Objectives & Agenda : To analyse and interpret the provisions of the Income-tax Act relating to chargeability of Income from Sources other than Salary, House Property, Business or Profession and Capital Gains. In this Webinar, we will discuss the various incomes that are chargeable under the head 'Income From Other Sources' which covers Dividends, Gifts, Certain Interest, Advance money forfeited etc. Finally, the Webinar will touch upon relevant Judicial Precedents.

1. Understanding Income-tax –
Income From Other Sources
CA Divakar Vijayasarathy

2. Credits and Acknowledgments
V Thirumal
CA Jugal Gala

3. Legends used in the Presentation
IFOS Income From Other Sources
IFSC International Financial Services Centre
NRI Non-resident Indian
PF Provident Fund
SBI State Bank of India
TDS Tax Deducted at Source
the Act Income-tax Act, 1961

4. Presentation Schema
Charging Provision –
Sec 56(1)
Incomes Covered
under IFOS – Sec
56(2)
Dividends Casual Income
Incomes chargeable
under IFOS if not
chargeable under
PGBP
Compensation
received from a
Keyman Insurance
Policy
Angel Tax
Interest received on
compensation or on
enhanced
compensation
Advance Money
Forfeited
Gift Tax
Compensation
received in relation
to termination of
employment
Deductions – Sec 57
Amounts Not
Deductible – Sec 58
Deemed Income –
Sec 59
Judicial Precedents

5. Charging Section – Sec 56(1)
Any income which is not exempt under the provisions of the Act and
which does not fall under any of the four heads of income
[Salaries, House Property, Profits and Gains of Business or Profession and Capital Gains]
will be chargeable to tax as Income from Other Sources

6. Incomes Chargeable under IFOS – Sec 56(2)
Dividends
Casual Income
Employee’s Contribution to PF received by an Employer
Interest on Securities
Income from machinery, plant or furniture let on hire
Income from letting of machinery, plant or furniture together with
building and the letting of building is inseparable
Compensation received from a Keyman Insurance Policy
Angel Tax
Interest received on compensation or on enhanced compensation
Advance Money Forfeited
Gift Tax
Compensation received in relation to termination of employment
Without prejudice to the generality of the Charging provision,
following items are covered under the head IFOS:

7. Dividends – 56(2)(i)
Basis of Charge [Sec 8]
Normal Dividend Year of declaration
Deemed dividend Year of distribution
Interim dividend Year in which the amount is unconditionally available to
the share holder
Source of Dividend Taxability
Declared by a domestic company • Exempt under Sec 10(34) – Dividends on which DDT has been paid under
Sec 115O
• Sec 115BBDA – Dividends other than Deemed Dividend under Sec
2(22)(e)* received in excess of Rs 10 Lakh by Resident Specified Assessee
Distributed by UTI or Mutual Fund Exempt under Sec 10(35)
Declared by a Foreign company Fully Taxable

8. Casual Income – Sec 56(2)(ib)
Casual income means income in the nature of winning from lotteries, crossword puzzles, races
including horse races, card games and other games of any sort, gambling, betting etc.
Such winnings are chargeable to tax at a flat rate of 30% under Sec 115BB

9. Incomes Chargeable under IFOS only if Not Chargeable under
PGBP – Sec 56(2) (ic), (id), (ii) & (iii)
Any sum received by an employer-assessee from his employees as contributions to any
provident fund, superannuation fund or any other fund for the welfare of the employees
Income from letting out on hire, machinery, plant or furniture
Where letting out of buildings is inseparable from the letting out of machinery, plant or
furniture, the income from such letting
Interest on securities other than those exempt under Sec 10(15)
Following Incomes shall be taxed under IFOS if not chargeable under PGBP

10. Interest Exempt under Sec 10(15)
12 year National
Savings Annuity
Certificates
Treasury Savings
Deposit Certificates
Post Office cash
certificates
National Plan savings
certificates
Post Office savings
bank accounts
Post Office
cumulative time
deposits
Specified NRI bonds
issued by SBI
Interest in notified
bonds of public
sector company/local
authority
Interest on notified
relief bonds
Income from the following securities shall be exempt:

11. Compensation Received from a Keyman Insurance Policy – Sec
56(2)(iv)
Any sum received under a Keyman insurance policy including the sum allocated by way of
bonus on such policy is chargeable under the head IFOS
if such income is not chargeable under the head PGBP or under Salaries
i.e. if such sum is received by any person other than the employer who took the policy and
the employee in whose name the policy was taken

12. Angel Tax – Sec 56(2)(viib)

13. Angel Tax – Sec 56(2)(viib)
Shall not apply in case of issue of shares by:
• Venture capital (VC) undertaking from a VC company or a VC fund or a specified fund
• Company from a class or classes of persons as may be notified by the Central Govt. in this behalf
• [Notification for Start-ups has been made by the Central Govt.]
Taxable
as IFOS
the aggregate consideration received for such
shares as exceeds the FMV of the shares
any consideration for issue of
shares that exceeds the FV
from any person
being a resident
Where a closely held
private company
receives
Shall be
Termed as ‘Angel Tax’ because Angel Investments mean investments made by
affluent individuals in business start ups to whom shares are issued at high premium
Aim of introducing Sec 56(2)(viib) was to deter the generation and use of unaccounted money

14. Consequences of Violation
The excess consideration over FMV shall
be deemed to be the income of the PY in
which such failure takes place
And it has it has failed to
comply with any of the
specified conditions
Where a company has
been exempted from Angel
Tax due to the notification
It shall also be deemed to be under-reporting of income
Penalty under Sec 270A shall be levied which is 200% of the tax on under-reported income
Valuation of FMV
Determined in accordance with
such method as may be prescribed
as may be substantiated by the company to the satisfaction of the AO
OR
Whichever is higher
- based on the value, on the date of issue of shares,
- of its assets, including intangible assets being goodwill, know-how, patents,
copyrights, trademarks, licences, franchises or
- any other business or commercial rights of similar nature
Rule 11UA
• Net Assets Method, or
• Determined by a Merchant Banker as
per Discounted Cash Flow (DCF) method

15. Exemption from Angel Tax
A Start-up is eligible for exemption from the provisions of Sec 56(2)(viib), if it fulfils the following conditions:
It has been recognized a an eligible start-up by the DPIIT
Aggregate amount of paid-up share capital and share premium of the startup
after issue or proposed issue of share, if any, does not exceed Rs 25 crores
Shares issued to the following shall not be included in such calculation:
1] Non-residents or 2] Venture Capital company or Fund or 3] Listed Companies
It has not invested in any of the following assets:
Residential or Commercial
House property
Jewellery other than
for stock in trade
Shares and securities
Capital contribution
to any other entity
Other than those extended in
ordinary course and lending
is a substantial business
loans and advances
Other than for renting or
held as stock in trade in
ordinary course of business archaeological collections, drawings,
paintings, sculptures, any work of
art or bullion
Motor vehicle or any mode of transport
value exceeding Rs 10 lakh, other than
for leasing or as stock in trade
Startup shall not invest in any of these assets for the a period of 7 years from the end of FY in which shares are issued at premium

16. Definition of Start-up
An entity shall be
considered as a
Startup
Entity formed by splitting up or reconstruction of an existing business shall not be considered a ‘Startup’.
Entity is working towards innovation, development or improvement of products or processes or services,
or if it is a scalable business model with a high potential of employment generation or wealth creation
Turnover of the entity for any of the FYs since incorporation / registration has not exceeded Rs 100 crores
Upto a period of 10 years from the date of incorporation / registration, if it is incorporated as a private
limited company or registered as a partnership firm or a LLP in India
Entity shall cease to be a start-up upon completion of 10 year or turnover exceeding Rs. 100 crores as specified above

17. Interest Received on Compensation or on Enhanced
Compensation – Sec 56(2)(viii)
Shall be taxable under the head IFOS
shall be deemed to be the income of the year in which it is received and
Interest received by an assessee on compensation or on enhanced compensation,

18. Advance Money Forfeited – Sec 56(2)(ix)
Any sum of money received as an advance or otherwise in the course of
negotiations for transfer of a capital asset, if,—
Such sum is forfeited; and
The negotiations do not result in transfer of such capital asset
Shall be chargeable under IFOS

19. Gift Tax – Sec 56(2)(x)
Exceeds Rs.
50000
Sum of money,
aggregate of which
Other property
aggregate FMV of
which
Immovable property
SDV of which
Full amount is taxable
In case of receipts without consideration:
Excess of aggregate FMV
over consideration >
Rs.50000
Full excess amount is taxable
Other Property
In case of receipts for Inadequate consideration:
Immovable property
Excess of SDV over
consideration is more
than
Rs. 50000 (or)
5% of consideration
Whichever is higher
Full excess amount is taxable

20. Exemptions from Gift Tax
From relatives
On the occasion of marriage
By will or inheritance or in contemplation of death of payer or donor
From any local authority or fund or foundation, etc referred under section 10
From or by any trust or institution registered under section 12A or 12AA
Transactions not regarded as transfer under section 47
Trust created by an individual solely for the benefit of relative of the individual
Any Gifts received:
Gifts received from such class of persons as may be prescribed – Amendment of Union Budget 2019

21. Definition of Relative
Brother / sister
Lineal
descendant
Spouse
Lineal
ascendant
Individual
Parents
Lineal
ascendant
Lineal
descendant
Brother / sister
Brother / sister
Spouses of the relatives mentioned above shall also be included
HUF
Any member

22. Shall be chargeable to tax under IFOS
The modification of the terms and conditions relating thereto
In connection with the termination of his employment or
Due to or received by any person, by whatever name called,
Any compensation or any other payment,
Compensation Received in Relation to Termination of
Employment – Sec 56(2)(xi)

23. Deductions – Sec 57
Nature of Income Deduction
• Dividends [other than dividends u/s
115O as they are exempt u/s 10(34)]
• Interest on securities
• Any reasonable sum of commission or remuneration paid for realization
• Interest on loan borrowed for earning dividend/interest
• Any other expenditure not being capital in nature and incurred wholly
and exclusively for the purpose
Employees contribution to provident
fund
Deduction as per Sec 36(1)(va) i.e. the amount paid to the credit of the
employee’s account within the due date
Letting of plant and machinery either
with or without building
• Current repairs
• Insurance Premium
• Depreciation
• Any other expenditure not being capital in nature and incurred wholly
and exclusively for the purpose
Family pension 33 and 1/3 % of such income or Rs 15000 whichever is less
Interest on enhanced compensation from
compulsory Acquisition
50% of such interest income
Any income Any Expenditure:
• Not being capital in nature and
• Incurred wholly and exclusively for the purpose of earning such income

24. Amounts Not Deductible – Sec 58
No deduction shall be made in computing IFOS in respect of the following items:
Personal expenses
Interest paid outside India without TDS
Salary paid outside India without TDS
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
Payment or aggregate of payments in cash exceeding Rs 10,000 made to a person during a day
Expenditure or allowance in connection with winning of lottery, crossword etc. However, expenditure incurred on
owning and maintenance of horses shall be allowed as a deduction while computing income from that activity

25. Deemed Income – Sec 59
Where a deduction has been allowed towards
Loss Expenditure
Trading
liability
and the assessee has subsequently obtained
either by cash or in any other manner
Any amount in respect of such loss or expenditure
Remission or cessation of such trading liability
such receipts shall be chargeable to tax as income of the year of receipt

26. Judicial Precedents
Where AO treated share application money received from non-residents as income of assessee and brought
same to tax under head 'income from other sources', in view of fact that assessee had received said amount
from non-residents and, moreover, shares had been subscribed at face value and there was no premium
whatsoever, provisions of section 56(2)(viib) would not apply and, therefore, impugned addition made by
Assessing Officer was to be deleted Edulink (P.) Ltd. vs. Income-tax Officer, Ward 2(1)(4), Bangalore [2019] 108
taxmann.com 221 (Bangalore - Trib.)
Amount received by assessee-firm as gift from 'HUF', being its member, was a capital receipt not eligible to tax
Pankil Garg vs. Principal Commissioner of Income-tax, Karnal [2019] 108 taxmann.com 337 (Chandigarh - Trib.)
Where Assessing Officer made additions to income of assessee-company by invoking provisions of section
56(2)(viib) in respect of excess share premium received by it, since assessee was second level subsidiary of a
company in which public was substantially interested, assessee's case would not fall under section 56(2)(viib),
thus, impugned addition made by Assessing Officer was unjustified Apollo Sugar Clinics Ltd. vs. Deputy
Commissioner of Income-tax, Circle-1(1), Hyderabad [2019] 105 taxmann.com 254 (Hyderabad - Trib.)

27. Contd.
Gift received from 'relative', irrespective of whether it is from an individual relative or from a group of relatives is
exempt from tax - Vineetkumar Raghavjibhai Bhalodia v. Income tax Officer, Rajkot Wd. 5(4), Morbi [2011]11
taxmann.com 384 (Rajkot)
Bonus shares can never be considered as received without consideration or for inadequate consideration -
Deputy Commissioner of Income-tax, Central Circle-2 (2), Bengaluru vs. Dr. Rajan Pai [2017] 82 taxmann.com
347 (Bangalore - Trib.)
Section 2(22)(e) would not be attracted where transaction was a circuitous transaction and money which initially
belonged to company was returned to it on very same day as there was no net outflow of funds Pravin Bhimshi
Chheda Shivsadan v. Deputy Commissioner of Income-tax [2012] 20 taxmann.com 103 (Mumbai)

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