Advance Learning on Income from other sources (Practical)€¦ · Advance Learning on Income from other sources (Practical) Incomes which are charged to tax under the head “Income

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.

(As amended by Finance Act, 2013)source : www.trpscheme.com

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 of vacant plot of land of

Rs. 52,200 received by Mr. Kumar.

Lease rent from vacant land is always

charged to tax under the head “Income

from other sources”.

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

crossword puzzle.

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


Rs. 2,52,000 received by Mr.

Kumar from his friends on his

wedding anniversary.

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 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.

Rent of building will be charged to tax

under the head “Income from house

property” and rent of amenities will be


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


Compensation amounting to Rs.

1,25,252 received by Mr. Sohil

from the Government for

compulsory acquisition of Industrial

land.

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 of Rs. 8,252 received by

Mr. Sahil on a bank deposit.

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


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,


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:


2009.

(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:


head. However, dividends other than those covered by section 2(22)(e) are exempt from


Winnings from lotteries, crossword puzzles, races including horse races, card games and


under this head.






from other sources”; however, deduction of a sum equal to 50% of such income shall be


an income).




(a) Any contribution to a fund for welfare of employees received by the employer [Section

56(2)(ic)].






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 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.

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


sources”. However, dividends from

domestic company except dividends

covered by section 2(22)(e) are exempt

from tax under section 10(34).

Lease rent of vacant plot of land of Rs.

52,200 received by Mr. Kumar.

Lease rent from vacant land is always



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

crossword puzzle.

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


Rs. 2,52,000 received by Mr. Kumar

from his friends on his wedding

anniversary.

Gifts received by an individual or HUF

(which are charged to tax) are taxed


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 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.

Rent of building will be charged to tax

under the head “Income from house

property” and rent of amenities will be


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


other sources”.

Compensation amounting to Rs.

1,25,252 received by Mr. Sohil from

the Government for compulsory

acquisition of Industrial land.

Income received in respect of

compensation or enhanced

compensation for compulsory

acquisition of property is not charged


other sources”. Only interest amount


received on compensation or enhanced

compensation is charged to tax under


Hence, nothing will be taxable from

Rs. 1,25,252 received by Mr. Sohil.

Interest of Rs. 8,252 received by Mr.

Sahil on a bank deposit.

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,


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

Note 1: Relative for this purpose means:

(a) Spouse of the

individual;









the individual; either of the parents of the

individual;


the individual;



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


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:



2009.


(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:



2009.

(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 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:


head; however, dividends other than those covered by section 2(22)(e) are exempt from


Winnings from lotteries, crossword puzzles, races including horse races, card games and


under this head.






from other sources”. However, deduction of a sum equal to 50% of such income shall be


an income).




(a) Any contribution to a fund for welfare of employees received by the employer[Section

56(2)(ic)].







56(2)(iv)].


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)





gains of business or profession”.



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)





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)








head of taxability. The other options, viz., options (a), (b) and (c) giving the incorrect head of


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


(a) True (b) False

Correct answer: (b)





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


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)



compensation is always taxable under the head “Income from other sources”. However, 50%

of such interest is deductible under section 57(iv).



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)



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”.




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”.



head of taxability. The other options, viz., options (a), (b) and (d) giving the incorrect head of


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”.



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”.



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”.



head of taxability. The other options, viz., options (a), (c) and (d) giving incorrect head of


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)].



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%.



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


(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





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


(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)



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.



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


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

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

Correct answer: (a)




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.



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)




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”.



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


(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.



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.




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


(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:

(a) Spouse of the

individual;


the individual;





individual;





the individual;






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)




(a) Spouse of the

individual;


the individual;





individual;





the individual;



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”.



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”.



amount liable to tax. The other options, viz., options (a), (b) and (c) giving the incorrect


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.



amount liable to tax. The other options, viz., options (b), (c) and (d) giving the incorrect


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.



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


(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


(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”.





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


(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.



amount liable to tax. The other options, viz., options (a), (c) and (d) giving the incorrect


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


(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


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)




(a) Spouse of the

individual;


the individual;





individual;





the individual;



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)





(a) Spouse of the

individual;


the individual;





individual;





the individual;



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


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

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

Correct answer: (d)




(a) Spouse of the

individual;


the individual;





individual;





the individual;



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.





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


(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


(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


(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


(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


(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


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

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

Correct answer: (d)




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)




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”.



amount liable to tax. The other options, viz., options (a), (c) and (d) giving the incorrect


Q70. Whether deduction under sections 80C to 80U is permissible while computing


(a) Yes (b) No

Correct answer: (b)


No deduction is permissible under sections 80C to 80U while computing income chargeable




provisions. The other option, viz., option (a) giving the incorrect provisions is not correct.


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Advance Learning on Income from other sources (Practical)€¦ · Advance Learning on Income from other sources (Practical) Incomes which are charged to tax under the head “Income