Income From Other Sources

1. 1
INDEX
Sr. No. Topic Page
No.
1 Introduction 2
2 Incomes which are charged to tax under the head
“Income from other sources”
3
3 Relevance of method of accounting 4
4 Taxation of sum of money or property received without
consideration or without adequate consideration
4
5 Sum of money received without consideration
(commonly known as monetary gift) by an individual or
HUF
5
6 Specified movable property received without
consideration (commonly known as non-monetary gift)
by an individual or HUF
6
7 Specified movable property received without adequate
consideration by an individual or HUF
7
8 Immovable property received without consideration by
an individual or HUF
8
9 Immovable property received by an individual or HUF
for a consideration which is less than its fair market
value
9
10 Tax treatment of amount received from life insurance
policy
9
11 Expenses allowed as deductions while computing
income chargeable to tax under the head “Income from
other sources”
10
12 Expenses not allowed as deductions while computing
income chargeable to tax under the head “Income from
other sources”
10
13 Case Laws 11
14 Bibliography & Webliography 17

2. 2
Introduction
1. BASIS FOR CHARGE:-The Following conditions must be satisfied for charging income to tax
under income under the head income from other sources:-
a) There must be an income.
b) It should not be an exempt income.
c) Such income should not be charged to tax under any other head of income.
Therefore this head of income is also called as “residuary head of income”.
2. INCOMES TAXABLEUNDER THIS HEAD: - The various types of incomes taxable under this
head can be classified into two parts. These are explained as follows:-
SPECIFIC INCOMES: -
 Dividends
 Lotteries,
crosswords, puzzles
 Races including
horse races
 Card game or any
other game
 Betting or gambling
activity of any other
nature
Any other income
which is not taxable
under any other head
of income.

3. 3
Incomes which are charged to tax under the head
“Income from other sources”
“Income from other sources”is the residual head of income. Hence, any income
which is not specifically taxed under any other head of income will be taxed under
this head.
Further, there are certain incomes which are always taxed under this head. These
incomes are as follows:
 As per section 56(2)(i), dividends are always taxed under this head. However,
dividends from domestic company other than those covered by section2 (22)(e)
are exempt from tax under section 10(34).
 Winnings from lotteries, crossword puzzles, races including horse races, card
game and other game of any sort, gambling or betting of any form whatsoever,
are always taxed under this head.
 Income by way of interest received on compensation or on enhanced
compensation shall be chargeable to tax under the head “Income from other
sources”, and such income shall be deemed to be the income of the year in
which it is received, irrespective of the method of accounting followed by the
assessee. However, a deduction of a sum equal to 50% of such income shall be
allowed from such income. Apart from this, no other deduction shall be
allowed from such an income.
 Gifts received by an individual or HUF (which are chargeable to tax) are also
taxed under this head.
 In addition to above, following incomes are charged to tax under this head, if
not taxed under the head “Profits and gains of business or profession”.
a) Any contribution to a fund for welfare of employees received by the employer.
[Section 56(2) (ic)].
b) Income by way of interest on securities. [Section 56(2) (id)].
c) Income from letting out or hiring of plant, machinery or furniture. [Section
56(2) (ii)].
d) Income from letting out of plant, machinery or furniture along withbuilding;
both the lettings are inseparable. [Section 56(2)(iii)].
e) Any sum received under a Keyman Insurance Policy including bonus. [Section
56(2)(iv)].

4. 4
Relevance of method of accounting
Income chargeable to tax under the head “Income from other sources”is to be
computed in accordancewith the method of accounting regularly employed by the
assessee. Hence, if the assesseefollows mercantile system, then income will be
computed on accrual basis. If assesseefollows cashsystem, then income will be
computed on cash basis. However, method of accounting does not affect the basis of
charge in caseof dividend income and income by way of interest received on
compensation or on enhanced compensation.
Taxation of sum of money or property received without
consideration or without adequate consideration
From the taxation angle, sum of money or property received by an individual or
HUF without consideration or without adequate consideration can be classified in
following different categories:
Sum of money received without consideration (commonly known as monetary gift).
Specified movable property received without consideration (commonly known as
non-monetary gift).
Specified movable property received without adequate consideration.
Immovable property received without consideration.
Immovable property received without adequate consideration.

5. 5
Sum of money received without consideration
(commonly known as monetary gift) by an individual or
HUF
The provisions relating to taxability of monetary gift received by an individual or HUF are
as follows:
On satisfaction of following conditions any sum of money (i.e., generally known as
monetary gift) received by an individual/HUF without consideration will be charged to tax:
a) The sum of money is received by an individual or HUF on or after 1-10-2009.
b) Such sum of money is received without consideration.
c) The aggregate value of such sum received during the previous year exceeds Rs.
50,000.
The aforesaid provisions will not apply in the following cases:
 Money received from relatives (see note 1 below).
 Money received by a HUF from its members.
 Money received on occasion of the marriage of the individual.
 Money received under Will/ by way of inheritance.
 Money received in contemplation of death of the payer or donor.
 Money received from a local authority.
 Money received from any fund, foundation, university, other educational institution,
hospital or other medical institution, any trust or institution referredto in section
10(23C).
 Money received from a trust or institution registered under section12AA.
Note 1 :
Relative for this purpose means:
a) Spouse of the individual;
b) Brother or sister of the individual;
c) Brother or sister of the spouse of the individual;
d) Brother or sister of either of the parents of the individual;
e) Any lineal ascendant or descendent of the individual;
f) Any lineal ascendant or descendent of the spouse of the individual;
g) Spouse of the person referred to in (b) to (f)above

6. 6
Specified movable property received without
consideration (commonly known as non-monetary gift)
by an individual or HUF
Any specified movable property received without consideration (i.e., received by way
of a gift) by an individual/HUF is charged to tax, if the following conditions are
satisfied:
i. Any specified movable property is received by an individual or HUF on or
after 1-10-2009.
ii. Such property is received without consideration.
iii. The aggregate fair market value of such properties received by the assessee
during the previous year exceeds Rs. 50,000.
Specified movable property means shares/securities, jewellery, archaeological
collections, drawings, paintings, sculptures or any work of art and with effect from 1-
6-2010 bullion, being capital asset of the assessee.
In above case, the fair market value of the specified movable property will be treated
as income of the receiver.
The aforesaid provisions will not apply in the following cases:
 Property received from relatives (see note 1).
 Property received by a HUF from its members.
 Property received on occasionof the marriage of the individual.
 Property received under Will/ by way of inheritance.
 Property received in contemplation of death of the payer or donor.
 Property received from a local authority.
 Property received from any fund, foundation, university, other educational
institution, hospital or other medical institution, any trust or institution referred
to in section 10(23C).
 Property received from a trust or institution registered under section 12AA.

7. 7
Specified movable property received without adequate
consideration by an individual or HUF
Any specified movable property acquired for less than its fair market value by an
individual/HUF is charged to tax if the following conditions are satisfied:
i. Any specified movable property is received by an individual or HUF on or
after 1-10-2009.
ii. Such property is received for a consideration, but aggregate fair market value
of such properties received by the assesseeduring the previous year exceeds
the consideration of these properties by Rs. 50,000. In other words, the
aggregate fair market value of all such properties is higher than the
consideration and the aggregate gap is more than Rs. 50,000. Specified
movable property means shares/securities, jewellery, archaeological
collections, drawings, paintings, sculptures or any work of art and with effect
from 1-6-2010 bullion, being capital asset of the assessee.
In above case, aggregate fair market value in excess of aggregate consideration of
such properties will be charged to tax.
The aforesaid provisions will not apply in the following cases :
 Property received from relatives (see note 1).
 Property received by a HUF from its members.
 Property received on occasionof the marriage of the individual.
 Property received under Will/ by way of inheritance.
 Property received in contemplation of death of the payer or donor.
 Property received from a local authority.
 Property received from any fund, foundation, university, other educational
institution, hospital or other medical institution, any trust or institution referred
to in section 10(23C).
 Property received from a trust or institution registered under section 12AA.

8. 8
Immovable property received without consideration by
an individual or HUF
Any immovable propertyreceived without consideration (i.e., received by way of a
gift) by an individual/HUF is charged to tax, if the following conditions are satisfied:
1) Any immovable propertyis received by an individual or HUF on or after 1-10-
2009.
2) Such property is received without consideration.
3) The stamp duty value of such property exceeds Rs. 50,000.
In above case, the stamp duty value of the property adopted by the Stamp Valuation
Authority for charging stamp duty will be treated as income of the receiver.
Nothing contained in aforesaid provisions will apply in the following cases:
 Property received from relatives (see note 1).
 Property received by a HUF from its members.
 Property received on occasionof the marriage of the individual.
 Property received under Will/ by way of inheritance.
 Property received in contemplation of death of the payer or donor.
 Property received from a local authority.
 Property received from any fund, foundation, university, other educational
institution, hospital or other medical institution, any trust or institution referred
to in section 10(23C).
 Property received from a trust or institution registered under section 12AA.

9. 9
Immovable property received by an individual or HUF
for a consideration which is less than its fair market
value
Where in case of an individual or HUF, if any immovable property is received without
adequate consideration (i.e. a case where the property is received for a consideration which
is less than the stamp duty value of the property by an amount exceeding Rs. 50,000), then,
the stamp duty value of the property as exceeds such consideration will be treated as income
of such individual or HUF.
Nothing contained in aforesaid provisions will apply in the following cases:
 Property received from relatives (see note 1).
 Property received by a HUF from its members.
 Property received on occasion of the marriage of the individual.
 Property received under Will/ by way of inheritance.
 Property received in contemplation of death of the payer or donor.
 Property received from a local authority.
 Property received from any fund, foundation, university, other educational
institution, hospital or other medical institution, any trust or institution referredto in
section10(23C).
 Property received from a trust or institution registered under section 12AA.
Tax treatment of amount received from life insurance
policy
Any amount received under a life insurance policy, including bonus is exempt from tax
under section10(10D). However, following points should be noted in this regard:
 Exemption is available only in respect of amount received from life insurance policy.
 Exemption under section 10(10D) is unconditionally available in respect of sum
received for a policy which is issued on or before March 31st, 2003, however, in
respect of policies issued on or after April 1st, 2003, the exemption is available only
if the amount of premium paid on such policy in any financial year does not exceed
20% (10% in respect of policy taken on or after April 1st, 2012) of the actual capital
sum assured. It should be noted that amount received on death of the person will
continue to be exempt without any condition.
 Value of premium agreed to be returned or of any benefit by way of bonus (or
otherwise), over and above the sum actually assured, which is received under the
policy by any person, shall not be taken into account while calculating the actual
capital sum assured.

10. 10
Expenses allowed as deductions while computing
income chargeable to tax under the head “Income from
other sources”
Following major deductions are available from income chargeable to tax under the head “Income
from other sources”:
a) Commission or remuneration for realising dividends (if not covered under section 115-O
which is exempt) or interest on securities [Section57 (i)].
b) Any sum received by an employer from employees as contribution towards any welfare fund
of such employees is first included as income of the employee, and if the employer credits
such sum to the employee’s account under the relevant fund on or before the due date (of
such fund), then such amount (i.e., employee’s contribution) is deductible from the income
of the employer [Section 57(ia)].
c) Current (not capital) repairs, insurance premium and depreciation in respect of plant,
machinery, furniture and buildings are deductible from rent income earned by letting out of
plant, machinery, furniture and building, which are chargeable to tax under section
56(2)(ii)/(iii).
d) A deduction of lower of Rs. 15,000 or 33 1/3% of such income is available in case of
income in the nature of family pension (i.e., regular monthly amount payable by the
employer to the family members of the deceased employee) [Section 57(iia)].
e) Under section 57(iii), deduction is available in respect of 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 during the relevant previous year.
Expenses not allowed as deductions while computing
income chargeable to tax under the head “Income from
other sources”
Under section 58, following expenditures are not deductible while computing income chargeable to
tax under the head “Income from other sources”:
 Personal expenditure [Section 58(1)(a)(i)].
 Any interest chargeable under the Act which is payable outside India on which tax has not
been paid or deducted at source [Section 58(1)(a)(ii)].
 Any amount paid which is taxable under the head “Salaries” and payable outside India on
which tax has not been paid or deducted at source [Section 58(1)(a)(iii)].
 Sum paid on account of wealth-tax is not deductible under section 58(1A).
 Amount specified under section 40A is not deductible [Section 58(2)].

11. 11
Case Laws
1
CIT v. Ambassador Travels (P) Ltd. (2009) 318 ITR 376 (Del.)
Would the provisions of deemed dividend under section2(22)(e)be
attracted in respectof financialtransactionsenteredinto in the normal
courseof business?
Under section 2(22)(e), loans and advances made out of accumulated profits of a
company in which public are not substantially interested to a beneficial owner of
shares holding not less than 10% of the voting power or to a concern in which such
shareholder has substantial interest is deemed as dividend. However, this provision
would not apply in the case of advance made in the course of the assessee’s
business as a trading transaction.
The assessee, a travel agency, has regular business dealings with two concerns in
the tourism industry dealing with holiday resorts.
High Court’s Observations & Decision:
The High Court observed that the assessee was involved in booking of resorts for
the customers of these companies and entered into normal business transactions
as a part of its day-to-day business activities.
The High Court, therefore, held that such financial transactions cannot under any
circumstances be treated as loans or advances received by the assessee from
these concerns for the purpose of application of section 2(22)(e).

12. 12
2
Raj Kumari Agarwal vs. DCIT (ITAT Agra), I.T.A. No.: 176/Agra/2013,
Date of pronouncing the order : July 18th, 2014
Interest Expense incurred to earn Interest Income is allowable – Section 57(iii)
During the course of the assessment proceedings, the Assessing Officer noticed
that the assessee had made a fixed deposit of Rs 1,00,00,000 with ICICI Bank and
earned interest of Rs 11,77,574 on these deposits. However, while computing the
income from other sources, the assessee claimed a deduction of Rs 4,36,705 on
account of interest paid on loan of Rs 75,00,000 taken, on the security of deposits.
When asked to justify this deduction, the assessee submitted that the assessee
needed her funds, as she had to give money to her son and with a view to avoid
premature encashment of the fixed deposits, for that purpose, which would have
resulted in net loss to her, she took a loan against fixed deposit so as to keep the
fixed deposit intact and earn the interest income thereon. It was contended that the
interest of Rs 4,36,705 thus paid on the borrowings from ICICI Bank, against
security of fixed deposit, was thus made for the purpose of earning FDR interest
income of Rs 11,77,574. The Assessing Officer was, however, not impressed with
this plea. He rejected the claim of deduction for Rs 4,36,705 with rather cryptic
observations that, “since the expenditure of Rs 4,36,705 being accrued interest on
loan has not been laid out or expended wholly and exclusively for the purpose of
making or earning income from FDRs, claim of the assessee isnot correct and not
admissible in view of the provisions of Section 57 (iii) of the Act”. Aggrieved by the
stand so taken by the Assessing Officer, assessee carried the matter in appeal
before the CIT(A) but without any success.
There is no dispute that interest income in this case is to be taxed as an ‘income
from other sources’. Section 57(iii) of the Act clearly provides that “the income
chargeable under the head ‘ income from other sources’ is to be computer making
the deduction, namely.. (inter alia)… any…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”. It is thus clear that as long as an expenditure is
incurred wholly or exclusively for the purpose earning an income, such an
expenditure constitutes an admissible deduction in computation of the income.
The question that we really need to adjudicate on is, therefore, whether or not
income paid on interest against the fixed deposits can be said to have been
incurred “wholly and exclusively” for the purpose of earning interest income from
fixed deposits.

13. 13
As long as the expense is incurred wholly and exclusively for the purpose of
earning an income, even if it is not necessarily for earning that income, it will still be
deductible in computation of income. What thus logically follows is that even in a
situation in which proximate or immediate cause of an expenditure was an event
unconnected to earning of the income, in the sense that the expenditure was not
triggered by the objective to earn that income, but the expenditure was,
nonetheless, wholly and exclusively to earn or protect that income, it will not cease
to be deductible in nature. It is also important to bear in mind the fact that a
borrowing against fixed deposit cannot be considered in isolation of a fixed deposit
itself inasmuch as, going by the admitted facts of this case, the interest chargeable
on the fixed deposit itself is linked to the interest accruing and arising from the fixed
deposit. On these facts, in order to protect the interest earnings from fixed deposits
and to meet her financial needs, when an assessee raises a loan against the fixed
deposits, so as to keep the source of earning intact, the expenditure so incurred in
wholly and exclusively to earn the fixed deposit interest income. The authorities
below were apparently swayed by the fact that the borrowings were triggered by
assessee’s financial needs for personal purposes and, by that logic, the borrowing
cannot be said to be wholly and exclusively for the purposes of earning interest
income, but what this approach overlooks is whether the expenditure is incurred for
directly contributing to the beginning of or triggering the source of income or
whether the expenditure is for protecting, and thus keeping alive, that source of
income, in either case it is expenditure incurred wholly and exclusively for the
purpose of earning that income. The assessee indeed required that money, so
raised by borrowing against the fixed deposits, for her personal purposes but thats
not relevant for the present purposes. The assessee could have gone for premature
encashment of bank deposits, and thus ended the source of income itself, as well,
but instead of doing so, she resorted to borrowings against the fixed deposit and
thus preserved the source of earning. The expenditure so incurred, in our
considered view, is an expenditure incurred wholly and exclusively for earning from
interest on fixed deposits. We are alive to the fact that in the case of a business
assessee, and in a situation in which the borrowings against fixed deposits were
resorted to for use in business, consideration for end use of funds so borrowed
would be relevant because the interest deduction is claimed as a business
deduction under section 36(1)(iii). That aspect of the matter, however, is academic
in the present context as the limited issue for our consideration is whether or not,
on the facts before us, the interest on borrowings against the fixed deposits could
be said to protect the interest income from fixed deposit interest and thus, incurred
wholly and exclusively for the purposes of earning such income.

14. 14
3
CIT v. Parle Plastics Ltd. (2011) 332 ITR63 (Bom.)
What are the tests for determining “substantial part of business” of lending
company for the purpose of application of exclusion provision under
section 2(22)?
High Court’s Observations: Under section 2(22), “dividend” does not include,
inter alia, any advance or loan made to a shareholder by a company in the
ordinary course of its business, where the lending of money is a substantial part
of the business of the company. The expression used in the exclusion provision
of section 2(22) is "substantial part of the business". Sometimes a portion which
contributes a substantial part of the turnover, though it contributes a relatively
small portion of the profit would be termed as a substantial part of the business.
Similarly, a portion which is relatively small as compared to the total turnover,
but generates a large portion, say, more than 50% of the total profit of the
company would also be a substantial part of its business. Percentage of turnover
in relation to the whole as also the percentage of the profit in relation to the
whole and sometimes even percentage of manpower used for a particular part of
the business in relation to the total manpower or work force of the company
would be required to be taken into consideration for determining the substantial
part of business.
The capital employed for a specific division of a company in comparison to total
capital employed would also be relevant to determine whether the part of the
business constitutes a substantial part.
In this case, 42% of the total assets of the lending company were deployed by it
by way of loans and advances. Further, if the income earned by way of interest
is excluded, the other business had resulted in a net loss. These factors were
considered in concluding that lending of money was a substantial part of the
business of the company.
High Court’s Decision:
Since lending of money was a substantial part of the business of the lending
company, the money given by it by way of advance or loan to the assessee
could not be regarded as a dividend, as it had to be excluded from the definition
of "dividend" by virtue of the specific exclusion in section 2(22).

15. 15
4
Pradip Kumar Malhotra v. CIT (2011) 338 ITR 538 (Cal.)
Can the loan or advance given to a shareholder bythe company,in
return of an advantage conferred on the companyby the
shareholder,be deemed as dividend undersection 2(22)(e)in the
hands of the shareholder?
Facts of the case:
In the present case, the assessee, a shareholder holding substantial voting power
in the company, permitted his property to be mortgaged to the bank for enabling the
company to take the benefit of loan. The shareholder requested the company to
release the property from the mortgage. On failing to do so and for retaining the
benefit of loan availed from bank, the company gave advance to the assessee,
which was authorized by a resolution passed by its Board of Directors.
Issue: The issue under consideration is whether the advance given by the
company to the assessee-shareholder by way of security deposit for keeping his
property as mortgage on behalf of company to reap the benefit of loan, can be
treated as deemed dividend within the meaning of section 2(22)(e).
High Court’s Observations:
In the above case, the Calcutta High Court observed that, the phrase "by way of
advance or loan" appearing in section 2(22)(e) must be construed to mean those
advances or loans which a share holder enjoys simply on account of being a
person who is the beneficial owner of shares (not being shares entitled to a fixed
rate of dividend whether with or without a right to participate in profits) holding not
less than 10% of the voting power. In case such loan or advance is given to such
shareholder as a consequence of any further consideration which is beneficial to
the company received from such a shareholder, such advance or loan cannot be
said to a deemed dividend within the meaning of the Act. Thus, gratuitous loan or
advance given by a company to a
share holder, who is the beneficial owner of shares holding not less than 10% of the
voting power, would come within the purview of section 2(22)(e) but not to the
cases where the loan or advance is given in return to an advantage conferred upon
the company by such shareholder.
High Court’s Decision:
In the present case, the advance given to the assessee by the company was not in
the nature of a gratuitous advance; instead it was given to protect the interest of the
company. Therefore, the said advance cannot be treated as deemed dividend in
the hands of the shareholder under section 2(22)(e).

16. 16
5
CIT v. Manjoo and Co. (2011) 335 ITR 527 (Kerala)
Can winnings of prize money on unsold lottery tickets held by the
distributor oflottery tickets be assessedas businessincome and be
subjectto normalrates of tax instead of the rates prescribed under
section 115BB?
High Court’s Observations:
On the above issue, the Kerala High Court observed that winnings from lottery is
included in the definition of income by virtue of section 2(24)(ix).
Further, in practice, all prizes from unsold tickets of the lotteries shall be the
property of the organising agent. Similarly, all unclaimed prizes shall also be the
property of the organising agent and shall be refunded to the organising agent.
The High Court contended that the receipt of winnings from lottery by the distributor
was not on account of any physical or intellectual effort made by him and therefore
cannot be said to be "income earned" by him in business. The said view was taken
on the basis that the unsold lottery tickets cease to be stock-in-trade of the
distributor because, after the draw, those tickets are unsaleable and have no value
except waste paper value and the distributor will get nothing on sale of the same
except any prize winning ticket if held by him, which, if produced will entitle him for
the prize money. Hence, the receipt of the prize money is not in his capacity as a
lottery distributor but as a holder of the lottery ticket which won the prize. The
Lottery Department also does not treat it as business income received by the
distributor but instead treats it as prize money paid on which tax
is deducted at source.
Further, winnings from lotteries are assessable under the special provisions of
section 115BB, irrespective of the head under which such income falls. Therefore,
even if the
argument of the assessee is accepted and the winnings from lottery is taken to be
received by him in the course of his business and as such assessable as business
income, the specific provision contained in section 115BB, namely, the special rate
of tax i.e. 30% would apply.
High Court’s Decision:
The High Court, therefore, held that the rate of 30% prescribed under section
115BB is applicable in respect of winnings from lottery received by the distributor.

17. 17
Bibliography & Webliography
Books:
Student’s handbook on Taxation by TN Manoharan. Publisher: Snowwhite-2014.
Taxation IPC Study Material by ICAI.
Websites:
http://taxguru.in/income-tax-case-laws/interest-expense-incurred-earn-interest-income-
allowable-section-57iii.html
http://www.incometaxindia.gov.in/Tutorials/Income-from-other-sources-Theoritical.pdf
http://www.lawzonline.com/bareacts/income-tax-act/section57-income-tax-act.htm
http://resource.cdn.icai.org/26941bos16384DTL.pdf