advance learning on income from other sources practical...wedding anniversary. gifts received by an...

Advance Learning on Income from other sources (Practical)

Incomes which are charged to tax under the head “Income from other sources”

Illustration 1

Mr. Kapoor is a trader in shares. He held several shares as stock-in-trade. During the year 2012-13, he received Rs. 84,252 as dividend on shares held by him as stock-in-trade. He wants to treat the dividend income of Rs. 84,252 as business income. However, his accountant advised him that dividend income is always taxed as income from other sources. Mr. Kapoor is confused in this regard, hence, he wants to know the provisions of taxability of any income under the head of income from other sources. Advise him in this regard.

Solution

“Income from other sources” is the last and residual head of income. Hence, any income which is not specifically taxed under any other head of income will be taxed under this head. Further, there are certain incomes which are always taxed under this head. These incomes are as follows:

As per section 56(2)(i), dividends from domestic company are always taxed under this head; however, dividends other than those covered by section 2(22)(e) are exempt from tax under section 10(34).

Winnings from lotteries, crossword puzzles, races including horse races, card game and other game of any sort, gambling or betting of any form whatsoever, are always taxed under this head.

With effect from the assessment year 2010-11, income by way of interest received on compensation or on enhanced compensation shall be chargeable to tax under the head “Income from other sources”, and such income shall be deemed to be the income of the year in which it is received, irrespective of the method of accounting followed by the assessee. Further, such interest income shall be charged to tax under the head “Income from other sources”; however, deduction of a sum equal to 50% of such income shall be allowed from such income (apart from this, no other deduction shall be allowed from such an income).

Gifts are also taxed under this head.

In addition to above, following incomes are charged to tax under this head, if not taxed under the head “Profits and gains of business or profession”.

(a) Any contribution to a fund for welfare of employees received by the employer [Section 56(2)(ic)].

(b) Income by way of interest on securities [Section 56(2)(id)].

(c) Income from letting out or hiring of plant, machinery or furniture [Section 56(2)(ii)]. (d) Income from letting out of plant, machinery or furniture along with building and both

the lettings are inseparable [Section 56(2)(iii)].

(e) Any sum received under a Keyman Insurance Policy including bonus [Section 56(2)(iv)].

Income chargeable to tax under the head “Income from other sources” is to be computed in accordance with the method of accounting regularly employed by the assessee. However, method of accounting does not affect basis of charge in case of dividend income.

Considering above provisions, dividend of Rs. 84,252 will be taxed under the head “Income from other sources”. However, by virtue of section 10(34) dividend income is exempt from tax and, hence, the entire dividend income of Rs. 84,252 will not be liable to tax.

Illustration 2

During the previous year 2012-13, Mr. Soham wins Rs. 2,52,000 (net of deduction of tax at source) from card games. Advise him regarding the taxability of winnings from card game of Rs. 2,52,000.

**

Under sections 194B and 194BB, tax is deductible @ 30% on payment made in respect of winnings from lotteries or crossword puzzles or card games or other games if the payment exceeds Rs. 10,000. In case of winnings from horse races, payments exceeding Rs. 5,000 are subject to deduction of tax at source at the rate of 30%. If net amount received is given, then the net amount shall be grossed up to find out the amount chargeable to tax. The mode of conversion is as follows:

Net amount

1-rate of tax

100

i.e.

Net amount

(1- 0.3)

Considering the above discussed provisions, Rs. 3,60,000 [i.e., Rs. 2,52,000/ (1- 0.30)] will be charged to tax under the head “Income from other sources”.

Relevance of method of accounting

Illustration 3

Ascertain the head of taxability of the incomes given below:

Dividend of Rs. 1,84,000 received by Mr. Raja from an Indian company.

Lease rent of vacant plot of land of Rs. 52,200 received by Mr. Kumar.

Rs. 8,400 won by Mr. Shan from a crossword puzzle.

Rs. 2,52,000 received by Mr. Kumar from his friends on his wedding anniversary.

Rent of building let out along with certain amenities of Rs. 1,52,000 (Rs. 1,00,000 pertain to rent of building and Rs. 52,000 towards other amenities) received by Mr. Subham.

Compensation amounting to Rs. 1,25,252 received by Mr. Sohil from the Government for compulsory acquisition of Industrial land.

Interest of Rs. 8,252 received by Mr. Sahil on a bank deposit.

**

Nature of income Head of taxability Dividend of Rs. 1,84,000 received by Mr. Raja from an Indian company.

Dividend is always charged to tax under the head “Income from other sources”. However, dividends from domestic company except dividends covered by section 2(22)(e) are exempt from tax under section 10(34).


Lease rent from vacant land is always charged to tax under the head “Income from other sources”.


Income by way of winnings from lotteries, crossword puzzles, races including horse races, card games and other game of any sort, gambling or betting of any form whatsoever, are always charged to tax under the head “Income from other sources”. Hence, Rs. 8,400 won from a crossword puzzle will be charged to tax under the head “Income from other sources”.


Gifts received by an individual or HUF (which are charged to tax) are taxed under the head “Income from other sources”. In this case, gift is received from friends and it exceeds Rs. 50,000. Hence, entire amount will be charged to tax under the head “Income from other sources”.


Rent of building will be charged to tax under the head “Income from house property” and rent of amenities will be charged to tax under the head “Income from other sources”. This rule is applicable even if the assessee receives a composite rent. Hence, rent of building of Rs. 1,00,000 is not charged to tax under the head “Income from other sources”.


Income received in respect of compensation or enhanced compensation for compulsory acquisition of property is not charged to tax under the head “Income from other sources”. Only interest amount received on compensation

or enhanced compensation is charged to

tax under the head “Income from other sources”. Hence, nothing will be taxable under the ‘Income from other Sources’ on Rs. 1,25,252 received by Mr. Sohil.


Interest on bank deposits is charged to tax under the head “Income from other sources”.

Sum of money received without consideration (commonly known as monetary gift) by an individual

Illustration 4

During the year 2012-13, Mr. Raja received a gift of Rs. 2,84,848 from his father. Apart from gift of Rs. 2,84,848, he received gift of Rs. 1,25,252 from his friends residing abroad and gift of Rs. 25,000 from friends of his spouse on his wedding anniversary. To understand the taxability of the gifts, he approaches you. Advise him in this regard.

Solution

Any sum of money (i.e., generally known as gift) received by an individual/HUF without adequate consideration is charged to tax, if the following conditions are satisfied:

(i) The sum of money is received by an individual or HUF on or after 1-10-2009.

(ii) Such sum of money is received without consideration.

(iii) The aggregate value of such sum received during aforesaid period exceeds Rs. 50,000.

Nothing contained in the aforesaid provisions will apply to the following cases:

Money received from relatives (see note 1 below).

Money received by a HUF from its members.

Money received on occasion of the marriage of the individual.

Money received under Will/ by way of inheritance.

Money received in contemplation of death of the payer or donor.

Money received from a local authority.

Money received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).

Money received from a trust or institution registered under section 12AA.

Note 1: Relative for this purpose means:

(a) Spouse of the individual;

(b) Brother or sister of the individual;

(c) Brother or sister of the spouse of the individual;

(d) Brother or sister of either of the parents of the individual;

(e) Any lineal ascendant or descendent of the individual;

(f) Any lineal ascendant or descendent of the spouse of the individual;

(g) Spouse of the person referred to in (b) to (f)

Considering the above provisions, the tax treatment of gifts in the hands of Mr. Raja will be as follows:

Gift received from father will not be taxed, since father falls under the definition of a relative. Hence, nothing will be charged to tax in respect of gift of Rs. 2,84,848 received from father.

Gift received from any person other than relative and otherwise than on prescribed occasions is fully taxed. Hence, gift of Rs. 1,25,252 received from friends of Mr. Raja residing abroad and gift of Rs. 25,000 received from friends of spouse of Mr. Raja on the occasion of his wedding anniversary will be fully taxed.

Illustration 5

During the year 2012-13, Mr. Kapoor received following gifts from his friends on the occasion of the marriage of his daughter.

Rs. 38,200 on 5-7-2012

Rs. 8,400 on 23-3-2013

What will be the tax treatment of above gifts?

Solution

Sum of money received without adequate consideration (i.e., a gift) from any person other than relatives (see previous illustration for meaning of relative) and otherwise than on prescribed occasions is charged to tax, if the aggregate amount of such gifts exceeds Rs. 50,000.

In this case the gift is received from person other than relatives and otherwise than on prescribed occasions. Hence, entire amount of gift will be charged to tax, if the aggregate amount of gift exceeds Rs. 50,000.

The aggregate amount of gift comes to Rs. 46,600 which is below Rs. 50,000. Hence, nothing will be charged to tax in the hands of Mr. Kapoor.

Suppose in the above case the amount of second gift is Rs. 18,400 instead of Rs. 8,400, then the aggregate amount of gift will come to Rs. 56,600. In this case entire amount of Rs. 56,600 will be charged to tax in the hands of Mr. Kapoor.

Immovable property received without consideration/adequate consideration by an individual

Illustration 6

On 1-8-2012, Mr. Soham gifted a plot of land to his friend, Mr. Sumit. The market value of such plot was Rs. 25,84,252 and the value of the plot adopted by the Stamp Valuation Authority for charging stamp duty was Rs. 30,25,000. On 23-3-2013, Mr. Sumit purchased a residential building (building P) from one of his friends. The building was purchased for Rs. 52,25,252, however, the value of the building adopted by the Stamp Valuation Authority for charging stamp duty was Rs. 60,00,000. Advise Mr. Sumit regarding the tax treatment of above items.

Solution

Any immovable property received without consideration (i.e., received by way of a gift) by an individual/HUF is charged to tax, if the following conditions are satisfied:

(i) Any immovable property is received by an individual or HUF on or after 1-10-2009.

(ii) Such property is received without consideration.

(iii) The stamp duty value of such property exceeds Rs. 50,000.

In above case, the stamp duty value of the property adopted by the Stamp Valuation Authority for charging stamp duty will be treated as income of the receiver.

Nothing contained in aforesaid provisions will apply to the following cases:

Property received from relatives (see illustration 4 for meaning of a relative).

Property received by a HUF from its members.

Property received on occasion of the marriage of the individual.

Property received under Will/ by way of inheritance.

Property received in contemplation of death of the payer or donor.

Property received from a local authority.

Property received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).

Considering above provisions, full stamp duty value in respect of plot of land of Rs. 30,25,000 will be charged to tax in the hands of Mr. Sumit. However, nothing will be taxed in respect of building P since if any immovable property is acquired prior to 1-4-2013 for a consideration which is less than stamp duty value then nothing will be taxable in the hands of recipient, even though the difference between stamp duty and consideration paid/payable exceeds Rs. 50,000.

Had the building been acquired on or after 1-4-2013 instead of on 23-3-2013, entire difference of Rs. 7,74,798 (being greater than Rs. 50,000) would have been changed to tax.

Specified movable property received without consideration (commonly known as non-monetary gift) by an individual

Illustration 7

During the year 2012-13, Miss Khushi received following gifts from his relatives/friends:

Painting received from her friend. Fair market value of the painting is Rs. 84,252.

Archaeological collection received from her mother. Fair market value of such archaeological collection is Rs. 1,25,848.

Jewellery received from her relatives on her birthday. Fair market value of the jewellery is Rs. 2,84,848.

Advise her regarding the tax treatment of above items.

Solution

Any prescribed movable property received without consideration (i.e., received by way of a gift) by an individual/HUF is charged to tax, if the following conditions are satisfied:

(i) Any prescribed movable property is received by an individual or HUF on or after 1-10-2009.


(iii) The aggregate fair market value of such properties received by the assessee during the previous year exceeds Rs. 50,000.

Prescribed movable property means shares/securities, jewellery, archaeological collections, drawings, paintings, sculptures or any work of art and with effect from 1-6-2010 bullion, being capital asset of the assessee.

In the above case, the fair market value of the prescribed movable property will be treated as income of the receiver.


Property received from relatives (see illustration 4 for the meaning of a relative).







Considering above provisions, the tax treatment of various items received by Miss Khushi will be as follows:

In respect of painting received from her friend, the fair market value of the painting, i.e., Rs. 84,252 will be treated as her taxable income.

Nothing will be charged to tax in respect of archaeological collection received from her mother, since mother comes under the definition of relative.

Nothing will be charged to tax in respect of jewellery received from her relatives on her birthday.

Specified movable property received without adequate consideration by an individual

Illustration 8

During the year 2012-13, Mr. Shan purchased the following capital assets:

Shares purchased for Rs. 2,84,252, the fair market value of the shares is Rs. 3,25,000.

Sculptures purchased for Rs. 3,85,000; the fair market value of the sculptures is Rs. 4,50,000.

Motor-car purchased for Rs. 8,84,000; the fair market value of motor-car is Rs. 8,00,000.

Advise him regarding the tax treatment of above items.

Solution

Any prescribed movable property acquired for less than its fair market value by an individual/HUF is charged to tax if the following conditions are satisfied:


(ii) Such property is received for a consideration, but aggregate fair market value of such properties received by the assessee during the previous year exceeds the consideration of these properties by Rs. 50,000. In other words, the aggregate fair market value of all such properties is higher than the consideration and the aggregate gap is more than Rs. 50,000.


In above case, aggregate fair market value in excess of aggregate consideration of such properties will be charged to tax.


Property received from relatives (see illustration 4 for the meaning of relative).







Considering above provisions, the tax treatment of various items received by Mr. Shan will be as follows:

The above provisions will apply only in respect of prescribed movable property. Considering the definition of prescribed movable property, shares and sculptures will only come in the definition of prescribed movable property.

The fair market value of shares and sculptures is Rs. 3,25,000 and Rs. 4,50,000, respectively, and the purchase price is Rs. 2,84,252 and Rs. 3,85,000 respectively. The excess of fair market value over the purchase price will amount to Rs. 1,05,748 (Rs. 40,748 for shares and Rs. 65,000 for sculptures). Hence, Rs. 1,05,748 will be charged to tax in respect of purchase of shares and sculptures.

Motor-car does not come under the definition of prescribed movable property. Hence, nothing will be taxed in respect of purchase of motor-car.

Illustration 9

During the year 2012-13, Miss Khushi purchased the following assets:

A plot of land for Rs. 8,25,252. The value adopted by the Stamp Valuation Authority for charging stamp duty is Rs. 10,52,000.

A residential building from her friend, Miss Khushali for Rs. 48,84,000. The value adopted by the Stamp Valuation Authority for charging stamp duty is Rs. 55,00,000.

A plot of land (being a rural agricultural land) for Rs. 8,40,000; the fair market value of the land is Rs. 12,52,000.

Apart from above, she also received rural agricultural land (fair market value of the land is Rs. 25,52,000) by way of gift from her mother. Advise her regarding the tax treatment of above assets.

Solution

In respect of immovable property, the provision of section 56 will apply only when the immovable property is received without adequate consideration. In other words, nothing will be charged to tax in respect of immovable property acquired for less than the value adopted by the Stamp Valuation Authority for charging stamp duty. Hence, in this case nothing will be charged to tax in respect of plot of land and residential building purchased by Miss Khushi.

Rural agricultural land is not a capital asset. The provision of section 56 applies only in

respect of property which is in the nature of capital asset of the purchaser. Rural agricultural land is not a capital asset, hence, nothing will be charged to tax in respect of agricultural land purchased by her as well as agricultural land received by her as gift.

Illustration 10

On 8-4-2012, Miss Khushi acquired gold jewellery (fair market value is Rs. 84,252) from Mrs. Sharma for Rs. 72,848. Further, on 30-9-2012, she acquired drawings (fair market value is Rs. 52,200) from Mrs. Kapoor for Rs. 25,100. Miss Khushi is confused regarding the tax consequences arising in respect of above items purchased by her. Advise her in this regard. Solution

In this situation, nothing will be charged to tax in the hands of Miss Khushi, since the aggregate of excess of fair market value of gold jewellery and drawings does not exceed Rs. 50,000.

If in above situation the fair market value of gold jewellery is Rs. 1,84,252 instead of Rs. 84,252, then the aggregate of excess of fair market value of gold jewellery and drawings will be charged to tax in the hands of Miss Khushi. In other words, Rs. 1,38,504 (Rs. 1,11,404 excess fair market value of gold jewellery + Rs. 27,100 excess fair market value of drawings), will be charged to tax as income from other sources.

Tax treatment of amount received from life insurance policy

Illustration 11

On 8-4-2012, Mr. Raja takes a life insurance policy. Sum assured is Rs. 25,00,000 and annual premium is Rs. 84,000. The policy will mature in 2028. Maturity value will be Rs. 18,00,000.

Advise him regarding the tax treatment of amount to be received from above policy.

** Any amount received under a life insurance policy, including bonus is exempt from tax under section 10(10D). However, following points should be noted in this regard:

Exemption is available only in respect of amount received from life insurance policy.

Exemption under section 10(10D) is unconditionally available in respect of sum received for a policy which is issued on or before March 31st, 2003, however, in respect of policies issued on or after April 1st, 2003, the exemption is available only if the amount of premium paid on such policy in any financial year does not exceed 20% (10% in respect of policy taken on or after April 1st, 2012) of the actual capital sum assured. Amount received on death of the person will continue to be exempt without any condition.

Value of premium agreed to be returned or of any benefit by way of bonus (or otherwise), over and above the sum actually assured, which is received under the policy by any person, shall not be taken into account while calculating the actual capital sum assured.

In this case policy is taken after 1-4-2012 and, hence, tax treatment will be as follows:

o Nothing will be charged to tax in respect of amount received on death of

Mr. Raja.

o In any other case, the amount received from policy will be exempt, if the annual premium of any financial year does not exceed 10% of the capital sum assured. The capital sum assured in this case is Rs. 25,00,000 and 10% of Rs. 25,00,000 works out to be Rs. 2,50,000. The annual premium of the policy is only Rs. 84,000. Hence, nothing will be taxed on account of amount received otherwise than on death.

Specific disallowances while computing income chargeable to tax under the head “Income from other sources”

Illustration 12

Mr. Raja is engaged in the business of horse race. During the previous year 2012-13, he incurred a loss of Rs. 1,84,000. He also won Rs. 2,52,000 from lotteries. He wants to set off his business loss of Rs. 1,84,000 against winnings of Rs. 2,52,000 from lotteries and also wants to claim deduction under section 80C of Rs. 84,000. Can he do so?

** While computing income under the head “Income from other sources” following items are not deductible:

No deduction is permissible under section 57.

Losses cannot be set off under sections 70, 71 and 72 against winnings from lotteries, crossword puzzles, races, including horse races, card games and other games of any sort or from gambling or betting of any form or nature.

No deduction is permissible under sections 80C to 80U.

Considering the above discussed provisions, Mr. Raja cannot set off his loss of Rs. 1,84,000 from the business of horse race against the winnings of Rs. 2,52,000 from lotteries. Moreover, he cannot claim deduction of Rs. 84,000 under section 80C against such winnings from lotteries of Rs. 2,52,000.

FAQs

1. Which incomes are charged to tax under the head “Income from other sources”? Explain with the help of illustration. Following illustrations will explain the incomes which are charged to tax under the head “Income from other sources”.

Illustration 1

Mr. Kapoor is a trader in shares. He held several shares as stock-in-trade. During the year 2012-13, he received Rs. 84,252 as dividend on shares held by him as stock-in-trade. He wants to treat the dividend income of Rs. 84,252 as business income. However, his accountant advised him that dividend income is always taxed as income from other sources. Mr. Kapoor is confused in this regard; hence, he wants to know the provisions of taxability of any income under the head of income from other sources. Advise him in this regard.

Solution

“Income from other sources” is the last and residual head of income. Hence, any income which is not specifically taxed under any other head of income will be taxed under this head. Further, there are certain incomes which are always taxed under this head. These incomes are as follows:

As per section 56(2)(i), dividends from domestic company are always taxed under this head. However, dividends other than those covered by section 2(22)(e) are exempt from tax under section 10(34).

Winnings from lotteries, crossword puzzles, races including horse races, card games and other game of any sort, gambling or betting of any form whatsoever, are always taxed under this head.

With effect from the assessment year 2010-11, income by way of interest received on compensation or on enhanced compensation shall be chargeable to tax under the head “Income from other sources”, and such income shall be deemed to be the income of the year in which it is received, irrespective of the method of accounting followed by the assessee. Further, such interest income shall be charged to tax under the head “Income from other sources”; however, deduction of a sum equal to 50% of such income shall be allowed from such income (apart from this, no other deduction shall be allowed from such an income).



(a) Any contribution to a fund for welfare of employees received by the employer [Section 56(2)(ic)].





Income chargeable to tax under the head “Income from other sources” is to be computed in accordance with the method of accounting regularly employed by the assessee. However, method of accounting does not affect basis of charge in case of dividend income.

Considering above provisions, dividend of Rs. 84,252 will be taxed under the head “Income from other sources”; however, by virtue of section 10(34), dividend income is exempt from tax and, hence, the entire dividend income of Rs. 84,252 will not be liable to tax.

Illustration 2

During the previous year 2012-13, Mr. Soham wins Rs. 2,52,000 (net of deduction of tax at source) from card games. Advise him regarding the taxability of winnings from card game of Rs. 2,52,000.

**

Under sections 194B and 194BB, tax is deductible @ 30% on payment made in respect of winnings from lotteries or crossword puzzle or card games or other games if the payment exceeds Rs. 10,000. In case of winnings from horse races, payments exceeding Rs. 5,000 are subject to deduction of tax at source at the rate of 30%. If net amount received is given, then the net amount shall be grossed up to find out the amount chargeable to tax. The mode of conversion is as follows:

Net amount

(1- 0.3)

Considering the above discussed provisions, Rs. 3,60,000 [i.e., Rs. 2,52,000/ (1- 0.30)] will be charged to tax under the head “Income from other sources”.

2. Explain with the help of illustration the relevance of method of accounting while computing income charged to tax under the head “Income from other sources”.

Following illustration will explain the relevance of method of accounting while computing income charged to tax under the head “Income from other sources”.

Illustration 3

Ascertain the head of taxability of the incomes given below:

Dividend of Rs. 1,84,000 received by Mr. Raja from an Indian company.







**

Nature of income Head of taxability Dividend of Rs. 1,84,000 received by Mr. Raja from an Indian company.

Dividend is always charged to tax under the head “Income from other sources”. However, dividends from domestic company except dividends covered by section 2(22)(e) are exempt from tax under section 10(34).


Lease rent from vacant land is always charged to tax under the head “Income from other sources”.


Income by way of winnings from lotteries, crossword puzzles, races including horse races, card game and other game of any sort, gambling or betting of any form whatsoever, are always charged to tax under the head “Income from other sources”. Hence, Rs. 8,400 won from a crossword puzzle will be charged to tax under the head “Income from other sources”.


Gifts received by an individual or HUF (which are charged to tax) are taxed under the head “Income from other sources”. In this case, gift is received from friends and it exceeds Rs. 50,000. Hence, entire amount will be charged to tax under the head “Income from other sources”.


Rent of building will be charged to tax under the head “Income from house property” and rent of amenities will be charged to tax under the head “Income from other sources”. This rule is applicable even if the assessee receives a composite rent. Hence, rent of building of Rs. 1,00,000 is not charged to tax under the head “Income from other sources”.

Compensation amounting to Rs. 1,25,252 received by Mr. Sohil from the Government for compulsory

Income received in respect of compensation or enhanced compensation for compulsory acquisition of property is not charged

acquisition of Industrial land.

to tax under the head “Income from other sources”. Only interest amount received on compensation or enhanced compensation is charged to tax under the head “Income from other sources”. Hence, nothing will be taxable from Rs. 1,25,252 received by Mr. Sohil.


Interest on bank deposits is charged to tax under the head “Income from other sources”.

3. Explain with the help of illustration the tax treatment of sum of money received without consideration (commonly known as monetary gift) by an individual.

Following illustrations will explain the tax treatment of sum of money received without consideration (commonly known as monetary gift) by an individual.

Illustration 4

During the year 2012-13, Mr. Raja received a gift of Rs. 2,84,848 from his father. Apart from gift of Rs. 2,84,848, he received gift of Rs. 1,25,252 from his friends residing abroad and gift of Rs. 25,000 from friends of his spouse on his wedding anniversary. To understand the taxability of the gifts, he approaches you. Advise him in this regard.

Solution

Any sum of money (i.e., generally known as gift) received by an individual/HUF without adequate consideration is charged to tax, if the following conditions are satisfied:

(i) The sum of money is received by an individual or HUF on or after 1-10-2009.

(ii) Such sum of money is received without consideration.

(iii) The aggregate value of such sum received during aforesaid period exceeds Rs. 50,000.

Nothing contained in the aforesaid provisions will apply in the following cases:

Money received from relatives (see note 1 below).

Money received by a HUF from its members.

Money received on occasion of the marriage of the individual.

Money received under Will/ by way of inheritance.

Money received in contemplation of death of the payer or donor.

Money received from a local authority.

Money received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C).

Money received from a trust or institution registered under section 12AA.

Note 1: Relative for this purpose means:








Considering the above provisions, the tax treatment of gifts in the hands of Mr. Raja will be as follows:

Gift received from father will not be taxed, since father falls under the definition of a relative. Hence, nothing will be charged to tax in respect of gift of Rs. 2,84,848 received from father.

Gift received from any person other than relative and otherwise than on prescribed occasions is fully taxed. Hence, gift of Rs. 1,25,252 received from friends of Mr. Raja residing abroad and gift of Rs. 25,000 received from friends of spouse of Mr. Raja on the occasion of his wedding anniversary will be fully taxed.

Illustration 5

During the year 2012-13, Mr. Kapoor received following gifts from his friends on the occasion of the marriage of his daughter.

Rs. 38,200 on 5-7-2012

Rs. 8,400 on 23-3-2013

What will be the tax treatment of above gifts?

Solution

Sum of money received without adequate consideration (i.e., a gift) from any person other than relatives (see previous illustration for meaning of relative) and otherwise than on prescribed occasions is charged to tax, if the aggregate amount of such gifts exceeds Rs. 50,000.

In this case, the gift is received from person other than relatives and otherwise than on prescribed occasions, hence, entire amount of gift will be charged to tax, if the aggregate amount of gift exceeds Rs. 50,000.

The aggregate amount of gift comes to Rs. 46,600 which is below Rs. 50,000, hence, nothing will be charged to tax in the hands of Mr. Kapoor.

Suppose in the above case, the amount of second gift is Rs. 18,400 instead of Rs. 8,400, then the aggregate amount of gift will come to Rs. 56,600. In this case, entire amount of Rs. 56,600 will be charged to tax in the hands of Mr. Kapoor.

4. Explain with the help of illustration the tax treatment of immovable property received without consideration/adequate consideration by an individual.

Following illustration will explain the tax treatment of immovable property received without consideration/adequate consideration by an individual.

Illustration 6

On 1-8-2012, Mr. Soham gifted a plot of land to his friend Mr. Sumit. The market value of such plot was Rs. 25,84,252 and the value of the plot adopted by the Stamp Valuation Authority for charging stamp duty was Rs. 30,25,000. On 23-3-2013, Mr. Sumit purchased a residential building (building P) from one of his friends. The building was purchased for Rs. 52,25,252. However, the value of the building adopted by the Stamp Valuation Authority for charging stamp duty was Rs. 60,00,000. Advise Mr. Sumit regarding the tax treatment of above items.

Solution

Any immovable property received without consideration (i.e., received by way of a gift) by an individual/HUF is charged to tax, if the following conditions are satisfied:

(i) Any immovable property is received by an individual or HUF on or after 1-10-2009.


(iii) The stamp duty value of such property exceeds Rs. 50,000.

In above case, the stamp duty value of the property adopted by the Stamp Valuation Authority for charging stamp duty will be treated as income of the receiver.

Nothing contained in aforesaid provisions will apply in the following cases:

Property received from relatives (see illustration 4 for meaning of a relative).







Considering above provisions, full stamp duty value in respect of plot of land of Rs. 30,25,000 will be charged to tax in the hands of Mr. Sumit. However, nothing will be taxed in respect of building P since if any immovable property is acquired for a consideration which is less than stamp duty value then nothing will be taxable in the hands of recipient even though the difference between stamp duty and consideration paid/payable exceeds Rs. 50,000.

5. Explain with the help of illustration the tax treatment of specified movable property received without consideration (commonly known as non-monetary gift) by an individual.

Following illustration will explain the tax treatment of specified movable property received without consideration (commonly known as non-monetary gift) by an individual.

Illustration 7

During the year 2012-13, Miss Khushi received following gifts from her relatives/friends:

Painting received from her friend. Fair market value of the painting is Rs. 84,252.

Archaeological collection received from her mother. Fair market value of archaeological collection is Rs. 1,25,848.

Jewellery received from her relatives on her birthday. Fair market value of the jewellery is

Rs. 2,84,848.

Advise her regarding the tax treatment of above items.

Solution

Any prescribed movable property received without consideration (i.e., received by way of a gift) by an individual/HUF is charged to tax, if the following conditions are satisfied:



(iii) The aggregate fair market value of such properties received by the assessee during the previous year exceeds Rs. 50,000.


In above case, the fair market value of the prescribed movable property will be treated as income of the receiver.


Property received from relatives (see illustration 4 for the meaning of a relative).







Considering above provisions, the tax treatment of various items received by Miss Khushi will be as follows:

In respect of painting received from her friend, the fair market value of the painting, i.e., Rs. 84,252 will be treated as her taxable income.

Nothing will be charged to tax in respect of archaeological collection received from her mother, since mother comes under the definition of relative.

Nothing will be charged to tax in respect of jewellery received from her relatives on her birthday.

6. Explain with the help of illustration the tax treatment of specified movable property received without adequate consideration by an individual.

Following illustrations will explain the tax treatment of specified movable property received without adequate consideration by an individual. Illustration 8

During the year 2012-13, Mr. Shan purchased the following capital assets:

Shares purchased for Rs. 2,84,252; the fair market value of the shares is Rs. 3,25,000.

Sculptures purchased for Rs. 3,85,000; the fair market value of the sculptures is Rs.

4,50,000.

Motor-car purchased for Rs. 8,84,000; the fair market value of motor-car is Rs. 8,00,000.

Advise him regarding the tax treatment of above items.

Solution

Any prescribed movable property acquired for less than its fair market value by an individual/HUF is charged to tax if the following conditions are satisfied:


(ii) Such property is received for a consideration, but aggregate fair market value of such properties received by the assessee during the previous year exceeds the consideration of these properties by Rs. 50,000. In other words, the aggregate fair market value of all such properties is higher than the consideration and the aggregate gap is more than Rs. 50,000.


In above case, aggregate fair market value in excess of aggregate consideration of such properties will be charged to tax.


Property received from relatives (see illustration 4 for the meaning of relative).






Property received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C). Considering above provisions, the tax treatment of various items received by Mr. Shan will be as follows:

The above provisions will apply only in respect of prescribed movable property. Considering the definition of prescribed movable property, shares and sculptures will only come in the definition of prescribed movable property.

The fair market value of shares and sculptures is Rs. 3,25,000 and Rs. 4,50,000, respectively, and the purchase price is Rs. 2,84,252 and Rs. 3,85,000 respectively. The excess of fair market value over the purchase price will amount to Rs. 1,05,748 (Rs. 40,748 for shares and Rs. 65,000 for sculptures). Hence, Rs. 1,05,748 will be charged to tax in respect of purchase of shares and sculptures.

Motor-car does not come under the definition of prescribed movable property. Hence, nothing will be taxed in respect of purchase of motor-car.

Illustration 9

During the year 2012-13, Miss Khushi purchased the following assets:

A plot of land for Rs. 8,25,252. The value adopted by the Stamp Valuation Authority for

charging stamp duty is Rs. 10,52,000.

A residential building from her friend Miss Khushali for Rs. 48,84,000. The value adopted by the Stamp Valuation Authority for charging stamp duty is Rs. 55,00,000.

A plot of land (being a rural agricultural land) for Rs. 8,40,000; the fair market value of the land is Rs. 12,52,000.

Apart from above, she also received rural agricultural land (fair market value of the land is Rs. 25,52,000) by way of gift from her mother. Advise her regarding the tax treatment of above assets.

Solution

In respect of immovable property, the provision of section 56 will apply only when the immovable property is received without adequate consideration. In other words, nothing will be charged to tax in respect of immovable property acquired for less than the value adopted by the Stamp Valuation Authority for charging stamp duty. Hence, in this case nothing will be charged to tax in respect of plot of land and residential building purchased by Miss Khushi.

Rural agricultural land is not a capital asset. The provision of section 56 applies only in respect of property which is in the nature of capital asset of the purchaser. Rural agricultural land is not a capital asset, hence, nothing will be charged to tax in respect of agricultural land purchased by her as well as agricultural land received by her as gift.

Illustration 10

On 8-4-2012, Miss Khushi acquired gold jewellery (fair market value is Rs. 84,252) from Mrs. Sharma for Rs. 72,848. Further, on 30-9-2012, she acquired drawings (fair market value is Rs. 52,200) from Mrs. Kapoor for Rs. 25,100. Miss Khushi is confused regarding the tax consequences arising in respect of above items purchased by her. Advise her in this regard. Solution

In this situation, nothing will be charged to tax in the hands of Miss Khushi, since the aggregate of excess of fair market value of gold jewellery and drawings does not exceed Rs. 50,000.

If in above situation the fair market value of gold jewellery is Rs. 1,84,252 instead of Rs. 84,252, then the aggregate value of excess of fair market value of gold jewellery and drawings will be charged to tax in the hands of Miss Khushi. In other words, Rs. 1,38,504 (Rs. 1,11,404 excess fair market value of gold jewellery + Rs. 27,100 excess fair market value of drawings), will be charged to tax as income from other sources.

7. Explain the tax treatment of maturity amount received from life insurance policy. Following illustration will explain the tax treatment of maturity amount received from life insurance policy.

Illustration 11 On 8-4-2012, Mr. Raja takes a life insurance policy. Sum assured is Rs. 25,00,000 and annual premium is Rs. 84,000. The policy will mature in 2028. Maturity value will be Rs. 18,00,000. Advise him regarding the tax treatment of amount to be received from above policy.

**

Any amount received under a life insurance policy, including bonus is exempt from tax under section 10(10D). However, following points should be noted in this regard:

Exemption is available only in respect of amount received from life insurance policy.

Exemption under section 10(10D) is unconditionally available in respect of sum received for a policy which is issued on or before March 31st, 2003. However, in respect of policies issued on or after April 1st, 2003, the exemption is available only if the amount of premium paid on such policy in any financial year does not exceed 20% (10% in respect of policy taken on or after April 1st, 2012) of the actual capital sum assured. It should be noted that amount received on death of the person will continue to be exempt without any condition.

Value of premium agreed to be returned or of any benefit by way of bonus (or otherwise), over and above the sum actually assured, which is received under the policy by any person, shall not be taken into account while calculating the actual capital sum assured.

In this case, policy is taken after 1-4-2012 and, hence, tax treatment will be as follows:

o Nothing will be charged to tax in respect of amount received on death of Mr. Raja.

o In any other case, the amount received from policy will be exempt, if the annual premium of any financial year does not exceed 10% of the capital sum assured. The capital sum assured in this case is Rs. 25,00,000 and 10% of 25,00,000 works out to be Rs. 2,50,000. The annual premium of the policy is only Rs. 84,000. Hence, nothing will be taxed on account of amount received otherwise than on death.

8. Which are the specific disallowances while computing income chargeable to tax under the head “Income from other sources”?

Following illustration will explain the specific disallowances while computing income chargeable to tax under the head “Income from other sources”.

Illustration 12

Mr. Raja is engaged in the business of horse race. During the previous year 2012-13, he incurs a loss of Rs. 1,84,000. He also wins Rs. 2,52,000 from lotteries. He wants to set off his business loss of Rs. 1,84,000 against winnings of Rs. 2,52,000 from lotteries and also wants to claim deduction under section 80C of Rs. 84,000. Can he do so?

** While computing income under the head “Income from other sources” following items are not deductible:

No deduction is permissible under section 57.

Losses cannot be set off under sections 70, 71 and 72 against winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature.

No deduction is permissible under sections 80C to 80U.

Considering the above discussed provisions, Mr. Raja cannot set off his loss of Rs. 1,84,000 from the business of horse race against the winnings of Rs. 2,52,000 from lotteries. Moreover, he cannot claim deduction of Rs. 84,000 under section 80C against such winnings from lotteries of Rs. 2,52,000.

MCQs

Q1. As per section _______, “Income from other sources” is the last and residual head of income and, hence, any income which does not fall under any other head is charged to tax under this head.

(a) 17 (b) 22

(c) 28 (d) 56

Correct answer: (d)

Justification of correct answer:

As per section 56, “Income from other sources” is the last and residual head of income and, hence, any income which does not fall under any other head is charged to tax under this head.

Thus, option (d) is the correct option.

Comment on incorrect answer: Option (d) is the correct option since it gives the correct section. The other options, viz., options (a), (b) and (c) giving incorrect sections are not correct.

Q2. Which of the following incomes are always charged to tax under the head “Income from other sources”?

(a) Winning from lotteries (b) Gift

(c) Interest on securities (d) All of the above

Correct answer: (d)


As per section 56(2), following incomes are always taxable under the head “Income from other sources”. These incomes are as follows:

As per section 56(2)(i), dividends from domestic company are always taxed under this head; however, dividends other than those covered by section 2(22)(e) are exempt from tax under section 10(34).

Winnings from lotteries, crossword puzzles, races including horse races, card games and other game of any sort, gambling or betting of any form whatsoever, are always taxed under this head.

With effect from the assessment year 2010-11, income by way of interest received on compensation or on enhanced compensation shall be chargeable to tax under the head “Income from other sources”, and such income shall be deemed to be the income of the year in which it is received, irrespective of the method of accounting followed by the assessee. Further, such interest income shall be charged to tax under the head “Income from other sources”. However, deduction of a sum equal to 50% of such income shall be allowed from such income (apart from this, no other deduction shall be allowed from such an income).



(a) Any contribution to a fund for welfare of employees received by the employer[Section 56(2)(ic)].






Comment on incorrect answer: Option (d) is the correct option since it covers all the incomes taxable under this head. The other options, viz., options (a), (b) and (c) giving individual income are not correct.

Q3. Is the method of accounting followed by the assessee relevant while computing income chargeable to tax under the head “Income from other sources”?

(a) Yes (b) No

Correct answer: (a)


Income chargeable to tax under the head “Income from other sources” is computed in accordance with the method of accounting regularly employed by the assessee.

Thus, option (a) is the correct option.

Comment on incorrect answer: Option (a) is the correct option since it gives the correct provisions. The other option, viz., option (b) giving the incorrect provisions is not correct.

Q4. As per section 56(2), any sum received under Keyman Insurance Policy is always taxable under the head “Income from other sources”.

(a) True (b) False

Correct answer: (b)


As per section 56(2), any sum received under Keyman Insurance Policy is taxable under the head “Income from other sources” if the same is not taxed under the head “Profits and gains of business or profession”.

Thus, the statement given in the question is false and, hence, option (b) is the correct option.

Comment on incorrect answer: The statement given in the question is false. Hence, option (a) is not the correct option.

Q5. Mr. Raja received dividend of Rs. 84,000 during the previous year 2012-13 on shares held by him as stock-in-trade. Under which of the following heads such dividend of Rs. 84,000 is taxable?

(a) Profits and gains of business or profession

(b) Income from other sources

(c) (a) or (b) as per the choice of Mr. Raja

(d) (a) or (b) as per the choice of Assessing Officer

Correct answer: (b)


As per section 56(2), dividend income is always taxable under the head “Income from other sources” whether it is received on shares held as stock-in-trade or as an investment.

Thus, option (b) is the correct option.

Comment on incorrect answer: Option (b) is the correct option since it gives the correct head of income. The other options, viz., options (a), (c) and (d) giving the incorrect head/provisions are not correct.

Q6. SM Ltd. received a sum of Rs. 1,84,000 from its employees during the previous year 2012-13 towards contribution to staff welfare scheme. Such contribution is taxable in the hands of SM Ltd. under the head “Income from other sources” if the same is not taxable under the head “Profits and gains of business or profession”.

(a) True (b) False

Correct answer: (a)


As per section 56(2), if the assessee received any sum from his employees towards contribution to any staff welfare scheme it is taxable in the hands of employer under the head “Income from other sources” if the same is not taxable under the head “Profits and gains of business or profession”.

Thus, the statement given in the question is true and, hence, option (a) is the correct option.

Comment on incorrect answer: The statement given in the question is true. Hence, option (b) is not the correct option.

Q7. As per the provisions of section 56(2), rental income from machinery, plant or furniture let out on hire is taxable under the head “Income from other sources” if the same is not taxable under the head “Income from house property”.

(a) True (b) False

Correct answer: (b)


As per section 56(2), rental income from machinery, plant or furniture let out on hire is taxable under the head “Income from other sources” if the same is not taxable under the head “Profits and gains of business or profession”.



Q8. As per the provisions of section 56(2), rental income in respect of letting out of furniture along with letting out of building is taxable under the head “Income from other sources” if such lettings are inseparable. However, rental income in respect of letting out of plant and machinery along with letting out of building is always taxable under the head “Income from house property”, even though such lettings are inseparable.

(a) True (b) False

Correct answer: (b)


As per section 56(2), rental income in respect of letting out of plant, machinery or furniture along with letting out of building is taxable under the head “Income from other sources” if such lettings are inseparable and the rental income is not taxable under the head “Profits and gains of business or profession”.



Q9. Mr. Raja received a composite rent of Rs. 2,84,000 during the previous year 2012-13 in respect of letting out of furniture along with letting out of residential building and such lettings are inseparable. Under which of the following heads such rental income of Rs. 2,84,000 is taxable?

(a) Income from House property


(c) Profits and gains of business or profession

(d) “Income from other sources” if it is not taxable under the head “Profits and gains of business or profession”

Correct answer: (d)


As per section 56(2), rental income in respect of letting out of plant, machinery or furniture along with letting out of building is taxable under the head “Income from other sources” if such lettings are inseparable and the rental income is not taxable under the head “Profits and gains of business or profession”.


Comment on incorrect answer: Option (d) is the correct option since it gives the correct head of taxability. The other options, viz., options (a), (b) and (c) giving the incorrect head of taxability are not correct.

Q10. Mr. Raja received a composite rent of Rs. 2,84,000 during the previous year 2012-13 in respect of letting out of furniture along with letting out of residential building and such lettings are inseparable. However, the rent of these two assets is fixed separately. Hence, rent of building is taxable under the head “Income from house property” and rent of furniture is taxable under the head “Income from other sources”.

(a) True (b) False

Correct answer: (b)


As per section 56(2), rental income in respect of letting out of plant, machinery or furniture along with letting out of building is taxable under the head “Income from other sources” if such lettings are inseparable and the rental income is not taxable under the head “Profits and gains of business or profession”. This rule is applicable, even though rent of both the assets is fixed separately.



Q11. As per the provisions of section 56(2), if building is let out along with certain amenities like lift services, air-conditioning, fire fighting facilities, etc., then rental income of building is taxable under the head “Income from house property” and rental income of such amenities is taxable under the head “Income from other sources”, even though the assessee receives composite rent from his tenant.

(a) True (b) False

Correct answer: (a)


As per section 56(2), if building is let out along with certain amenities like lift services, air-conditioning, fire fighting facilities, etc., then rental income of building is taxable under the head “Income from house property” and rental income of such amenities is taxable under the head “Income from other sources”, even though the assessee receives composite rent from his tenant.



Q12. Mr. Raja received a rent of Rs. 1,84,000 in respect of letting out of residential building and rent of Rs. 52,200 in respect of providing other amenities like lift services and fire fighting facilities during the previous year 2012-13. Hence, rent of Rs. 1,84,000 is taxable under the head___________ and rent of Rs. 52,200 is taxable under the head __________.

(a) House property, Profits and gains of business or profession

(b) House property, House property

(c) Income from other sources, Income from other sources

(d) House property, Income from other sources

Correct answer: (d)


As per section 56(2), if building is let out along with certain amenities like lift services, air-conditioning, fire fighting facilities, etc., then rental income of building is taxable under the head “Income from house property” and rental income of such amenities is taxable under the head “Income from other sources”.


Comment on incorrect answer: Option (d) is the correct option since it gives the correct head of taxability. The other options, viz., options (a), (b) and (c) giving the incorrect head of taxability are not correct.

Q13. Mr. Raja received a composite rent of Rs. 3,25,000 (Rs. 2,25,000 towards building and Rs. 1,00,000 towards other amenities) during the previous year 2012-13 in respect of letting out of residential building along with certain amenities like lift services and fire fighting facilities. Hence, such rent of Rs. 3,25,000 is taxable under the head “Income from other sources”.

(a) True (b) False

Correct answer: (b)


As per section 56(2), if building is let out along with certain amenities like lift services, air-conditioning, fire fighting facilities, etc., then rental income of building is taxable under the head “Income from house property” and rental income of such amenities is taxable under the head “Income from other sources”. This rule is applicable, even though the assessee receives composite rent from his tenant. Hence, Rs. 2,25,000 is taxable under the head “Income from house property” and Rs. 1,00,000 is taxable under the head “Income from other sources”.



Q14. Under which of the following heads interest received on compensation or enhanced compensation is taxable?


(b) Capital gains

(c) Income from other sources

(d) Any of the above heads as per the choice of the assessee

Correct answer: (c)


As per section 56(2), any sum received as interest on compensation or enhanced compensation is always taxable under the head “Income from other sources”.

Thus, option (c) is the correct option.

Comment on incorrect answer: Option (c) is the correct option since it gives the correct head of taxability. The other options, viz., options (a), (b) and (d) giving the incorrect head of taxability are not correct.

Q15. As per section 57(iv), _______ of interest received on compensation or enhanced compensation is deductible.

(a) 25% (b) 50%

(c) 75% (d) 100%

Correct answer: (b)


As per section 56(2), any sum received as interest on compensation or enhanced compensation is always taxable under the head “Income from other sources”. However, 50% of such interest is deductible under section 57(iv).


Comment on incorrect answer: Option (b) is the correct option since it gives the correct percentage. The other options, viz., options (a), (c) and (d) giving the incorrect percentage are not correct.

Q16. Mr. Raja received a sum of Rs. 1,68,000 during the previous year 2012-13 from the Government as interest on compensation for compulsory acquisition of industrial land. In this case, what will be the amount chargeable to tax under the head “Income from other sources”?

(a) Nil (b) Rs. 1,68,000

(c) Rs. 84,000 (d) Any amount as per the choice of Mr. Raja

Correct answer: (c)


As per section 56(2), any sum received as interest on compensation or enhanced compensation is always taxable under the head “Income from other sources”. However, 50% of such interest is deductible under section 57(iv). Hence, from Rs. 1,68,000, Rs. 84,000 will be deducted under section 57(iv) and balance Rs. 84,000 will be taxable as “Income from other sources”.


Comment on incorrect answer: Option (c) is the correct option since it gives the correct amount. The other options, viz., options (a), (b) and (d) giving the incorrect amount are not correct.

Q17. Mr. Raja is engaged in the business of organizing horse races. His gross receipts from this business during the previous year 2012-13 were Rs. 8,84,000. Hence, such income of Rs. 8,84,000 is taxable under the head “Profits and gains of business or profession”.

(a) True (b) False

Correct answer: (b)


As per section 56(2), winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature or whatsoever are always chargeable to tax under the head “Income from other sources”. Hence, Rs. 8,84,000 earned by Mr. Raja from business of organizing horse races are taxable under the head “Income from other sources” and not under the head “Profits and gains of business or profession”.



Q18. Under which of the following heads income from sub-letting is taxable?

(a) House property (b) Profits and gains of business or profession

(c) Income from other sources (d) Capital Gains

Correct answer: (c)


As per section 56(1), income from sub-letting is taxable under the head “Income from other sources”.


Comment on incorrect answer: Option (c) is the correct option since it gives the correct head of taxability. The other options, viz., options (a), (b) and (d) giving the incorrect head of taxability are not correct.

Q19. Mr. Raja gave on rent a plot of land to SM Ltd. for arranging an exhibition and received rent of Rs. 1,25,000 during the previous year 2012-13. His accountant is of the opinion that such rental income of Rs. 1,25,000 is taxable under the head of “Income from house property”. Is the opinion of accountant correct?

(a) Yes (b) No

Correct answer: (b)


As per section 56(1), rental income of plot of land is taxable under the head “Income from other sources”. Hence, the opinion of accountant of Mr. Raja is not correct and such rental income of Rs. 1,25,000 is taxable under the head “Income from other sources”.


Comment on incorrect answer: Option (b) is the correct option since it gives the correct provisions. The other option, viz., option (a) giving incorrect provisions is not correct.

Q20. Mr. Raja is a director in SM Ltd. and received a commission of Rs. 2,52,000 during the previous year 2012-13 for standing as a guarantor to bankers. Is such commission of Rs. 2,52,000 taxable under the head “Salaries”?

(a) Yes (b) No

Correct answer: (b)


As per section 56(1), any sum received by the assessee as director’s commission for standing as guarantor to bankers is taxable under the head “Income from other sources”. Hence, commission of Rs. 2,52,000 received by Mr. Raja is taxable under the head “Income from other sources” and not under the head “Salaries”.


Comment on incorrect answer: Option (b) is the correct option since it gives the correct provisions. The other option, viz., option (a) giving incorrect provisions is not correct.

Q21. Salary received by the Member of Parliament is taxable under the head “Income from other sources” and not under the head “Salaries”.

(a) True (b) False

Correct answer: (a)


As per section 56(1), salary received by a Member of Parliament is taxable in his hands under the head “Income from other sources” and not under the head “Salaries”.



Q22. During the previous year 2012-13, Mr. Kapoor received compensation of Rs. 84,252 towards use of his business assets. Under which of the following heads such compensation of Rs. 84,252 will be taxable in the hands of Mr. Kapoor?



(c) Capital Gains

(d) Any of the above as per the choice of Mr. Kapoor

Correct answer: (b)


As per section 56(1), any sum received as compensation towards use of business assets is taxable in the hands of the assessee under the head of “Income from other sources”.


Comment on incorrect answer: Option (b) is the correct option since it gives the correct head of taxability. The other options, viz., options (a), (c) and (d) giving incorrect head of taxability are not correct.

Q23. Interest on securities issued by the Indian Government is taxable under the head “Income from other sources”. However, interest on securities issued by a Foreign Government is taxable under the head “Profits and gains of business or profession”.

(a) True (b) False

Correct answer: (b)


As per section 56, interest on securities is taxable under the head “Income from other sources” whether such securities are issued by the Indian Government or by the Foreign Government.



Q24. Mr. Raja won from lotteries a sum of Rs. 1,84,000 (after deducting the tax @ 30%) during the previous year 2012-13. What is the amount chargeable to tax under the head “Income from other sources”?

(a) Rs. 1,84,000

(b) Rs. 1,28,800

(c) Rs. 2,62,857

(d) Nothing will be taxable as “Income from other sources”

Correct answer: (c)


As per section 56(2), if net winnings from lotteries are given then such net amount will be grossed up to find out the amount chargeable to tax under the head “Income from other sources”. Gross amount will be computed as follows:

Net amount

[1-(0.30)]

Hence, gross amount chargeable to tax will be Rs. 2,62,857 [Rs. 1,84,000 / (1- 0.30)].


Comment on incorrect answer: Option (c) is the correct option since it gives the correct amount chargeable to tax. The other options, viz., options (a), (b) and (d) giving the incorrect amount chargeable to tax are not correct.

Q25. As per the provisions of section 56(2), only winnings from lotteries, winnings from races, winnings from betting, etc., are chargeable to tax under the head “Income from other sources”. If receipt is not from winnings, then it is not taxable under section 56(2).

(a) True (b) False

Correct answer: (a)


As per section 56(2), only winnings from lotteries, winnings from races, winnings from betting, etc., are chargeable to tax under the head “Income from other sources”. If receipt is not from winnings, then it is not taxable under section 56(2).



Q26. Mr. Kapoor won Rs. 2,84,000 from horse race. At which rate such winnings of Rs. 2,84,000 will be chargeable to tax?

(a) 10.3% (b) 20.6%

(c) 30.9% (d) 103%

Correct answer: (c)


As per section 56(2), gross winnings from lotteries, crossword puzzles, races including horse races (other than income from the activity of owning and maintaining race horses), card games or other games of any sort or from gambling or betting of any nature whatsoever are chargeable to income-tax at a flat rate of 30% (+ SC + EC +SHEC) on the gross winnings. In other words, such incomes are chargeable to tax @ 30.9%.


Comment on incorrect answer: Option (c) is the correct option since it gives the correct rate of taxability. The other options, viz., options (a), (b) and (d) giving the incorrect rates are not correct.

Q27. Income chargeable to tax under the head “Income from other sources” is to be computed in accordance with the method of accounting regularly employed by the assessee. However, method of accounting does not affect the basis of charge in case of interest on securities.

(a) True (b) False

Correct answer: (b)


As per section 56(2), income by way of interest on securities is taxable on “receipt” basis if the assessee maintains books of account on “cash” basis and in case of assessee who maintains the books of account on “mercantile” basis, interest income will be charged to tax on “due” basis.



Q28. As per section 56(2), any sum of money/property received by partnership firm without consideration on or after October 1, 2009 is chargeable to tax under the head “Income from other sources”.

(a) True (b) False

Correct answer: (b)


As per section 56(2), any sum of money/property received only by an individual or HUF without consideration on or after October 1, 2009 is chargeable to tax under the head “Income from other sources”. Hence, any sum of money/property received by partnership firm without consideration on or after October 1, 2009 is not chargeable to tax under the head “Income from other sources”.



Q29. As per section 56(2), any sum of money (i.e., monetary gift) received in cash is chargeable to tax under the head “Income from other sources”. However, any sum of money (i.e., gift) received by a cheque or draft is not chargeable to tax under the head “Income from other sources”.

(a) True (b) False

Correct answer: (b)


As per section 56(2), any sum of money (i.e., gift in cash or by cheque or draft) is chargeable to tax under the head “Income from other sources” if aggregate amount of gift received by an individual or HUF during the year exceeds Rs. 50,000.



Q30. During the previous year 2012-13, Mr. Raja received cash gift of Rs. 84,000 from his father and cash gift of Rs. 25,200 from his friends on his birthday. In this case what will be the amount chargeable to tax under the head “Income from other sources”?

(a) Nil (b) Rs. 84,000

(c) Rs. 25,200 (d) Rs. 1,09,200

Correct answer: (a)


As per section 56(2), any sum of money (i.e., gift in cash or by cheque or draft) is chargeable to tax under the head “Income from other sources” only if aggregate amount of gift received by an individual or HUF for the year exceeds Rs. 50,000. Moreover, any sum of money/property received from relative is exempt and shall not be considered while computing the limit of Rs. 50,000.

Hence, nothing will be charged to tax in respect of Rs. 84,000 received from his father since father falls under the category of relative. In case of Rs. 25,200 received from his friends, nothing will be charged to tax since the aggregate amount of gift does not exceed Rs. 50,000.


Comment on incorrect answer: Option (a) is the correct option since it gives the correct amount. The other options, viz., options (b), (c) and (d) giving the incorrect amount are not correct.

Q31. During the previous year 2012-13, Mr. Raja received cash gift of Rs. 52,000 from his friends and cash gift of Rs. 8,400 from friends of his father on the occasion of his marriage. In this case what will be the amount chargeable to tax under the head “Income from other sources”?

(a) Nil (b) Rs. 84,000

(c) Rs. 25,200 (d) Rs. 1,09,200

Correct answer: (a)


As per section 56(2), any sum of money (i.e., gift in cash or by cheque or draft) is chargeable to tax under the head “Income from other sources” only if aggregate amount of gift received by an individual or HUF for the year exceeds Rs. 50,000. Moreover, any sum of money/property received on the occasion of the marriage of an individual is exempt and shall not be considered while computing the limit of Rs. 50,000.

Hence, nothing will be charged to tax in respect of Rs. 52,000 received from his friends and Rs. 8,400 received from friends of his father since such cash gifts are received on the occasion of the marriage of Mr. Raja’s marriage.


Comment on incorrect answer: Option (a) is the correct option since it gives the correct amount. The other options, viz., options (b), (c) and (d) giving the incorrect amounts are not correct.

Q32. During the previous year 2012-13, Mr. Kapoor received cash gift of Rs. 1,52,000 from his friends and cash gift of Rs. 84,000 from friends of his wife on the occasion of his wedding anniversary. In this case what will be the amount chargeable to tax under the head “Income from other sources”?

(a) Nil (b) Rs. 84,000

(c) Rs. 1,52,000 (d) Rs. 2,36,000

Correct answer: (d)


As per section 56(2), any sum of money (i.e., gift in cash or by cheque or draft) is chargeable to tax under the head “Income from other sources” only if aggregate amount of gift received by an individual or HUF for the year exceeds Rs. 50,000.

Hence, Rs. 2,36,000 (i.e., Rs. 1,52,000 received from his friends and Rs. 84,000 received from friends wife) on the occasion of the wedding anniversary of Mr. Kapoor will be charged to tax under the head “Income from other sources”.


Comment on incorrect answer: Option (d) is the correct option since it gives the correct amount. The other options, viz., options (a), (b) and (c) giving the incorrect amount are not correct.

Q33. During the previous year 2012-13, Mr. Raja received a residential building by way of inheritance. The fair market value of such building is Rs. 25,52,000. Hence, the fair market value of the building will be charged to tax under the head “Income from other sources”.

(a) True (b) False

Correct answer: (b)


As per section 56(2), money received by an individual under Will/by way of inheritance is not charged to tax. Hence, nothing will be charged to tax in the hands of Mr. Raja in respect of building received by way of inheritance.



Q34. Miss Khushi received Rs. 8,84,000 on account of Will of her grandfather. What will be the amount chargeable to tax under the head “Income from other sources”?

(a) Rs. 8,84,000 (b) Rs. 8,34,000

(c) Rs. 50,000 (d) Nil

Correct answer: (d)

Justification of correct answer

Money received on account of Will is covered in the prescribed exemptions and, hence, nothing will be charged to tax from Rs. 8,84,000 received on account of will of her grandfather.


Comment on incorrect answer : Option (d) is the correct option since it gives the correct amount of taxable gift. All the other options, viz., options (a), (b) and (c) giving incorrect amount are not correct.

Q35. Money/property received in contemplation of death of the payer is charged to tax under which of the following head?

(a) Profits and Gains of business or profession


(c) Capital gains

(d) It is not charged to tax at all (i.e., exempt income)

Correct answer: (d)


As per section 56(2) money/property received in contemplation of death of the payer is not charged to tax under any head. In other words, it is exempt from tax.


Comment on incorrect answer: Option (d) is the correct option since it gives the correct provisions. The other options, viz., options (a), (b) and (c) giving the incorrect head are not correct.

Q36. Money/property received by an individual from local authority is not charged to tax. However, money/property received by HUF from local authority is charged to tax under the head “Income from other sources”.

(a) True (b) False

Correct answer: (b)


As per section 56(2), money/property received from local authority is not charged to tax whether it is received by an individual or by HUF.



Q37. Is money/property received from a charitable institute registered under section 12AA taxable under the head “Income from other sources”?

(a) Yes (b) No

Correct answer: (b)


As per section 56(2), money/property received from a charitable institute registered under section 12AA is not taxable. In other words, money/property received from charitable institute registered under section 12AA is exempt from tax.


Comment on incorrect answer: Option (b) is the correct option since it gives the correct provisions. The other option, viz., option (a) giving the incorrect provisions is not correct.

Q38. Kapoor HUF received cash gift of Rs. 1,84,848 from one of its members. Can such gift of Rs. 1,84,848 be treated as gift received by Kapoor HUF from its relative?

(a) Yes (b) No

Correct answer: (a)


As per section 56(2), gift received by HUF from its members is treated as gift received from a “relative”. Hence, gift of Rs. 1,84,848 received by Kapoor HUF from one of its members is treated as gift received from its relative.



Q39. Mr. Raja is a ranker of third year of bachelor of commerce and received a gift of Rs. 84,000 (by cheque) from an institution referred to in section 10(23C) during the previous year 2012-13. Hence, such gift of Rs. 84,000 will be charged to tax under the head “Income from other sources”.

(a) True (b) False

Correct answer: (b)


As per section 56(2), money/property received from any fund, foundation, university, other educational institution, hospital or other medical institution, any trust or institution referred to in section 10(23C) is exempt from tax. Hence, gift of Rs. 84,000 received by Mr. Raja would not be charged to tax.



Q40. “Property” means which of the following capital assets of the assessee?

(a) Shares and securities (b) Jewellery

(c) Drawings (d) All of the above

Correct answer: (d)


As per section 56(2), “Property” means the following capital assets of the assessee (i.e., recipient):

(i) Immovable property being land or building or both

(ii) Shares and securities

(iii) Jewellery

(iv) Archaeological collections

(v) Drawings

(vi) Paintings

(vii) Sculptures

(viii) Any work of art

(ix) Bullion (with effect from June 1, 2010)


Comment on incorrect answer: Option (d) is the correct option since it covers all the capital assets. The other options, viz., options (a), (b) and (c) giving the individual capital asset are not correct.

Q41. During the previous year 2012-13, Mr. Raja received gift painting of Rs. 52,200 from brother of his spouse on inauguration of his office. Hence, such gift of Rs. 52,200 will be charged to tax since brother of spouse of Mr. Raja does not fall under the definition of relative.

(a) True (b) False

Correct answer: (b)


As per section 56(2), and the definition of relative, brother or sister of the spouse of an individual is treated as relative of an individual and money/property received from a relative is not charged to tax. Hence, gift of Rs. 52,200 received by Mr. Raja from brother of his spouse would not be charged to tax.

Thus, the statement given in the question is false and hence, option (b) is the correct option.


Q42. Money received by an individual from his relatives is not charged to tax. The term relative in this context covers any lineal ascendant or descendant of an individual. Does it cover any lineal ascendant or descendant of the spouse of an individual?

(a) Yes (b) No

Correct answer: (a)


Money received by an individual from his relatives is not charged to tax. The term relative in this context will cover:










Q43. During the previous year 2012-13, Mrs. Kapoor received gold ring of Rs. 8,400 from spouse of her brother-in-law. Hence, such gift of gold ring of Rs. 8,400 will not be charged to tax since the spouse of the brother-in-law falls under the definition of relative.

(a) True (b) False

Correct answer: (a)










Hence, gold ring of Rs. 8,400 received by Mrs. Kapoor will not be charged to tax.



Q44. During the previous year 2012-13, Mr. Kapoor gives return gifts of Rs. 84,252 to his friends on the occasion of his marriage. Hence, such gifts of Rs. 84,252 will not be charged to tax in the hands of friends of Mr. Kapoor since such gifts are received by them on the occasion of the marriage of Mr. Kapoor.

(a) True (b) False

Correct answer: (b)

Justification of correct answer: Money/property received by the individual on the occasion of his marriage is not charged to tax. Hence, return gifts of Rs. 84,252 given by Mr. Kapoor on the occasion of his marriage will be taxed in the hands of friends of Mr. Kapoor since gifts are not received by them on the occasion of their marriage.



Q45. During the year 2012-13, Miss Khushi received on bullion of Rs. 52,200 from her friends on the occasion of her elder sister’s marriage. In this case what will be the amount of gift liable to tax?

(a) Rs. 52,200 (b) Rs. 50,000

(c) Rs. 2,200 (d) Nil Correct answer: (a)


Once the amount of gift exceeds Rs. 50,000 and if such gift is received on other than the occasions prescribed under section 56(2), then entire amount of gift is charged to tax and, hence, Rs. 52,200 will be liable to tax in the hands of Miss Khushi.


Comment on incorrect answer : Option (a) is the correct option since it gives the correct amount liable to tax. All the other options, viz., options (b), (c) and (d) giving incorrect amounts are not correct.

Q46. During the year 2012-13, Mr. Kumar received shares of Rs. 84,000 on account of death of his father. In this case nothing will be charged to tax under the head “Income from other sources” since gift received on account of contemplation of death of the payer is exempt from tax.

(a) True (b) False

Correct answer: (a)


Money received on account of contemplation of death of the payer or donor is covered in the prescribed exemptions and, hence, nothing will be charged to tax from Rs. 84,000 received by Mr. Kumar on account of contemplation of death of his father.



Q47. During the year 2012-13, Mr. Raja received painting of Rs. 52,252 from cousin of his father. What will be the amount chargeable to tax under the head “Income from other sources”?

(a) Rs. 2,252 (b) Rs. 50,000

(c) Rs. 52,252 (d) Nil

Correct answer: (c)


Cousin of father of the individual does not fall under the definition of relative and, hence, the whole amount of Rs. 52,252 will be charged to tax under the head of “Income from other sources”.


Comment on incorrect answer: Option (c) is the correct option since it gives the correct amount liable to tax. The other options, viz., options (a), (b) and (d) giving the incorrect amount liable to tax are not correct.

Q48. During the year 2012-13, Miss Khushali received gold jewellery of Rs. 52,848 (fair market value of such jewellery is Rs. 51,000) from Mr. Kumar who is elder brother of her grandfather. Hence, nothing will be charged to tax in the hands of Miss Khushali since elder brother of grandfather falls under the definition of relative.

(a) True (b) False

Correct answer: (b)


Elder brother of grandfather of the individual is not covered under the definition of a relative and, hence, the whole amount of gold jewellery of Rs. 52,848 will be charged to tax under the head “Income from other sources” since the fair market value of the jewellery exceeds Rs. 52,848.



Q49. During the year 2012-13, Mr. Raja received a gift of mobile phone from his employer (mobile was purchased by his employer for Rs. 8,400). What will be the amount chargeable to tax under the head “Income from other sources”?

(a) Rs. 8,400 (b) Rs. 5,000

(c) Rs. 3,400 (d) Nil

Correct answer: (d)


Nothing will be charged to tax under the head “Income from other sources” since it is taxable under the head “Salaries”.


Comment on incorrect answer: Option (d) is the correct option since it gives the correct amount liable to tax. The other options, viz., options (a), (b) and (c) giving the incorrect amount liable to tax are not correct.

Q50. On 12-12-2012, Mr. Raja received a gift of residential building (stamp duty value is Rs. 44,00,000) from elder brother of his father-in-law. What will be the amount chargeable to tax under the head “Income from other sources”?

(a) Rs. 44,00,000 (b) Rs. 43,50,000

(c) Rs. 50,000 (d) Nil

Correct answer: (a)


If any immovable property is received without any consideration by an individual or HUF on or after October 1, 2009 and the stamp duty value exceeds Rs. 50,000 then stamp duty value will be chargeable to tax. Hence, Rs. 44,00,000 will be chargeable to tax in the hands of Mr. Raja since brother of father-in-law does not fall under the definition of a relative and stamp duty value also exceeds Rs. 50,000.


Comment on incorrect answer: Option (a) is the correct option since it gives the correct amount liable to tax. The other options, viz., options (b), (c) and (d) giving the incorrect amount liable to tax are not correct.

Q51. On 23-3-2013, Mr. Kapoor purchased a plot of land from his friend for Rs. 8,52,000 (stamp duty value is Rs. 15,00,000). Hence, Rs. 6,48,000 (i.e., Rs. 15,00,000 – Rs. 8,52,000) will be charged to tax under the head “Income from other sources”.

(a) True (b) False

Correct answer: (b)


If any immovable property is received without any consideration by an individual or HUF on or after October 1, 2009 and the stamp duty value exceeds Rs. 50,000 then stamp duty value will be chargeable to tax. If, however, an immovable property is acquired for a consideration which is less than stamp duty value then nothing will be taxable in the hands of recipient, even though the difference between stamp duty and consideration paid/payable exceeds Rs. 50,000. Hence, nothing will be charged to tax in the hands of Mr. Kapoor. Thus, the statement given in the question is false and, hence, option (b) is the correct option.


Q52. During the previous year 2012-13, Mr. Soham received a gift of plot of land under the will of a person known to him. However, he is not a relative of Mr. Soham. The stamp duty value of such plot is Rs. 25,52,000. Hence, Rs. 25,52,000 will be charged to tax in the hands of Mr. Soham.

(a) True (b) False

Correct answer: (b)


Money/property received by way of will/inheritance is specifically excluded from the income-tax. Hence, nothing will be taxed in the hands of Mr. Soham in respect of plot of land received under the will of person known to him, even though he is not a relative of Mr. Soham.



Q53. During the previous year 2012-13, Mr. Kapoor received a gift of wrist watch of Rs. 8,400 (fair market value is Rs. 10,000) from his friend. What will be the amount chargeable to tax in the hands of Mr. Kapoor while computing “Income from other sources”?

(a) Nil (b) Rs. 8,400

(c) Rs. 10,000 (d) Rs. 1,600

Correct answer: (a)


Wrist watch is not “property” for the purpose of section 56(2)(vii). Hence, nothing will be charged to tax in the hands of Mr. Kapoor in respect of wrist watch of Rs. 8,400 received from his friend.


Comment on incorrect answer: Option (a) is the correct option since it gives the correct amount liable to tax. The other options, viz., options (b), (c) and (d) giving incorrect amount are not correct.

Q54. As per the provisions of section 56(2), if any property (i.e., whether movable or immovable) is purchased for inadequate consideration which is less than the aggregate fair market value/stamp duty value of the property or properties by an amount exceeding Rs. 50,000 then the difference will be charged to tax under the head “Income from other sources”.

(a) True (b) False

Correct answer: (b)


As per the provisions of section 56(2), if any movable property is purchased for inadequate consideration which is less than the aggregate fair market value of the property or properties by an amount exceeding Rs. 50,000 then the difference between aggregate fair market value and the consideration paid/payable will be charged to tax under the head “Income from other sources”.

However, in case of immovable property acquired for inadequate consideration which is less than stamp duty value, nothing will be charged to tax, even though the difference between stamp duty value and the consideration paid/payable is more than Rs. 50,000.



Q55. On 12-12-2012, Mr. Kumar received a gift of residential building (stamp duty value is Rs. 25,52,000) from SM Corporation, a partnership firm whose partners are father and grandfather of Mr. Kumar. What will be the amount chargeable to tax in the hands of Mr. Kumar while computing income chargeable to tax under the head “Income from other sources”?

(a) Rs. 50,000 (b) Rs. 25,02,000

(c) Rs. 25,52,000 (d) Nil

Correct answer: (c)


Partnership firm is not a “relative” of an individual, even though relatives of an individual are partners of a firm. Hence, stamp duty of Rs. 25,52,000 will be charged to tax in the hands of Mr. Kumar while computing income chargeable to tax under the head “Income from other sources”.


Comment on incorrect answer: Option (c) is the correct option since it gives the correct amount liable to tax. The other options, viz., options (a), (b) and (d) giving the incorrect amount are not correct.

Q56. On April, 2012, Mr. Soham held 8% debentures (non-listed) of SM Ltd. of Rs. 52,000. He received interest of Rs. 3,744 (net of tax deducted at source @ 10%). What will be the amount chargeable to tax in the hands of Mr. Soham while computing income chargeable to tax under the head “Income from other sources”?

(a) Rs. 3,744 (b) Rs. 4,160

(c) Rs. 52,000 (d) Nil

Correct answer: (b)


Even though Mr. Soham received net interest of Rs. 3,744 (i.e., Rs. 4,160 – 10% of Rs. 4,160), gross amount of Rs. 4,160 will be charged to tax in the hands of Mr. Soham. Thus, option (b) is the correct option.

Comment on incorrect answer: Option (b) is the correct option since it gives the correct amount liable to tax. The other options, viz., options (a), (c) and (d) giving the incorrect amount are not correct.

Q57. On 23-3-2013, Mr. Kumar purchased 840 shares of SM Ltd. from his friend (outside the stock exchange) at Rs. 100 per share. The market quotation in BSE and NSE on the date of purchase was Rs. 250 and Rs. 280 respectively. What will be the amount liable to tax in the hands of Mr. Kumar while computing income chargeable to tax under the head “Income from other sources”?

(a) Rs. 2,10,000 (b) Rs. 2,35,200

(c) Rs. 1,26,000 (d) Rs. 1,51,200

Correct answer: (c)


If a movable property is acquired for inadequate consideration which is less than the aggregate fair market value of the property or properties by an amount exceeding Rs. 50,000 then the difference between aggregate fair market value and the consideration will be charged to tax under the head “Income from other sources”.

Hence, in this case Rs. 1,26,000 [i.e., (Rs. 250- Rs. 100) * 840 shares] will be charged to tax in the hands of Mr. Kumar (Market quotation of BSE will be considered).



Q58. During the previous year 2012-13, Mrs. Kapoor received gift of diamonds from cousin of her mother-in-law. The fair market value was Rs. 1,25,200. Hence, nothing will be charged to tax in the hands of Mrs. Kapoor while computing income chargeable to tax under the head “Income from other sources” since cousin of mother-in-law falls under the definition of relative.

(a) True (b) False

Correct answer: (b)










Hence, cousin of mother-in-law does not fall under the definition of relative; the fair market value of Rs. 1,25,200 will be charged to tax in the hands of Mrs. Kapoor.



Q59. During the previous year 2012-13, Miss Khushi received gift of painting (fair market value is Rs. 48,000) from SM Ltd. Father of Miss Khushi holds 52% shares in SM Ltd. In this case nothing will be charged to tax in the hands of Miss Khushi while computing income chargeable to tax under the head “Income from other sources”. (She has not received any other gift during the previous year 2012-13).

(a) True (b) False

Correct answer: (a)










Hence, company will not be treated as relative of Miss Khushi. However, in this case nothing will be charged to tax under the head “Income from other sources” since the aggregate fair market value of gift does not exceed Rs. 50,000.



Q60. During the previous year 2012-13, Mrs. Sharma received gift of plot of land (stamp duty value is Rs. 32,848) from cousin of Mr. Sharma. What will be the amount chargeable to tax in the hands of Mrs. Sharma while computing income chargeable to tax under the head “Income from other sources”?

(a) Rs. 48,000 (b) Rs. 50,000

(c) (a) or (b) as per the choice of Assessing Officer (d) Nil

Correct answer: (d)










Hence, cousin of spouse of an individual does not fall under the definition of relative. However, in this case nothing will be charged to tax in the hands of Mrs. Sharma since the stamp duty value does not exceed Rs. 50,000.


Comment on incorrect answer: Option (d) is the correct option since it gives the correct amount liable to tax. The other options, viz., options (a), (b) and (c) giving the incorrect amount are not correct.

Q61. During the previous year 2012-13, Mr. Raja received gift of residential house situated in Jammu from his friend on the occasion of his birthday (stamp duty value is Rs. 1,52,000). Hence, nothing will be charged to tax in the hands of Mr. Raja while computing income under the head “Income from other sources” since the house is situated in Jammu.

(a) True (b) False

Correct answer: (b)


Nowhere it has been mentioned in section 56(2) that if any immovable property received in gift by an individual or HUF is situated in Jammu, then nothing will be charged to tax. Hence, in this case stamp duty value of Rs. 1,52,000 will be charged to tax in the hands of Mr. Raja while computing income chargeable to tax under the head “Income from other sources”.



Q62. During the previous year 2012-13, Mr. Kumar purchased a plot of land worth Rs. 8,84,000. The stamp duty value of the plot is Rs. 10,00,000. What will be the amount chargeable to tax in the hands of Mr. Kumar while computing his income chargeable to tax under the head “Income from other sources”?

(a) Rs. 8,84,000 (b) Rs. 10,00,000

(c) Rs. 1,16,000 (d) Nil

Correct answer: (d)


As per the provisions of section 56(2), if any immovable property is acquired for inadequate consideration which is less than stamp duty value then nothing will be charged to tax, even though the difference between stamp duty value and the consideration paid/payable is more than Rs. 50,000.



Q63. During the previous year 2012-13, Mr. Soham (a dealer in properties) received gift of house property for his business purpose from his friend. Stamp duty value of such house property is Rs. 25,52,000. Hence, stamp duty value of Rs. 25,52,000 will be taxable in the hands of Mr. Soham while computing income chargeable to tax under the head “Income from other sources”.

(a) True (b) False

Correct answer: (b)


Section 56(2)(vii) is applicable only when an immovable property is received by an individual or HUF as a capital asset. Hence, nothing will be taxable under the head “Income from other sources” since house property is received by Mr. Soham as stock-in-trade.

Thus, the statement given in the question is false and hence, option (b) is the correct option.


Q64. During the previous year 2012-13, Mr. Shan received gift of plot of land (being agricultural land) situated in rural area. Stamp duty value of such agricultural plot is Rs. 8,84,000. What will be the amount chargeable to tax in the hands of Mr. Shan while computing income chargeable to tax under the head “Income from other sources”?

(a) Rs. 8,84,000 (b) Rs. 8,34,000

(c) Rs. 1,10,004 (d) Nil

Correct answer: (d)


Section 56(2)(vii) is applicable only if “capital asset” is received by gift and rural agricultural land is not a “capital asset” as per section 2(14). Hence, nothing will be taxable in the hands of Mr. Shan while computing income under the head “Income from other sources”.



Q65. During the previous year 2012-13, Mr. Raja purchased painting of Gandhiji from a registered dealer (under sales tax/VAT) at invoice value of Rs. 84,000. The painting can be easily sold in the market for Rs. 1,00,252. What will be the amount chargeable to tax in the hands of Mr. Raja while computing income chargeable to tax under the head “Income from other sources”?

(a) Rs. 84,000 (b) Rs. 1,00,252

(c) Rs. 16,252 (d) Nil

Correct answer: (d)


If any movable property is purchased from a dealer registered under VAT/sales tax, then “invoice value” will be taken as fair market value of the property for the purpose of section 56(2)(vii) and nothing will be taxed under section 56(2)(vii) if a property is purchased at “invoice value”. Hence, in this case nothing will be taxable under section 56(2)(vii) in the hands of Mr. Raja, even though the painting can be easily sold in the market for Rs. 1,00,252 since he has purchased the painting at “invoice value” of Rs. 84,000.



Q66. During the previous year 2012-13, Mr. Raja purchased painting of Gandhiji from a person who is not a registered dealer (under sales tax/VAT) at invoice value of Rs. 84,000. The fair market value is Rs. 1,00,252. What will be the amount chargeable to tax in the hands of Mr. Raja while computing income chargeable to tax under the head “Income from other sources”?

(a) Rs. 84,000 (b) Rs. 1,00,252

(c) Rs. 16,252 (d) Nil

Correct answer: (c)


If a movable property is purchased from a person who is not a registered dealer of VAT/sales tax, then the difference between “invoice value” and the fair market value will be taxable under section 56(2)(vii). Hence, in this case Rs. 16,252 (i.e., Rs. 1,00,252 – Rs. 84,000) will be taxable in the hands of Mr. Raja under section 56(2)(vii).



Q67. As per the provisions of section 57(iv), 50% of compensation or enhanced compensation is deductible while computing income chargeable to tax under the head “Income from other sources”.

(a) True (b) False

Correct answer: (b)


As per the provisions of section 57(iv), income by way of interest received on compensation or enhanced compensation and not the income by way of compensation or enhanced compensation shall be charged to tax under the head “Income from other sources”. Moreover, 50% of such interest received on compensation or enhanced compensation is deductible while computing income chargeable to tax under the head “Income from other sources”.



Q68. During the previous year 2012-13, Mr. Raja received enhanced compensation of Rs. 84,252 from the Government for compulsory acquisition of industrial land. What will be the amount chargeable to tax under the head “Income from other sources”?

(a) Rs. 84,252 (b) Rs. 42,126

(c) Rs. 75,827 (d) Nil

Correct answer: (d)


As per the provisions of section 57(iv), income by way of interest received on compensation or enhanced compensation and not the income by way of compensation or enhanced compensation shall be charged to tax under the head “Income from other sources”. Hence, in this case nothing will be charged to tax in the hands of Mr. Raja while computing income under the head “Income from other sources” in respect of enhanced compensation received of Rs. 84,252.



Q69. During the previous year 2012-13, Mr. Raja received interest on enhanced compensation of Rs. 84,252 from the Government for compulsory acquisition of industrial land. What will be the amount chargeable to tax under the head “Income from other sources”?

(a) Rs. 84,252 (b) Rs. 42,126

(c) Rs. 58,976 (d) Nil

Correct answer: (b)


As per the provisions of section 57(iv), income by way of interest received on compensation or enhanced compensation and not the income by way of compensation or enhanced compensation shall be charged to tax under the head “Income from other sources”. Moreover, 50% of such interest received on compensation or enhanced compensation is deductible while computing income chargeable to tax under the head “Income from other sources”.

Hence, in this case, Rs. 42,126 (i.e., 84,252 – 50%) will be taxable in the hands of Mr. Raja under the head “Income from other sources”.


Comment on incorrect answer: Option (b) is the correct option since it gives the correct amount liable to tax. The other options, viz., options (a), (c) and (d) giving the incorrect amount are not correct.

Q70. Whether deduction under sections 80C to 80U is permissible while computing income chargeable to tax under the head “Income from other sources”?

(a) Yes (b) No

Correct answer: (b)


No deduction is permissible under sections 80C to 80U while computing income chargeable to tax under the head “Income from other sources”.


Comment on incorrect answer: Option (b) is the correct option since it gives the correct provisions. The other option, viz., option (a) giving the incorrect provisions is not correct.

advance learning on income from other sources practical...wedding anniversary. gifts received by an...

Documents