Other Person
6. Compensation Any compensation or any other Income from Other Sources
received for payment, due to or received by
termination his any person, by whatever name
employment called, in connection with the
[Section 56(2)(xi)] termination of his employment or
the modification of the terms and
conditions relating thereto
7. Interest on Post It is exempt u/s 10(15) to the Rest is taxable If it is not
Office Savings Bank extent of: under the taxable under
Account 1. ₹3,500 in case of an head Income the head
individual account from Other Profits or
2. ₹7,000 in case of a joint Sources. Gains from
account Business or
Profession
8. Salaries of MPs/MLAs Income from Other Sources
9. Income from Sub-Letting Income from Other Sources
10. Interest on Bank Deposits and Loans Income from Other Sources
11. Director’s Fee Income from Other Sources
12. Interest on Foreign Government Securities Income from Other Sources
13. Agricultural Income received outside India Income from Other Sources
14. Income of race establishment Income from Other Sources
15. Commission received by the director on giving bank Income from Other Sources
guarantee for the company
16. Salary received by a Partner from Partnership Firm Profits and Gains from Business
or Profession

Question 13

Examine under which heads the following incomes are taxable:

CA NISHANT KUMAR 20
 1. Rental income in case property held as stock-in-trade for 3 years
2. Salary received by a partner from his partnership firm
3. Rental income of machinery
4. Winnings from lotteries by a person having the same as business activity
5. Salaries payable to a Member of Parliament
6. Receipts without consideration
7. In case of retirement, interest on employee’s contribution if provident fund is unrecognized.
8. Rental income in case of a person engaged in the business of letting out of properties.

Solution

Particulars Head of Income

1. Rental income in case property held as Income from House Property
stock-in-trade for 3 years
2. Salary received by a partner from his Profits and Gains from Business or Profession
partnership firm
3. Rental income of machinery Income from Other Sources, if it is not
chargeable to tax under the head Profits and
Gains from Business or Profession
4. Winnings from lotteries by a person Income from Other Sources
having the same as business activity
5. Salaries payable to a Member of Income from Other Sources
Parliament
6. Receipts without consideration Income from Other Sources
7. In case of retirement, interest on Income from Other Sources
employee’s contribution if provident
fund is unrecognized.
8. Rental income in case of a person Profits and Gains from Business or Profession
engaged in the business of letting out of
properties.

Deductions Allowable [Section 57]

The income chargeable under the head “Income from other sources” shall be computed after making
the following deductions:

1. In the case of dividend or income in respect of units of a mutual fund or income in respect of
units of a specified company: Interest expenditure to earn such income is allowed as deduction
subject to a maximum of 20% of such income included in the total income, without deduction
under this section.
2. In the case of interest on securities: 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.
3. Income consists of recovery from employees as contribution to any provident fund etc. in
terms of section 2(24)(x): A deduction will be allowed in accordance with the provisions of
section 36(1)(va) i.e., to the extent the contribution is remitted before the due date under the
respective Acts.
4. Where the income to be charged under this head is from letting on hire of machinery, plant
and furniture, with or without building: The following items of deductions are allowable in the
computation of such income:

CA NISHANT KUMAR 21
 a. the amount paid on account of any current repairs to the machinery, plant, furniture
or building.
b. the amount of any premium paid in respect of insurance against risk of damage or
destruction of the machinery or plant, furniture or building.
c. the normal depreciation allowance in respect of the machinery, plant or furniture, due
thereon.
5. In the case of income in the nature of family pension:
a. Lower of the following is allowable:
i. 33-1/3 per cent of such income
ii. ₹15,000
b. For the purposes of this deduction, “family pension” means a regular monthly amount
payable by the employer to a person belonging to the family of an employee in the
event of his death.
c. Exemption in respect of family pension
i. The family pension received by the widow or children or nominated heirs, of
a member of the armed forces (including para-military forces) of the Union,
where the death of such member has occurred in the course of operational
duties, in specified circumstances would, however, be exempt under section
10(19).
ii. The family pension received by any member of the family of an individual who
had been in the service of Central or State Government and had been awarded
“Param Vir Chakra” or “Vir Chakra” or “Vir Chakra” or other notified gallantry
awards would be exempt under section 10(18)(ii).
6. 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.
7. In case of income by way of interest on compensation/ enhanced compensation received
chargeable to tax under section 56(2)(viii): Deduction of 50% of such income. No deduction
would be allowable under any other clause of section 57 in respect of such income.

Deductions Not Allowable [Section 58]

No deduction shall be made in computing the “Income from other sources” of an assessee in respect
of the following items of expenses:

1. In the case of any assessee:

a. any personal expense of the assessee;
b. any interest chargeable to tax under the Act which is payable outside India on which
tax has not been paid or deducted at source.
c. any payment chargeable to tax under the head “Salaries”, if it is payable outside India
unless tax has been paid thereon or deducted at source.
2. Any expenditure in respect of which a payment is made to a related person: In addition to
these disallowances, section 58(2) specifically provides that the disallowance of any
expenditure in respect of which a payment is made to a related person, to the extent the same
is considered excessive or unreasonable by the Assessing Officer, having regard to the FMV.
and disallowance of payment or aggregate of payments exceeding ₹10,000 made to a person
during a day otherwise than by account payee cheque or draft or ECS through bank account
or through such other prescribed electronic mode such as credit card, debit card, net banking,
IMPS, UPI, RTGS, NEFT, and BHIM Aadhar Pay covered by section 40A will be applicable to the
computation of income under the head ‘Income from other sources’ as well.

CA NISHANT KUMAR 22
3. Disallowance of 30% of expenditure: 30% of expenditure shall not be allowed, in respect of a
sum which is payable to a resident and on which tax is deductible at source, if
a. such tax has not been deducted or;
b. such tax after deduction has not been paid on or before the due date of return
specified in section 139(1).
4. No deduction in respect of any expenditure incurred in connection with casual income:
a. No deduction in respect of any expenditure or allowance in connection with income
by way of earnings from lotteries, cross word puzzles, races including horse races, card
games and other games of any sort or from gambling or betting of any form or nature
whatsoever shall be allowed in computing the said income.
b. The prohibition will not, however, apply in respect of the income of an assessee, being
the owner of race horses, from the activity of owning and maintaining such horses. In
respect of the activity of owning and maintaining race horses, expenses incurred shall
be allowed even in the absence of any stake money earned. Such loss shall be allowed
to be carried forward in accordance with the provisions of section 74A.

CA NISHANT KUMAR 23