Chapter 4 - Income From Other Sources - Notes

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
• During covid times, there was a huge decline in the real-estate sector. Therefore, in order to
boost the demand in the real-estate sector, an amendment was made by Finance Act, 2021.
• Amendment: If the following conditions are satisfied, then SDV needs to be greater than 120%
of consideration, instead of 110% of the consideration to attract taxability:
o The immovable property is a residential unit
o It is received from a person for whom this was a “Stock-in-Trade”
o It is received by a person for whom this will be a “Capital Asset”
o The residential unit is transferred during the period between 12-11-2020 and 30-06-
2021
o Such transfer is by way of first-time allotment of the residential unit
o The consideration paid or payable for such transfer ≤ ₹2 crores
• SDV as on Date of Agreement or Date of Registration – Same as in Capital Gains
• Assessee not satisfied with SDV – Same as Capital Gains
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:
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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,
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
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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).
• 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
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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
Question 1 – November, 2008 – 6 Marks
Check the taxability of the following gifts received by Mrs. Rashmi during the previous year 2022-23
and compute the taxable income from gifts for Assessment Year 2023-24:
1. On the occasion of her marriage on 14-08-2022, she has received ₹90,000 as gift out of which
₹70,000 are from relatives and balance from friends.
2. On 12-09-2022, she has received gift of ₹18,000 from cousin of her mother.
3. A cell phone worth ₹21,000 is gifted by her friend on 15-08-2022.
4. She gets a cash gift of ₹25,000 from the elder brother of her husband’s grandfather on 25-09-
2022.
5. She has received a cash gift of ₹2,000 from her friend on 14-04-2022.
Solution
1. Not taxable since the same has been received by her on the occasion of marriage.
2. Taxable since her mother’s cousin does not fall in the category of relative.
3. Cell phone is not covered in the meaning of “Movable Property”, therefore, it is exempt.
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4. Taxable since brother of grandfather does not fall in the category of relative.
5. Taxable, since it’s received from a friend.
Therefore, the total taxable sum under income from other sources under section 56 = ₹18,000 +
₹25,000 + ₹2,000 = ₹45,000. Since the aggregate value of taxable gifts doesn’t exceed ₹50,000,
therefore, the same are not ‘income’ as per section 56(2)(x). hence, none of the gifts shall be taxable
in the hands of Mrs. Rashmi.
Question 2 – May, 2018 – 3 Marks
Discuss the taxability of the following receipts in the hands of Mr. Sanjay Kamboj under the Income-
tax Act, 1961 for A.Y. 2023-24:
1. ₹51,000 received from his sister living in US on 01-06-2022.

2. Received a car from his friend on payment of ₹2,50,000, the FMV of which was ₹5,50,000.
Provisions of taxability or non-taxability must be discussed.
Solution
1. Not taxable – Gift from sister, i.e., ‘Relative’ is not liable to tax under section 56(2)(x).
2. Not taxable – Car is not included in the definition of property for the purpose of section
56(2)(x), therefore, the same shall not be taxable.
Question 3 – May, 2011 (4 Marks); ICAI SM – Question 4
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
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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). Considering that "Fixed Deposit" falls within the meaning of "Sum of
Money", the entire amount will be taxable.
Question 4 – ICAI SM – Illustration 3
Discuss the taxability or otherwise of the following in the hands of the recipient under section 56(2)(x)
the Income-tax Act, 1961 –
1. Akhil HUF received ₹75,000 in cash from niece of Akhil (i.e., daughter of Akhil’s sister). Akhil is
the Karta of the HUF.
2. Nitisha, a member of her father’s HUF, transferred a house property to the HUF without
consideration. The stamp duty value of the house property is ₹9,00,000.
3. Mr. Akshat received 100 shares of A Ltd. from his friend as a gift on occasion of his 25th
marriage anniversary. The fair market value on that date was ₹100 per share. He also received
jewelry worth ₹45,000 (FMV) from his nephew on the same day.
4. Kishan HUF gifted a car to son of Karta for achieving good marks in XII board examination. The
fair market value of the car is ₹5,25,000.
5. Ms. Kareena purchased a land from PMC Co., a partnership concern for ₹7,15,000. The stamp
duty value of the same was ₹12,00,000.
Solution
1. Taxable – Sum of money exceeding ₹50,000 received without consideration from a non-
relative is taxable under section 56(2)(x). Daughter of Mr. Akhil’s sister is not a relative of Akhil
HUF, since she is not a member of Akhil HUF.
2. Non-Taxable – Immovable property received without consideration by a HUF from its relative
is not taxable under section 56(2)(x). Since Nitisha is a member of the HUF, she is a relative of
the HUF. However, income from such asset would be included in the hands of Nitisha under
64(2).
3. Taxable – As per provisions of section 56(2)(x), in case the aggregate fair market value of
property, other than immovable property, received without consideration exceeds ₹50,000,
the whole of the aggregate value shall be taxable. In this case, the aggregate fair market value
of shares (₹10,000) and jewelry (₹45,000) exceeds ₹50,000. Hence, the entire amount of
₹55,000 shall be taxable.
4. Non-Taxable – Car is not included in the definition of property for the purpose of section
56(2)(x), therefore, the same shall not be taxable.
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5. Taxable – Difference between the stamp duty value of ₹12,00,000 and the actual consideration
of ₹7,15,000 paid is taxable under section 56(2)(x) since the difference exceeds ₹50,000, being
the higher of ₹50,000 and 10% of consideration, i.e., ₹71,500.
Question 5
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
CA NISHANT KUMAR 8
₹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 6 – May, 2011 – 6 Marks; ICAI SM – Question 5 (Similar)
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. Cheqian 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 12AA) 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. Cheqian?
Solution
1. Any moveable 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.
The indexed cost of acquisition (₹4,45,000) less the actual sale consideration (₹3,00,000)
would result in a long-term capital loss of ₹1,45,000 in the hands of Mr. B, which is eligible for
set off against any other long term capital gain.
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. No, the cash gift so received by Mr. Cheqian shall not be taxable in his hands as any sum
received without consideration, i.e., as cash gift from a charitable trust registered u/s 12AA is
specifically excluded u/s 56(2)(x).
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Mr. Raj Kumar sold a house to his friend Mr. Dhurv on 1st November, 2022 for a consideration of
₹25,00,000. The sub-registrar refused to register the document for the said value, as according to him,
stamp duty had to be paid on ₹45,00,000, which was the government guideline value. Mr. Raj Kumar
preferred an appeal to the Revenue Divisional Officer, who fixed the value of the house as ₹32,00,000
(₹22,00,000 for land; balance for building portion). The differential stamp duty was paid, accepting the
said value determined. Assuming that the fair market value is ₹32,00,000, what are the tax implications
in the hands of Mr. Raj Kumar and Mr. Dhruv for the assessment year 2023-24? Mr. Raj Kumar had
purchased the land on 1st June, 2006 for ₹5,19,000 and completed the construction on 1st December,
2020 for ₹14,00,000. CII for F.Y. 2006-07 = 122.
Solution
In the Hands of Mr. Raj Kumar
In case a land is held by the assessee for more than 24 months but the building constructed over it is
held for less than or equal to 24 months, there is a long term capital gain on the sale of land and short
term capital gain on the sale of building.
In the present case, the land was purchased on 1st June, 2006 and sold 1st November, 2022; hence, this
is a long-term capital asset. Also, the construction of building got complete on 1st December, 2020, and
it is sold on 1st November, 2022, i.e., before the completion of 24 months, and hence, this is a short-
term capital asset.
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 ₹32,00,000 shall be taken to be the full value of
consideration.
Calculation of Capital Gains of Mr. Raj Kumar for A.Y. 2023-24

Particulars Land Building
Full Value of Consideration 22,00,000 10,00,000
Less: Transfer Expenses - -
Net Consideration 22,00,000 10,00,000
Less: Indexed Cost of Acquisition 14,08,107
Less: Cost of Acquisition 14,00,000

Long Term Capital Gain 7,91,893
Short Term Capital Gain (4,00,000)
.
Taxable Long Term Capital Gain 3,91,893
In the Hands of Mr. Dhruv
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
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In the present case, the stamp duty value of the house is ₹32,00,000, while the consideration paid by
Mr. Dhruv is only ₹25,00,000.
Therefore, SDV exceeds 110% of the sale consideration, i.e., 110% of ₹25,00,000 = ₹27,50,000; and the
difference between SDV and Consideration = ₹32,00,000 – ₹25,00,000 = ₹7,00,000, which exceeds
₹50,000.
Therefore, ₹7,00,000 shall be taxable in the hands of Mr. Dhruv under the head Income from Other
Sources.
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 (Rounded Off) 5,77,600
In the Hands of Ms. Ragini
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Ms. Ragini is only ₹35,00,000.
₹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

• Cost of Acquisition:
o If the receiver of gift has paid tax under the head Income from Other Sources on the
difference between the SDV and consideration, then SDV shall be taken to be the cost
of acquisition for the receiver of gift, for the purpose of calculating capital gains in case
he sells this asset further.
o If the receiver of gift has not paid tax under the head Income from Other Sources
(because the gift might have been received from a relative, or on marriage, etc.), then,
cost to the previous owner shall be taken to be the cost of acquisition for the receiver
of gift, for the purpose of calculating capital gains in case he sells the asset further.
• Date of Acquisition:
o If the receiver of gift has paid tax under the head Income from Other Sources on the
difference between the SDV and consideration, date of acquisition of this asset in the
hands of the receiver shall be taken as the date on which the gift is received.
o If the receiver of gift has not paid tax under the head Income from Other Sources
(because the gift might have been received from a relative, or on marriage, etc.), then
date of acquisition in the hands of receiver shall be taken as the date on which the
previous owner acquired this asset.
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 9
Mr. NISH10 purchased a house property for ₹3,00,000 in P.Y. 2001-02. NISH10 gifted such property to
his friend Anshul on 14-02-2022 and SDV of such property is ₹40,00,000 on that date. Anshul sold such
property to Harshita on 19-07-2022 for ₹52,00,000. Discuss tax treatment in the hands of NISH10 and
Anshul.
Solution
1. In the hands of NISH10
CA NISHANT KUMAR 12
As per Section 47, gift is not treated as transfer, so Capital Gain is not applicable in the hands
of NISH10.
2. In the hands of Anshul
a. As per section 56(2)(x), if immovable property is received as gift and SDV is more than
₹50,000, it is fully taxable under IFOS in the hands of recipient. So, in this case, SDV of
₹40 lakhs is taxable in the hands of Anshul under IFOS in P.Y. 2021-2022.
b. Capital Gain applicable on sale of property
Particulars ₹
Less: COA [49(4)] [POH: 14-02-2022 to 18-07-2022] 40,00,000
STCG 12,00,000
Question 10
How would your answer change if in the above question, NISH10 and Anshul were relatives?
Solution
1. In the hands of NISH10

As per Section 47, gift is not treated as transfer, so Capital Gain is not applicable in the hands
of NISH10.
2. In the hands of Anshul
a. Since gift is received from relative, section 56(2)(x) is not applicable
b. On sale of House Property
Particulars ₹
331
Less: ICOA [49(1)] [POH: P.Y. 01-02 to 18-07-2022] (3,00,000 × ) 9,93,000
100
LTCG 42,07,000
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
CA NISHANT KUMAR 13
On Acquisition of Property from Mr. Subramani

Mrs. Vimala is only ₹45,00,000.
₹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.
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
Question 12 – Past Exam Question
Mr. Ganesh received the following gifts during P.Y. 2022-23 from his friend Mr. Sundar:
1. Cash gift of ₹51,000 on his birthday, 19th June, 2022

2. 50 shares of Beta Ltd., the FMV of which was ₹60,000 on his birthday, 19th June, 2022
3. 100 shares of Alpha Ltd., FMV of which was ₹70,000 on the date of transfer. The gift was
received on the occasion of Diwali. Mr. Sundar had originally purchased the shares on 10-08-
2022 at a cost of ₹50,000.
Further on 20th November, 2022, Mr. Ganesh purchased land from his sister’s mother-in-law for
₹5,00,000. The stamp value of this land was ₹7,00,000.
On 15th February, 2023, he sold 100 shares of Alpha Ltd. for ₹1,00,000.
Compute the income of Mr. Ganesh 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. Ganesh for A.Y. 2023-24
Particulars ₹
Cash gift received from Mr. Sundar (Note 1) 51,000
Gift of Shares in Beta Ltd. and Alpha Ltd. (Note 2) 1,30,000
Purchase of Land for Inadequate consideration from Non-Relative (Note 3) 2,00,000
CA NISHANT KUMAR 14
Calculation of Capital Gains of Mr. Ganesh for A.Y. 2023-24

Particulars ₹
Less: Cost of Acquisition 70,000
Short Term Capital Gain 30,000
Notes:
1. Since aggregate of cash gifts received by Mr. Ganesh exceeds ₹50,000, it is fully taxable.
2. If the aggregate value of movable properties received as gifts exceeds ₹50,000, then the entire
amount is taxable. In this case, FMV of Shares of Beta Ltd. = ₹60,000, and FMV of shares of
Alpha Ltd. = ₹70,000. The aggregate, i.e., ₹1,30,000 exceeds ₹50,000, and hence, the entire
amount will be taxable.
3. 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 ₹7,00,000 – ₹5,00,000 = ₹2,00,000, which is greater
than ₹50,000.
Also, 110% of consideration = 110% × ₹5,00,000 = ₹5,50,000. SDV is greater than this.
Therefore, difference between SDV and consideration is taxable.
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.
CA NISHANT KUMAR 15
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
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.
CA NISHANT KUMAR 16
• 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.
• 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 13 – ICAI SM – Illustration 1; May, 2011 – 5 Marks; November, 2016 (Similar) – 4 Marks
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)?
CA NISHANT KUMAR 17
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
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.
CA NISHANT KUMAR 18
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.
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
Examine with brief reasons, whether the following is chargeable to income tax and the amount liable
to tax with reference to the provisions of the Income-tax Act, 1961: During the previous year 2022-23,
Mrs. Aishwarya, a resident, received a sum of ₹7,65,000 as dividend from Indian Companies and
₹3,60,000 as dividend from Indian equity oriented mutual fund units.
Solution
Dividend from shares of Indian Company and dividend from units of Indian Equity Oriented Mutual
Funds is taxable in the hands of Mrs. Aishwarya.
Total amount received = ₹7,65,000 + ₹3,60,000 = ₹11,25,000
Gross amount taxable in the hands of Mrs. Aishwarya:

₹11,25,000 × 100
= ₹12,50,000
90
Question 16
CA NISHANT KUMAR 19
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
.
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
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
8,39,520
Less: TDS u/s 194 on Dividends (₹9,00,000 × 10 ÷ 90) 1,00,000
Tax Payable 7,39,520
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 17 – ICAI SM – Examples 1 to 4
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
CA NISHANT KUMAR 20
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.
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.
MLX Investments (P) Ltd. was incorporated during the previous year 2019-20 having a paid up capital
of ₹10 lakhs. In order to increase its capital, the company further issues, 1,00,000 shares (having face
value of ₹100 each) during the year at par as on 01-08-2022. The FMV on such share as on 01-08-2022
was ₹85.
1. Determine the tax implications of the above transaction in the hands of company, assuming it
is the only transaction made during the year.
2. Will your answer change, if shares were issued at ₹105 each?
3. What will be your answer, if shares were issued at ₹105 and FMV of the share was ₹120 as on
01-08-2022?
Solution
According to Section 56(2)(viib), where a company, not being a company in which the public are
substantially interest, receives, in any previous year, from any person being a resident, any
consideration for issue of shares that exceeds the face value of such shares, the aggregate
CA NISHANT KUMAR 21
consideration received for such shares as exceeds the fair market value of the shares shall be taxable
as Income from Other Sources in the hands of the company.
1. In this case, since MLX Investments (P) Ltd., a closely held company issued 1,00,000 shares
(having face value of ₹100 each) at par, i.e., ₹100 each, though issue price is greater than FMV,
no amount would be chargeable to tax as income from other sources.
2. In case shares are issued at premium of ₹5 per share, the difference between issue price and
FMV of shares, i.e., (₹105 – ₹85) × 1,00,000 = ₹20,00,000 shall be taxable as Income from Other
Sources.
3. If shares are issued at ₹105 each and FMV of shares is ₹120 each, no amount would be
chargeable to tax even though the shares were issued at a premium, since shares are issued
at a price which is less than the fair market value.
However, as per Section 56(2)(x), if any property is received for inadequate consideration, and
the difference between the FMV and consideration exceeds ₹50,000, it is taxable in the hands
of the recipient. “Shares” are included in the definition of “property”. In the present case, the
shareholder has received the shares at ₹105, while the FMV is ₹120. The total amount is (₹120
– ₹105) × 1,00,000 = ₹15,00,000. Since this exceeds ₹50,000, it’ll be taxable in the hands of the
shareholder u/s 56(2)(x).
Question 19 – May, 2016 – (2 × 4 = 8) Marks
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,
CA NISHANT KUMAR 22
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,
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 20 – November, 2011 – 4 Marks; ICAI SM – Illustration 5; ICAI SM – Question 3
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.
CA NISHANT KUMAR 23
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?
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.
Ms. Julie received the following amounts during the previous year 2022-23:
1. Received loan of ₹5,00,000 from ABC Private Limited, a closely held company engaged in
textile business. She is holding 10% of the equity share capital in the said company. The
accumulated profit of the company was ₹2,00,000 on the date of the loan.
2. Received interest on enhanced compensation of ₹5,00,000. Out of this interest, ₹1,50,000
relates to the previous year 2018-19, ₹1,90,000 relates to the previous year 2019-20 and
₹1,60,000 relates to the previous year 2020-21. She paid ₹1 lakh to her advocate for his efforts
in the matter.
Discuss the tax implications, if any, arising from these transactions in her hand with reference to
Assessment Year 2023-24.
Solution
The tax implications are discussed as under:
1. Any payment by way of a loan by a closely held company to its shareholder holding not less
than 10% of voting power is deemed as dividend, to the extent of accumulated profits of the
company. According, out of ₹5 lakhs given by ABC Pvt. Ltd. to Ms. Julie, loan to the extent of
₹2 lakhs would be treated as deemed dividend for A.Y. 2023-24 and will be taxable in her
hands.
2. Interest on enhanced compensation is chargeable to tax under the head “Income from Other
Sources” in the year of receipt after providing for deduction of 50% of such income.
Accordingly, ₹2,50,000 [₹5,00,000 – ₹2,50,000, being 50% of ₹5 lakhs] would be chargeable to
CA NISHANT KUMAR 24
tax in the hands of Ms. Julie under the head “Income from Other Sources” for the A.Y. 2023-
24.
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
Computation of Capital Gains of Mr. A for A.Y. 2023-24

Particulars ₹
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.
CA NISHANT KUMAR 25
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.
Mr. Hari, a property dealer, sold a building in the course of his business to his friend Rajesh, who is a
dealer in automobile spare parts, for ₹90 lakh on 1.1.2023, when the stamp duty value was ₹150 lakh.
The agreement was, however, entered into on 1.9.2022 when the stamp duty value was ₹140 lakh.
Mr. Hari had received a down payment of ₹15 lakh by a crossed cheque from Rajesh on the date of
agreement. Discuss the tax implications in the hands of Hari and Rajesh, assuming that Mr. Hari has
purchased the building for ₹75 lakh on 12th July, 2021.
Would your answer be different if Hari was a share broker instead of a property dealer?
Solution
Case 1 – Tax Implications if Mr. Hari is a Property Dealer
In the Hands of Mr. Hari (the seller)
In the hands of Hari, the provisions of section 43CA would be attracted, since the building represents
his stock-in-trade and he has transferred the same for a consideration less than the stamp duty value;
and the stamp duty value exceeds 110% of consideration. Under section 43CA, the option to adopt the
stamp duty value on the date of agreement can be exercised only if whole or part of the consideration
has been received on or before the date of agreement by way of account payee cheque or draft or by
use of ECS through a bank account or through credit card, debit card, net banking, IMPS (Immediate
payment Service), UPI (Unified Payment Interface), RTGS (Real Time Gross Settlement), NEFT (National
Electronic Funds Transfer), and BHIM (Bharat Interface for Money) Aadhar Pay on or before the date
of agreement. In this case, since the down payment of ₹15 lakh is received on the date of agreement
CA NISHANT KUMAR 26
by crossed cheque and not account payee cheque, the option cannot be exercised. Therefore, ₹75
lakh, being the difference between the stamp duty value on the date of transfer i.e., ₹150 lakh, and
the purchase price i.e., ₹75 lakh, would be chargeable as business income in the hands of Mr. Hari,
since stamp duty value exceeds 110% of the consideration.
In the Hands of Mr. Rajesh (the buyer)
Since Mr. Rajesh is a dealer in automobile spare parts, the building purchased would be a capital asset
in his hands. The provisions of section 56(2)(x) would be attracted in the hands of Mr. Rajesh who has
received immovable property, being a capital asset, for inadequate consideration and the difference
between the consideration and stamp duty value exceeds ₹9,00,000, being the higher of ₹50,000 and
10% of consideration. Therefore, ₹60 lakh, being the difference between the stamp duty value of the
property on the date of registration (i.e., ₹150 lakh) and the actual consideration (i.e., ₹90 lakh) would
be taxable under section 56(2)(x) in the hands of Mr. Rajesh, since the payment on the date of
agreement is made by crossed cheque and not account payee cheque/draft or ECS or through credit
card, debit card, net banking, IMPS (Immediate payment Service), UPI (Unified Payment Interface),
RTGS (Real Time Gross Settlement), NEFT (National Electronic Funds Transfer), and BHIM (Bharat
Interface for Money) Aadhar Pay.
Case 2 –Tax Implications if Mr. Hari is a Share Broker
In the Hands of Mr. Hari (the seller)
In case Mr. Hari is a share broker and not a property dealer, the building would represent his capital
asset and not stock-in-trade. In such a case, the provisions of section 50C would be attracted in the
hands of Mr. Hari, since building is transferred for a consideration less than the stamp duty value; and
the stamp duty value exceeds 110% of consideration. Thus, ₹75 lakh, being the difference between
the stamp duty value on the date of registration (i.e., ₹150 lakh) and the purchase price (i.e., ₹75 lakh)
would be chargeable as short-term capital gains. It may be noted that under section 50C the option to
adopt the stamp duty value on the date of agreement can be exercised only if whole or part of the
consideration has been received on or before the date of agreement by way of account payee cheque
or draft or by use of ECS through a bank account or through credit card, debit card, net banking, IMPS
(Immediate payment Service), UPI (Unified Payment Interface), RTGS (Real Time Gross Settlement),
NEFT (National Electronic Funds Transfer), and BHIM (Bharat Interface for Money) Aadhar Pay on or
before the date of agreement. In this case, since the down payment of ₹15 lakhs has been received on
the date of agreement by crossed cheque and not account payee cheque, the option cannot be
exercised.
In the Hands of Mr. Rajesh (the buyer)
There would be no difference in the taxability in the hands of Mr. Rajesh, whether Mr. Hari is a property
dealer or a stock broker, (except where the property transferred in a residential unit fulfilling the
stipulated conditions, which is not so in this case). Therefore, the provisions of section 56(2)(x) would
be attracted in the hands of Mr. Rajesh who has received immovable property, being a capital asset,
for inadequate consideration and the difference between the consideration and stamp duty value
exceeds ₹9,00,000, being the higher of ₹50,000 and 10% of consideration. Therefore, ₹60 lakh, being
the difference between the stamp duty value of the property on the date of registration (i.e., ₹150
lakh) and the actual consideration (i.e., ₹90 lakh) would be taxable under section 56(2)(x) in the hands
of Mr. Rajesh, since the payment on the date of agreement is made by crossed cheque and not account
payee cheque/draft or ECS or through credit card, debit card, net banking, IMPS (Immediate payment
CA NISHANT KUMAR 27
Service), UPI (Unified Payment Interface), RTGS (Real Time Gross Settlement), NEFT (National
Electronic Funds Transfer), and BHIM (Bharat Interface for Money) Aadhar Pay.
Question 24 – ICAI SM – Question 2
Examine whether the following are chargeable to tax and the amount liable to tax:
1. A sum of ₹1,20,000 was received as gift from non-relatives by Raj on the occasion of the
marriage of his son Pravin.
2. Interest on enhanced compensation of ₹96,000 received on 12-3-2023 for acquisition of urban
land, of which 40% relates to P.Y.2021-22.
Solution
1. The exemption from applicability of section 56(2)(x) would be available if, inter alia, gift is
received from a relative or gift is received on the occasion of marriage of the individual himself.
In this case, since gift is received by Mr. Raj from a non-relative on the occasion of marriage of
his son, it would be taxable in his hands under section 56(2)(x).
2. As per the provisions of the law, interest received by the assessee on enhanced compensation
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. Interest of ₹96,000 on enhanced compensation is
chargeable to tax in the year of receipt i.e., P.Y. 2022-23 under section 56(2)(viii) after
providing deduction of 50% under section 57(iv). Therefore, ₹48,000 is chargeable to tax under
the head “Income from other sources”.
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
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 Sources the head Profits
CA NISHANT KUMAR 28
with Building machinery, plant or furniture, the or Gains from
[Section 56(2)(iii)] income from such letting 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 25 – November, 2010 – 4 Marks; ICAI SM – Question 1
Examine under which heads the following incomes are taxable:
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
CA NISHANT KUMAR 29
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:
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
CA NISHANT KUMAR 30
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.
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.
CA NISHANT KUMAR 31
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.
Question 26 – November, 1998
J furnishes the following particulars relating to his house properties and other incomes and
expenditure for the year 2022-23:
1. First House: This house is taken by him on lease for 10 years which is let to a tenant, for his
residence, at a monthly rent of ₹2,400. He has incurred the following expenses during the year:
Lease rent ₹1,000 per month
Salary of Durban ₹200 per month
Interest on loan taken to pay for the acquisition of the lease ₹200 per month
2. Second House: This house was constructed by him in 2005 but was transferred to his wife in
2010 out of love and affection. He, however, continues to stay in this house with his wife till
date. He has taken a loan for the construction of this house for which interest of ₹6,000
becomes due for the year but had not been paid by him.
He has paid repair expenses of ₹1,000 during the year.
3. Taxable income from business for this year amounts to ₹64,000.
Compute gross total income of J for the assessment year 2023-24.
Solution
Computation of Gross Total Income of J for A.Y. 2023-24

Particulars ₹
Income from House Property
Net Annual Value of House Property II (Note 1) -
Less: Interest on Loan 6,000
Income from House Property (A) (6,000)
.
Profits and Gains from Business or Profession (B) 64,000
.
Income from Other Sources
Rent from House I (₹2,400 × 12) (Note 2) 28,800
Less: Lease Rent (₹1,000 × 12) 12,000
Less: Salary of Durban (₹200 × 12) 2,400
Less: Interest on Loan to pay for acquisition of the lease (₹200 × 12) 2,400 16,800
Income from Other Sources (C) 12,000
.
Gross Total Income (A) + (B) + (C) 70,000
Notes:
1. Since the second house was transferred by J to his wife without adequate consideration, and
that too, not under an agreement to live apart, he shall be treated as the deemed owner of
the house.
2. Since the first house was taken by J on lease for 10 years, i.e., less than 12 years, he shall not
be considered as the deemed owner of this house. Therefore, income from sub-letting of this
house is taxable under the head "Income from Other Sources".
CA NISHANT KUMAR 32

Chapter 4 - Income From Other Sources - Notes

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Chapter 4 – Income from Other Sources

Section 56: Charging Section

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

Taxability of Receipt of Money

Taxability of Moveable Property

Meaning of Moveable Property

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

• from any relative; or

Summary of Gifting Provisions

Aggregate > ₹50,000 p.a. Otherwise

Fully Taxable Exempt

Without Consideration Low Consideration

Fully Taxable Exempt Difference is Taxable Exempt

Without Consideration Low Consideration

Difference between SDV and

Question 1 – November, 2008 – 6 Marks

Question 2 – May, 2018 – 3 Marks

1. ₹51,000 received from his sister living in US on 01-06-2022.

Provisions of taxability or non-taxability must be discussed.

Question 3 – May, 2011 (4 Marks); ICAI SM – Question 4

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

Question 4 – ICAI SM – Illustration 3

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

Question 6 – May, 2011 – 6 Marks; ICAI SM – Question 5 (Similar)

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

In the Hands of Mr. Raj Kumar

Calculation of Capital Gains of Mr. Raj Kumar for A.Y. 2023-24

Less: Cost of Acquisition 14,00,000

In the Hands of Mr. Dhruv

1. SDV > 110% of the Sale Consideration

Question 8 – May, 2015 – 8 Marks

CII for F.Y. 2010-11 = 167

In the Hands of Ms. Mohini

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

Capital Gains 2,97,605

In the Hands of Ms. Ragini

1. SDV > 110% of the Sale Consideration

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

Particulars Cost of Acquisition Date of Acquisition

1. In the hands of NISH10

1. In the hands of NISH10

Question 11 – November, 2018 – 6 Marks

In the Hands of Mr. Subramani

In the Hands of Mrs. Vimala

1. SDV > 110% of the Sale Consideration

On Transfer of Property to Ms. Padmaja

Question 12 – Past Exam Question

1. Cash gift of ₹51,000 on his birthday, 19th June, 2022

Calculation of Capital Gains of Mr. Ganesh for A.Y. 2023-24

Dividend, Deemed Dividend, and its Taxability

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

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

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

Debentures/Debenture Stock/Deposit Certificate → Any Shareholder

Bonus Shares → Preference Shareholder

Example: Suppose following is the balance sheet

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

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

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