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Income from other sources is the fifth and last head of income under which the total is computed and assessed. As the very name suggests. Income from Other Sources is a residuary head of income. Any item of income chargeable to tax but does not fall within the ambit of the other four specific heads of income shall be included under this head of income. Section 56 lays down what incomes are taxable under this head. Section 57 and 58 lays down the deductions which are allowable and not allowable respectively, while computing income under this head. Section 59 deals with income chargeable to tax, corresponding to section 41, which falls under the head of Profit and Gains of The Business.
(f) Sister of wife of the individual; (g) Brother of father of the individual; (h) Brother of mother of the individual; (I) Sister of father of the individual; (j) Sister of mother of the individual; (k) Lineal ascendant of the individual (say, grandfather) (l) Lineal descendant of the individual (say, son, grandson, daughter) (m) Lineal ascendant of the husband of the individual (n) Lineal descendant of the husband of the individual (o) Lineal ascendant of the wife of the individual (say, wifes father) (p) Lineal descendant of the wife of the individual; (q) Wife or husband of the relatives listed at serial numbers (b) to (p)
The following income shall be chargeable to tax under this head of income only if it is not taxable under the head Profits and Gains of Business or Profession: (a) Interest on securities (State and Central Government securities and debentures); (b) Any sum collected from employees towards their share of contribution to any Welfare Fund Account: (c) Income from letting of machinery, plant and furniture; and (d) Income from letting of machinery, plant and Furniture together with building, if the letting of the building is inseparable to the letting of other assets. INCOME CHARGEABLE UNDER THIS HEAD ONLY IF NOT CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR UNDER THE HEAD SALARIES Any sum received under a Key man insurance policy including bonus is chargeable under this head when it is received by any person other than the employer who took the policy and the employee in whose name the policy was taken.
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heir of member of Armed Forces Income by way of dividend referred to in-section 115-O Income from units of UTI or notified mutual funds
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prescribed conditions and circumstances. However, dividends under section 2(22)(e) and dividends from foreign company are not exempt; Income from transfer of these units is not exempt.
DIVIDEND
(a) Any distribution by a company to its shareholders to the extent of accumulated profits whether capitalized or not resulting in the release of all or any part of the assets of the company, (b) Any distribution to its shareholders by a company (i) Of debentures, debenture-stock or deposit-certificates with or without interest; (ii) Distribution of bonus shares to the preference shareholders by the company, to the extent of accumulated profits, whether capitalized or not, (c) Any distribution made to the shareholders by a company on its liquidation to the extent to which the distribution is attributable to the accumulated profits of the company, whether capitalized or not,
Exceptions:
(1) Any advance or loan to a shareholder or the concern in which the shareholder has substantial interest by a company will not be deemed as dividend, if the loan or advance is given during the normal course of its business provided the lending of money is a substantial part of the business of the company. (2) Any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of Section 77A of the Companies Act, 1956, shall not be regarded as dividend. Such buyback of shares attracts capital gains tax liability in the hands of the shareholder u/s 46A. (3) Any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company) shall not be treated as dividend.
Explanation:
X Ltd. is a closely held company as it is not covered by Section 2(18) of the Income Tax Act. Mr. A is a shareholder holding 10% voting rights in the company. He also holds substantial interest in AB and Sons, a partnership firm, where his share of profit is not less than 20%. In this background, Section 2(22) (e) may get attracted under 3 situations indicated above: 1 Loan or advance is given to Mr. A by the company. To the extent of accumulated profits of the company such loan or advance shall be deemed to be dividend in the hands of Mr. A. 2 Loan or advance is given to a concern (proprietary concern, firm, HUF company, etc.) in which the shareholder holding 10% voting rights has substantial interest. Here, X Ltd. gives loan to AB and Sons. A holds 10% voting rights in X Ltd. and 20% or more share of profit in AB and Sons. As this nexus exists, the loan given by X Ltd. to AB and Sons shall be deemed as dividend in the hands of Mr. A. 3 Where payment is made to any person for and on behalf of the shareholder holding 10% voting rights shall be deemed dividend. In this case, A owes payment to Z for any benefit received or to be received towards which X Ltd. makes payment, such payment shall be deemed to be dividend in the hands of Mr. A. In order to determine 10% of the voting rights, only the interest owned by the assessee alone has to be considered.
Notes:
(i) If A holds 9% voting rights in X Ltd. and even 90% in AB and Sons, then 2(22)(e) will not be attracted. Similarly, if A holds 90% voting rights in X Ltd. but 19% in AB and Sons, then deemed dividend as per situation 2 above will not attract. (ii) In order to determine 20% voting rights/share of profit of the shareholder in a firm or AOP or company, etc., the interest held by the shareholder in such firm, AOP,
Company, etc. is alone relevant. Whenever there is a declaration of dividend or any distribution in the nature of dividend covered by sub-clauses (a) to (d) of clause (22) of Section 2, the company is liable to pay tax at 12.5% u/s 115-O. Such dividend income is exempt in the hands of shareholders u/s 10(34). However, in the case of deemed dividend covered by sub-clause (e) of Section 2(22) and dividend declared/distributed by a foreign company, the shareholder is chargeable to tax under the head Income from Other Sources as Section 115-O does not apply to such.
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.
Students may not that in addition to the above, section 14A read with the rule 8D prescribes disallowance of any expenditure incurred in relation to exempt income. In a case where dividend, interest or any other income which are exempt by virtue any of the sub-sections of section 10 and whereas) the assessing officer, having regard to the accounts, is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to exempt income; or b) The assessee claims that no expenditure has been incurred by him in relation to the exempt income. In the above circumstances, the assessing officer shall determine the correct amount of expenditure incurred in relation to exempt income in accordance with the manner prescribed under rule 8D for disallowance of such expenditure.
Illustration:
Mr. Jagdish is a chartered accountant in practice. The income & expenditure account for the year ended March 31, 2009 read as follows:Expenses Rs. Income Rs. To Employees cost 1,50,000 By Professional Earnings. 12,00,000 To Traveling and 50,000 By Dividend income from 1,00,000 Conveyance shares To Administration & office 4,00,000 expenses To Interest 1,50,000 To De-mat Charges 10,000 To Net Profit 7,40,000 Total 15,00,000 Total 15,00,000
(1) Identify income chargeable under this head of income and include them. In respect of dividend income, year of chargeability should be decided by applying Section 8. (2) If net amount after tax deducted at source is given, include the gross amount. (3) If the income so identified is eligible for exemption u/s 10, avail the exemption and include only the balance amount. E.g. in respect of interest on certain notified securities, deposits and bonds qualify for exemption u/s 10(15). (4) If income is clubbed from minor children, claim exemption u/s 10(32) in respect of such income up to a maximum of Rs.1, 500 per child. (5) Expenses and deductions qualifying u/s 57 should be claimed. (6) Claim deductions, if any, available under Chapter VI-A to the extent applicable after arriving at the gross total income and not under this head of income. Deductions cannot exceed the amount of such income included in the gross total income. (7) If the total income includes winnings from lotteries, crossword puzzles, gambling, betting, etc., apply flat rate of 30% for calculating the income tax payable on such income
Illustration:
Shri Ratanlal, a businessman, presents to you the following statements of account relating to the year ending 31.3.2007 for computation of his gross total income.
Capital Account
Particulars To Entertainment Exps. To Gift to Son To Shares purchased To Drawings To Balance c/f Total Rs. 12000 3000 50000 130000 193120 388120 Particulars By Balance b/f By Profit By Race Winnings By LIC Policy matured By Bad Debts recovered By Loan for Investment Total Rs. 32000 131200 12000 157920 5000 50000 388120
227200
Additional Information:
(a) Entertainment Expenses relate to business. (b) Bad Debts recovered relate to deduction allowed in 2003-04. (c) The LIC policy is for a assured sum of Rs.1, 50,000. Annual premium @ Rs.47, 000 each for 3 years.
Ans: Computation of Gross Total Income for the assessment year 2007-08
I. Profits and gains of business or profession Note 1 II. Income from Other Sources Note 2 Gross Total Income Rs. Rs. 103500 40120 143620
Note 1 : Computation of Business Income Net Profit as per Profit & Loss A/c Add : 1. Inadmissible expenses Drawings 2. Income not credited but taxable - Bad Debts recovered Less : 1. Income credited to be considered separately a) Interest on Deposits b) Income-tax Refund (not an income) c) Interest on I.T. Refund d) Profit on sale of personal motor car (not taxable) 2. Expenses deductible but not debited Entertainment Expenses Taxable Business Income Note 2 : Income from Other Sources (i) Interest (including TDS) on deposits (ii) Interest on I.T. Refund (iii) Race Winnings (iv) Maturity proceeds of LIC (Refer Note 4) Taxable Income from Other Sources
Rs. 131200
16000 147200
9000 1200 16500 12000 43700 103500 Rs. 10000 1200 12000 16920 40120
Note 3:
out of the gross total income of Rs.1, 43,620, a sum of Rs.12, 000 being race winnings is taxable at a flat rate of 30% u/s 115BB.
Note 4:
The exemption u/s 10(10D) is not available in respect of maturity of LIC policy where the premium payable on such policy for any year exceeds 20% of the capital sum assured. In the given case, premium payable for one year is Rs.47, 000 being 31% of capital sum assured. Therefore, exemption u/s 10(10D) is not available. The amount taxable under the head Income from Other Sources is Rs.16, 920 being maturity proceeds of Rs.1, 57,920 less premium paid for 3 years Rs.1, 41,000.