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Chapter 7 – Income from Other Sources

Income Chargeable Under the Head “Income from Other Sources”
[Section 56]: Some examples

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Section Income
56(2)(i) Dividend Income
56(2)(ib) Casual Income (winnings from lotteries, crossword puzzles, races including horse races,
card games and other games, gambling, betting etc.)
56(2)(viib) Consideration received in excess of FMV of shares of a closely held company, where
such shares are issued at a premium
56(2)(viii) Interest received on compensation/enhanced compensation deemed to be income in
the year of receipt
56(2)(ix) Advance forfeited due to failure of negotiations for transfer of a capital asset

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56(2)(x) Sum of money or property received by any person
56(2)(xi) Compensation or any other payment received in connection with termination of his
employment
56(2)(xii) Sum received, including the amount allocated by way of bonus, under an LIP other than
under a ULIP and keyman insurance policy, which is not exempt under section 10(10D)

Sum of Money or Property Received by Any Person [Section 56(2)(x)]

Nature of Asset Taxable Value
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1 Money The whole amount if the same exceeds ₹50,000.
2 Moveable Property • Without consideration: The aggregate fair market value of the
property, if it exceeds ₹50,000.
• Inadequate consideration: The difference between the aggregate
fair market value and the consideration, if such difference exceeds
₹50,000.
Note: Property means Shares, Securities, Jewelry, Drawings, Paintings,
Sculpture, Archaeological Collections, Any other work of art, Bullion
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[SSJDPSAOB]
3 Immovable • Without consideration: The stamp value of the property, if it
Property exceeds ₹50,000.
• Inadequate consideration: The difference between the stamp
duty value and the consideration, if:
o SDV – Consideration > ₹50,000 AND
o SDV > 110% of Consideration
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Cost of Acquisition for the Receiver of Gift

Particulars Cost of Acquisition Date of Acquisition
Tax Paid Under IFOS SDV Date of Receiving the Gift
Tax Not Paid Under IFOS Cost to Previous Owner Date of Acquisition of the Previous Owner
However, any sum of money or value of property received in the following circumstances would
be outside the ambit of section 56(2)(x):
➢ from any relative; or
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➢ on the occasion of the marriage of the individual; or

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➢ under a will or by way of inheritance; or
➢ in contemplation of death of the payer or donor, as the case may be; or
➢ from any local authority as defined in the Explanation to section 10(20); or
➢ from any fund or foundation or university or other educational institution or hospital or
other medical institution or any trust or institution referred to in section 10(23C); or
➢ from or by any trust or institution registered under section 12A or section 12AA or section
12AB; or
However, where sum of money or property has been received by specified persons under
section 13(3), this relaxation is not available and section 56(2)(x) would be applicable.
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➢ by any fund or trust or institution or any university or other educational institution or any
hospital or other medical institution referred to in Section 10(23C)(iv)/(v)/ (vi)/(via); or
➢ by way of transaction not regarded as transfer under specified clauses of section 47; or
➢ from an individual by a trust created or established solely for the benefit of relative of the
individual; or
➢ by an individual, from any person, in respect of any expenditure actually incurred by him
on his medical treatment or treatment of any member of his family, for any illness related
to COVID-19 subject to conditions notified by the Central Government; or
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➢ by a member of the family of a deceased person from the employer of the deceased
person (without any limit); or from any other person or persons to the extent that such
sum or aggregate of such sums ≤ ₹10 lakhs, where the cause of death of such person is
illness related to COVID-19 and the payment is received within 12 months from the date
of death of such person; and subject to such other conditions notified by the Central
Government; or
➢ from such class of persons and subject to such conditions, as may be prescribed.
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Question 1 – November, 2008 – 6 Marks

Check the taxability of the following gifts received by Mrs. Rashmi during the previous year 2023-24
and compute the taxable income from gifts for Assessment Year 2024-25:

1. On the occasion of her marriage on 14-08-2023, she has received ₹ 90,000 as gift out of which
₹ 70,000 are from relatives and balance from friends.
2. On 12-09-2023, she has received gift of ₹ 18,000 from cousin of her mother.
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3. A cell phone worth ₹ 21,000 is gifted by her friend on 15-08-2023.

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4. She gets a cash gift of ₹ 25,000 from the elder brother of her husband’s grandfather on 25-09-
2023.
5. She has received a cash gift of ₹ 2,000 from her friend on 14-04-2024.

Solution

1. Not taxable since the same has been received by her on the occasion of marriage.

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2. Taxable since her mother’s cousin does not fall in the category of relative.
3. Cell phone is not covered in the meaning of “Movable Property”, therefore, it is exempt.
4. Taxable since brother of grandfather does not fall in the category of relative.
5. Taxable, since it’s received from a friend.

Therefore, the total taxable sum under income from other sources under section 56 = ₹ 18,000 +
₹ 25,000 + ₹ 2,000 = ₹ 45,000. Since the aggregate value of taxable gifts doesn’t exceed ₹ 50,000,
therefore, the same are not ‘income’ as per section 56(2)(x). hence, none of the gifts shall be taxable
in the hands of Mrs. Rashmi.

Question 2 – May, 2018 – 3 Marks

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Discuss the taxability of the following receipts in the hands of Mr. Sanjay Kamboj under the Income-
tax Act, 1961 for A.Y. 2024-25:

1. ₹ 51,000 received from his sister living in US on 01-06-2023.

2. Received a car from his friend on payment of ₹ 2,50,000, the FMV of which was ₹ 5,50,000.
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Provisions of taxability or non-taxability must be discussed.

Solution

1. Not taxable – Gift from sister, i.e., ‘Relative’ is not liable to tax under section 56(2)(x).
2. Not taxable – Car is not included in the definition of property for the purpose of section
56(2)(x), therefore, the same shall not be taxable.
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Question 3 – May, 2011 (4 Marks); ICAI SM – Question 4

The following details have been furnished by Mrs. Hemali pertaining to the year ended 31.3.2024:

1. Cash gift of ₹ 51,000 received from her friend on the occasion of her “Shastiaptha Poorthi”, a
wedding function celebrated on her husband completing 60 years of age. This was also her
25th wedding anniversary.
2. On the above occasion, a diamond necklace worth ₹ 2 lacs was presented by her sister living
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in Dubai.
3. When she celebrated her daughter's wedding on 21.2.2024, her friend assigned in Mrs.
Hemali's favour, a fixed deposit held by the said friend in a scheduled bank; the value of the
fixed deposit and the accrued interest on the said date was ₹ 52,000.

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

CA

Solution

Computation of Income from Other Sources of Mrs. Hemali for A.Y. 2024-25
Particulars ₹

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Cash gift from friend on the occasion of wedding function/anniversary (Note 1) 51,000
Diamond necklace received from sister (Note 2) -
Gift from friend on the occasion of marriage of daughter (Note 3) 52,000
Income from Other Sources 1,03,000
Notes:

1. Any sum of money received by an individual on the occasion of the marriage of the individual

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is exempt. This provision is, however, not applicable to a cash gift received during a wedding
function celebrated on completion of 60 years of age.
The gift of ₹ 51,000 received from a non-relative is, therefore, chargeable to tax under section
56(2)(x) in the hands of Mrs. Hemali, since the same exceeds ₹ 50,000.
2. The provisions of section 56(2)(x) are not attracted in respect of any sum of money or property
received from a relative. Thus, the gift of diamond necklace received from her sister, being a
relative, is not taxable under section 56(2)(x), even though jewellery falls within the definition
of “property”.

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3. To be exempt from applicability of section 56(2)(x), the property should be received on the
occasion of the marriage of the individual, not that of the individual’s son or daughter.
Therefore, this exemption provision is not attracted in this case.
Any sum of money received without consideration by an individual is chargeable to tax under
section 56(2)(x), if the aggregate value exceeds ₹ 50,000 in a year. “Sum of money” has,
however, not been defined under section 56(2)(x).
Therefore, there are two possible views in respect of the value of fixed deposit assigned in
favour of Mrs. Hemali –
a. The first view is that fixed deposit does not fall within the meaning of “sum of money”
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and therefore, the provisions of section 56(2)(x) are not attracted. It may be noted
that fixed deposit is also not included in the definition of “property”.
b. However, another possible view is that fixed deposit assigned in favour of Mrs. Hemali
falls within the meaning of “sum of money” received.
Income assessable as “Income from other sources”
a. If the first view is taken, the total amount chargeable to tax as “Income from other
sources” would be ₹ 51,000, being cash gift received from a friend on her Shastiaptha
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Poorthi.
b. As per the second view, the provisions of section 56(2)(x) would also be attracted in
respect of the fixed deposit assigned and the “Income from other sources” of Mrs.
Hemali would be ₹ 1,03,000 (₹ 51,000 + ₹ 52,000).

Question 4 – ICAI SM – Illustration 3

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Discuss the taxability or otherwise of the following in the hands of the recipient under section 56(2)(x)
the Income-tax Act, 1961 –

1. Akhil HUF received ₹ 75,000 in cash from niece of Akhil (i.e., daughter of Akhil’s sister). Akhil
is the Karta of the HUF.
2. Nitisha, a member of her father’s HUF, transferred a house property to the HUF without
consideration. The stamp duty value of the house property is ₹ 9,00,000.
3. Mr. Akshat received 100 shares of A Ltd. from his friend as a gift on occasion of his 25th
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marriage anniversary. The fair market value on that date was ₹ 100 per share. He also received
jewelry worth ₹ 45,000 (FMV) from his nephew on the same day.

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4. Kishan HUF gifted a car to son of Karta for achieving good marks in XII board examination. The
fair market value of the car is ₹ 5,25,000.

Solution

1. Taxable – Sum of money exceeding ₹ 50,000 received without consideration from a non-
relative is taxable under section 56(2)(x). Daughter of Mr. Akhil’s sister is not a relative of Akhil

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HUF, since she is not a member of Akhil HUF.
2. Non-Taxable – Immovable property received without consideration by a HUF from its relative
is not taxable under section 56(2)(x). Since Nitisha is a member of the HUF, she is a relative of
the HUF. However, income from such asset would be included in the hands of Nitisha under
64(2).
3. Taxable – As per provisions of section 56(2)(x), in case the aggregate fair market value of
property, other than immovable property, received without consideration exceeds ₹ 50,000,
the whole of the aggregate value shall be taxable. In this case, the aggregate fair market value

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of shares (₹ 10,000) and jewelry (₹ 45,000) exceeds ₹ 50,000. Hence, the entire amount of
₹ 55,000 shall be taxable.
4. Non-Taxable – Car is not included in the definition of property for the purpose of section
56(2)(x), therefore, the same shall not be taxable.

Question 5

Mr. Sharma asks you to compute his taxable income from the following transactions which took place
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with his friends during January, 2024:

1. Cash gifts received by him from Mr. A, and Mr. Z: ₹ 32,000 each.
2. Two plots of land gifted to him by Mr. B and Mr. C, whose stamp values are ₹ 3,50,000 and
₹ 50,000 respectively.
3. He purchased a residential house at ₹ 6,00,000 from Mr. D, which was not registered, but the
prevalent stamp value of which was ₹ 7,50,000.
4. A sculpture and jewelry worth ₹ 50,000 and ₹ 35,000 respectively were gifted by Mr. E and Mr.
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F.
5. A silver coin purchased by him at ₹ 10 lakhs from Mr. G, when prevalent market value is ₹ 10.5
lakhs and shares purchased by him at ₹ 3 lakhs from Mr. H, when fair market value thereof
was ₹ 3.3 lakhs.
6. A diamond ring purchased at ₹ 50 lakhs from M/s Pearl Jewels (a jewelry shop of his close
friend) when the fair market value was ₹ 55 lakhs for the purpose of Sharma Gem and Jewelry
Mart (a jewelry shop owned by Mr. Sharma).
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Solution

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

Particulars ₹
Cash gifts received from Mr. A and Mr. Z (Note 1) 64,000
Plot of Land received from Mr. B (Fully taxable as SDV exceeds ₹ 50,000) 3,50,000
Plot of Land received from Mr. C (Not taxable as SDV does not exceed ₹ 50,000) -
Residential House purchased for inadequate consideration (Note 2) 1,50,000
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Sculpture and Jewellery received from Mr. E and Mr. F (Note 3) 85,000
Silver coin and shares purchased by him from Mr. G and Mr. H (Note 4) 80,000
Diamond ring purchased from M/s Pearl Jewels (Note 5) -

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Total Income 7,29,000
Notes:

1. Since aggregate of cash gifts received by Mr. Sharma exceeds ₹ 50,000, it is fully taxable.
2. In case of acquisition of immovable property for inadequate consideration, difference
between SDV and consideration is taxable, if:
a. (SDV – Consideration) > ₹ 50,000, AND

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b. SDV > 110% of Consideration
In the present case, SDV – Consideration is ₹ 7,50,000 – ₹ 6,00,000 = ₹ 1,50,000, which is
greater than ₹ 50,000.
Also, 110% of consideration = 110% × ₹ 6,00,000 = ₹ 6,60,000. SDV is greater than this.
Therefore, difference between SDV and consideration is taxable.
3. Since the aggregate value of movable properties received as gift exceeds ₹ 50,000, the entire
amount is taxable.
4. If movable properties are acquired for inadequate consideration, the difference between the

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FMV and consideration is chargeable to tax if aggregate (FMV – Consideration) exceeds
₹ 50,000. In the present case, the difference between FMV and consideration of silver coin =
₹ 50,000, and difference between FMV and consideration of shares = ₹ 30,000. Therefore,
total difference is ₹ 80,000, which exceeds ₹ 50,000. Hence, entire ₹ 80,000 is taxable.
5. Since it purchased for the purpose of Sharma Gem and Jewelry, which is a Jewelry Mart owned
by Mr. Sharma, it will become stock in trade, and not any property in possession of Mr. Sharma.
Therefore, inadequacy of consideration won't be taxable.

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

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

1. Mr. B transferred 500 shares of Reliance Industries Ltd. to M/s B Co. (P) Ltd. on 10-10-2023 for
₹ 3,00,000 when the market price was ₹ 5,00,000. The indexed cost of acquisition of shares for
Mr. B was computed at ₹ 4,45,000. The transfer was not subjected to securities transaction
tax. Determine the income chargeable to tax in the hands of Mr. B and M/s B Co. (P) Ltd.
because of the above said transaction.
SH

2. Ms. Chhaya transferred a vacant site to Ms. Dayama for ₹ 4,25,000. The stamp valuation
authority fixed the value of vacant site for stamp duty purpose at ₹ 6,00,000. The total income
of Chhaya and Dayama before considering the transfer of vacant site are ₹ 50,000 and
₹ 2,05,000 respectively. The indexed cost of acquisition for Ms. Chhaya in respect of vacant
site is ₹ 4,00,000 (computed). Determine the total income of both Ms. Chhaya and Ms. Dayama
taking into account the abovesaid transaction.
3. Mr. Chezian is employed in a company with taxable salary income of ₹ 5,00,000. He received
a cash gift of ₹ 1,00,000 from Atma Charitable Trust (registered under section 12AB) in
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December 2023 for meeting his medical expenses.

Is the cash gift so received from the trust chargeable to tax in the hands of Mr. Chezian?

Solution

1. Any movable property received for inadequate consideration by any person is chargeable to
tax under section 56(2)(x), if the difference between aggregate Fair Market Value of the
property and consideration exceeds ₹ 50,000.
CA

Thus, share received by M/s B. Co. (P) Ltd. from Mr B for inadequate consideration is
chargeable to tax under section 56(2)(x) to the extent of ₹ 2,00,000.

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As per section 50CA, since, the consideration is less than the fair market value of unquoted
shares of R (P) Ltd., fair market value of shares of the company would be deemed to be the full
value of consideration. It is presumed that the shares of R (P) Ltd are unquoted shares.
The full value of consideration (₹ 5,00,000) less the indexed cost of acquisition (₹ 4,45,000)
would result in a long term capital gains of ₹ 55,000 in the hands of Mr. B.
2. Total income of Chhaya = ₹ 50,000 + LTCG (₹ 6 lakhs, being stamp value u/s 50C – ₹ 4 lakhs) =

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₹ 2,50,000.
Total income of Dayama = ₹ 2,05,000 + ₹ 1,75,000 = ₹ 3,80,000 [Difference between the stamp
duty value of ₹ 6,00,000 and the actual consideration of ₹ 4,25,000 paid is taxable u/s 56(2)(x)
since the difference exceeds ₹ 50,000 being, the higher of ₹ 50,000 and 10% of consideration,
i.e., ₹ 42,500]
3. The provisions of section 56(2)(x) would not apply to any sum of money or any property
received from any trust or institution registered under section 12AB. Therefore, the cash gift
of ₹ 1 lakh received from Atma Charitable Trust, being a trust registered under section 12AB,
for meeting medical expenses would not be chargeable to tax under section 56(2)(x) in the

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hands of Mr. Chezian.

Question 7 – May, 2010 – 6 Marks

Mr. Raj Kumar sold a house to his friend Mr. Dhurv on 1st November, 2023 for a consideration of
₹ 25,00,000. The sub-registrar refused to register the document for the said value, as according to him,
stamp duty had to be paid on ₹ 45,00,000, which was the government guideline value. Mr. Raj Kumar
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preferred an appeal to the Revenue Divisional Officer, who fixed the value of the house as ₹ 32,00,000
(₹ 22,00,000 for land; balance for building portion). The differential stamp duty was paid, accepting
the said value determined. Assuming that the fair market value is ₹ 32,00,000, what are the tax
implications in the hands of Mr. Raj Kumar and Mr. Dhruv for the assessment year 2024-25? Mr. Raj
Kumar had purchased the land on 1st June, 2006 for ₹ 5,19,000 and completed the construction on 1st
December, 2021 for ₹ 14,00,000. CII for F.Y. 2006-07 = 122.

Solution
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In the Hands of Mr. Raj Kumar

In case a land is held by the assessee for more than 24 months but the building constructed over it is
held for less than or equal to 24 months, there is a long term capital gain on the sale of land and short
term capital gain on the sale of building.

In the present case, the land was purchased on 1st June, 2006 and sold 1st November, 2023; hence, this
is a long-term capital asset. Also, the construction of building got complete on 1st December, 2021, and
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it is sold on 1st November, 2023, i.e., before the completion of 24 months, and hence, this is a short-
term capital asset.

When the stamp duty value exceeds 110% of the sale consideration, the stamp duty value is considered
to be the full value of consideration. However, if the stamp value adopted by the stamp valuation
authority is disputed in appeal and the same is reduced by the appellate authority, the reduced value
shall be taken to be the full value of consideration for computing the capital gains chargeable to tax.
Therefore, in the present case, the value of ₹ 32,00,000 shall be taken to be the full value of
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consideration.

Calculation of Capital Gains of Mr. Raj Kumar for A.Y. 2024-25

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Particulars Land Building
Full Value of Consideration 22,00,000 10,00,000
Less: Transfer Expenses - -
Net Consideration 22,00,000 10,00,000
Less: Indexed Cost of Acquisition (₹ 5,19,000 × 348/122) 14,80,426
Less: Cost of Acquisition 14,00,000

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Long Term Capital Gain 7,19,574
Short Term Capital Gain (4,00,000)
Taxable Long Term Capital Gain 3,19,574

In the Hands of Mr. Dhruv

As per Section 56(2)(x), if any immovable property is received for inadequate consideration, the
difference between SDV and consideration is taxable under the head Income from Other Sources, if:

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1. SDV > 110% of the Sale Consideration
2. SDV – Consideration > ₹ 50,000

In the present case, the stamp duty value of the house is ₹ 32,00,000, while the consideration paid by
Mr. Dhruv is only ₹ 25,00,000.

Therefore, SDV exceeds 110% of the sale consideration, i.e., 110% of ₹ 25,00,000 = ₹ 27,50,000; and
the difference between SDV and Consideration = ₹ 32,00,000 – ₹ 25,00,000 = ₹ 7,00,000, which
exceeds ₹ 50,000.
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Therefore, ₹ 7,00,000 shall be taxable in the hands of Mr. Dhruv under the head Income from Other
Sources.

Question 8 – May, 2015 – 8 Marks

Ms. Mohini transferred a house to her friend Ms. Ragini for ₹ 35,00,000 on 01-10-2023. The Sub-
Registrar valued the land at ₹ 60,00,000. Ms. Mohini contested the valuation, and the matter was
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referred to Divisional Revenue Officer, who valued the house at ₹ 55,50,000. Accepting the said value,
differential stamp duty was also paid, and the transfer completed.

The total income of Mohini and Ragini for the assessment year 2024-25, before considering the
transfer of the said house are ₹ 2,80,000 and ₹ 3,45,000 respectively. Ms. Mohini had purchased the
house on 15th May 2010 for ₹ 25,00,000 and registration expenses were ₹ 1,50,000.

You are required to explain provisions of Income-tax Act, 1961 applicable to present case and
determine the total income of both Ms. Mohini and Ms. Ragini considering the above said transactions.
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CII for F.Y. 2010-11 = 167

Solution

In the Hands of Ms. Mohini

When the stamp duty value exceeds 110% of the sale consideration, the stamp duty value is considered
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to be the full value of consideration. However, if the stamp value adopted by the stamp valuation
authority is disputed in appeal and the same is reduced by the appellate authority, the reduced value
shall be taken to be the full value of consideration for computing the capital gains chargeable to tax.

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Therefore, in the present case, the value of ₹ 55,50,000 shall be taken to be the full value of
consideration.

Computation of Total Income of Ms. Mohini for A.Y. 2024-25

Particulars ₹
Full Value of Consideration 55,50,000
Less: Transfer Expenses -

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Net Consideration 55,50,000
Less: Indexed Cost of Acquisition {(₹ 25,00,000 + ₹ 1,50,000) × 348/167} 55,22,156
Capital Gains 27,844
Add: Income from Other Sources 2,80,000
Total Income 3,07,844
Total Income (Rounded Off) 3,07,840

In the Hands of Ms. Ragini

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As per Section 56(2)(x), if any immovable property is received for inadequate consideration, the
difference between SDV and consideration is taxable under the head Income from Other Sources, if:

1. SDV > 110% of the Sale Consideration

2. SDV – Consideration > ₹ 50,000

In the present case, the stamp duty value of the house is ₹ 55,50,000, while the consideration paid by
Ms. Ragini is only ₹ 35,00,000.
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Therefore, SDV exceeds 110% of the sale consideration, i.e., 110% of ₹ 35,00,000 = ₹ 38,50,000; and
the difference between SDV and Consideration = ₹ 55,50,000 – ₹ 35,00,000 = ₹ 20,50,000, which
exceeds ₹ 50,000.

Therefore, ₹ 20,50,000 shall be taxable in the hands of Ms. Ragini under the head Income from Other
Sources for this transaction. Adding the other income of Ms. Ragini of ₹ 3,45,000, the total income of
Ms. Ragini = ₹ 20,50,000 + ₹ 3,45,000 = ₹ 23,95,000.

Question 9
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Smarth purchased a house property for ₹ 3,00,000 in P.Y. 2001-02. Samarth gifted such property to his
friend Ritika on 14-02-2023 and SDV of such property is ₹ 40,00,000 on that date. Ritika sold such
property to Tarun on 19-07-2023 for ₹ 52,00,000. Discuss tax treatment in the hands of Samarth and
Ritika.

Solution

1. In the hands of Samarth

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As per Section 47, gift is not treated as transfer, so Capital Gain is not applicable in the hands
of Samarth.
2. In the hands of Ritika
a. As per section 56(2)(x), if immovable property is received as gift and SDV is more than
₹ 50,000, it is fully taxable under IFOS in the hands of recipient. So, in this case, SDV of
₹ 40 lakhs is taxable in the hands of Ritika under IFOS in P.Y. 2022-2023.
b. Capital Gain applicable on sale of property
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Particulars ₹
Full Value of Consideration 52,00,000

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Less: COA [49(4)] [POH: 14-02-2023 to 18-07-2023] 40,00,000
STCG 12,00,000

Question 10

How would your answer change if in the above question, Samarth and Ritika were relatives?

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Solution

1. In the hands of Samarth

As per Section 47, gift is not treated as transfer, so Capital Gain is not applicable in the hands
of Samarth.
2. In the hands of Ritika
a. Since gift is received from relative, section 56(2)(x) is not applicable
b. On sale of House Property

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Particulars ₹
Full Value of Consideration 52,00,000
348
Less: ICOA [49(1)] [POH: P.Y. 01-02 to 18-07-2023] (3,00,000 × ) 10,44,000
100
LTCG 41,56,000

Question 11 – November, 2018 – 6 Marks

Mr. Subramani sold a house plot to Mrs. Vimala for ₹ 45 lakhs on 12-05-2023. The valuation
determined by the stamp valuation authority was ₹ 53 lakhs. Discuss the tax consequences of above,
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in the hands of each one of them, viz., Mr. Subramani & Mrs. Vimala. Mrs. Vimala has sold this plot to
Ms. Padmaja on 21-03-2024 for ₹ 55 lakhs. The valuation as per stamp valuation authority remains the
same at ₹ 53 lakhs. Compute the capital gains arising on sale of the house plot by Mrs. Vimala.

Note: None of the parties viz Mr. Subramani, Mrs. Vimala, and Ms. Padmaja are related to each other;
the transactions are between outsiders.

Solution
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In the Hands of Mr. Subramani

If the stamp duty value exceeds 110% of the consideration, then the stamp duty value is taken to be
the full value of consideration. In the present case, 110% of consideration is 110% × ₹ 45,00,000 =
₹ 49,50,000. Clearly, the stamp duty value, i.e., ₹ 53,00,000 exceeds it, and therefore, ₹ 53,00,000 shall
be taken to be the full value of consideration for computation of capital gains.

In the Hands of Mrs. Vimala

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On Acquisition of Property from Mr. Subramani

As per Section 56(2)(x), if any immovable property is received for inadequate consideration, the
difference between SDV and consideration is taxable under the head Income from Other Sources, if:

1. SDV > 110% of the Sale Consideration

2. SDV – Consideration > ₹ 50,000
CA

In the present case, the stamp duty value of the house is ₹ 53,00,000, while the consideration paid by
Mrs. Vimala is only ₹ 45,00,000.

CA NISHANT KUMAR 10
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Therefore, SDV exceeds 110% of the sale consideration, i.e., 110% of ₹ 45,00,000 = ₹ 49,50,000; and
the difference between SDV and Consideration = ₹ 53,00,000 – ₹ 45,00,000 = ₹ 8,00,000, which
exceeds ₹ 50,000.

Therefore, ₹ 8,00,000 shall be taxable in the hands of Mrs. Vimala under the head Income from Other
Sources for this transaction.

UM
On Transfer of Property to Ms. Padmaja

Since the property is not held for more than 24 months, it shall be treated as a short-term capital asset,
and any gains arising from the transfer of such asset shall be short-term capital gain.

Here, since, the stamp duty value, i.e., ₹ 53,00,000 is less than the sale consideration, i.e., ₹ 55,00,000,
the actual sale consideration would be treated as the full value of consideration. The cost of acquisition
in the hands of Mrs. Vimala would be ₹ 53,00,000 since she has already paid tax under the head Income
from Other Sources. Therefore, short term capital gains arising on the transfer of this property to Ms.

TK
Padmaja = ₹ 55,00,000 – ₹ 53,00,000 = ₹ 2,00,000

Question 12 – Past Exam Question

Mr. Ganesh received the following gifts during P.Y. 2023-24 from his friend Mr. Sundar:

1. Cash gift of ₹ 51,000 on his birthday, 19th June, 2023

2. 50 shares of Beta Ltd., the FMV of which was ₹ 60,000 on his birthday, 19th June, 2023
3. 100 shares of Alpha Ltd., FMV of which was ₹ 70,000 on the date of transfer. The gift was
AN
received on the occasion of Diwali. Mr. Sundar had originally purchased the shares on 10-08-
2022 at a cost of ₹ 50,000.

Further on 20th November, 2023, Mr. Ganesh purchased land from his sister’s mother-in-law for
₹ 5,00,000. The stamp value of this land was ₹ 7,00,000.

On 15th February, 2024, he sold 100 shares of Alpha Ltd. for ₹ 1,00,000.

Compute the income of Mr. Ganesh chargeable under the head “Income from Other Sources” and
SH

“Capital Gains” for A.Y. 2024-25.

Solution

Computation of Income from Other Sources of Mr. Ganesh for A.Y. 2024-25
Particulars ₹
Cash gift received from Mr. Sundar (Note 1) 51,000
Gift of Shares in Beta Ltd. and Alpha Ltd. (Note 2) 1,30,000
NI

Purchase of Land for Inadequate consideration from Non-Relative (Note 3) 2,00,000

Total Income 3,81,000

Calculation of Capital Gains of Mr. Ganesh for A.Y. 2024-25

Particulars ₹
Full Value of Consideration 1,00,000
Less: Cost of Acquisition 70,000
CA

Short Term Capital Gain 30,000

CA NISHANT KUMAR 11
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Notes:

1. Since aggregate of cash gifts received by Mr. Ganesh exceeds ₹ 50,000, it is fully taxable.
2. If the aggregate value of movable properties received as gifts exceeds ₹ 50,000, then the entire
amount is taxable. In this case, FMV of Shares of Beta Ltd. = ₹ 60,000, and FMV of shares of
Alpha Ltd. = ₹ 70,000. The aggregate, i.e., ₹ 1,30,000 exceeds ₹ 50,000, and hence, the entire
amount will be taxable.

UM
3. In case of acquisition of immovable property for inadequate consideration, difference
between SDV and consideration is taxable, if:
a. (SDV – Consideration) > ₹ 50,000, AND
b. SDV > 110% of Consideration
In the present case, SDV – Consideration is ₹ 7,00,000 – ₹ 5,00,000 = ₹ 2,00,000, which is
greater than ₹ 50,000.
Also, 110% of consideration = 110% × ₹ 5,00,000 = ₹ 5,50,000. SDV is greater than this.
Therefore, difference between SDV and consideration is taxable.

Dividend Income [Section 56(2)(i)]

2(22)(a)

2(22)(b)
TK
Dividend income is taxable under the head “Income from Other Sources”.
Deemed According to section 2(22), the following receipts are deemed to be dividend:
Dividend
Distribution of accumulated profits, entailing the release of company’s
assets
Distribution of debentures, deposit certificates to shareholders and
bonus shares to preference shareholders
AN
2(22)(c) Distribution on liquidation
2(22)(d) Distribution on reduction of capital
2(22)(e) Advance or loan by a closely held company to its shareholder
SH
NI

Taxability
Rate It is taxed at Normal Rates of Tax
Deductions If any loan is taken for investment in shares to earn dividends, interest
Allowed paid on such loan is allowed as deduction upto 20% of Grossed Up Value.
TDS Implications
CA

By TDS is NOT required to be deducted by the company at the time of

Companies payment of dividend if:
on Dividend • Payment is made to an individual shareholder;

CA NISHANT KUMAR 12
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• Dividend is paid by the company in any mode other than cash;
and
• Aggregate dividend paid/payable by the company to the
shareholder in the financial year ≤ ₹ 5,000.
By Mutual The mutual fund is liable to deduct tax at source if the aggregate income
Funds payable by the person responsible for paying to the unit holder >

UM
₹ 5,000.

Question 13 – ICAI SM – Illustration 1; May, 2011 – 5 Marks; November, 2016 (Similar) – 4 Marks

Rahul, a resident Indian, holding 28% of equity shares in a company, took a loan of ₹ 5,00,000 from the
same company. On the date of granting the loan, the company had accumulated profit of ₹ 4,00,000.
The company is engaged in some manufacturing activity.

1. Is the amount of loan taxable as deemed dividend, if the company is a company in which the

TK
public are substantially interested?
2. What would be your answer, if the lending company is a private limited company (i.e., which
is not a company in which the public are substantially interested)?

Solution

Any payment by a company, other than a company in which the public are substantially interested, of
any sum by way of advance or loan to an equity shareholder, being a person who is the beneficial
owner of shares holding not less than 10% of the voting power, is deemed as dividend under section
2(22)(e), to the extent the company possesses accumulated profits.
AN
1. The provisions of section 2(22)(e), however, will not apply where the loan is given by a
company in which public are substantially interested. In such a case, the loan would not be
taxable as deemed dividend.
2. However, if the loan is taken from a private company (i.e., a company in which the public are
not substantially interested), which is a not a company where lending of money is a substantial
part of the business of the company, the provisions of section 2(22)(e) would be attracted. In
this case, since the company is a manufacturing company and not a lending company and
SH

Rahul holds more than 10% of the equity shares in the company, the provisions of section
2(22)(e) would be attracted.
The amount chargeable as deemed dividend cannot, however, exceed the accumulated profits
held by the company on the date of giving the loan. Therefore, the amount taxable as deemed
dividend would be limited to the accumulated profit i.e., ₹ 4,00,000 and not the amount of
loan which is ₹ 5,00,000.
NI

Question 14 – May, 2018 – 3 Marks

XYZ Ltd., a domestic company, declared dividend of ₹ 150 lakh for the Financial Year 2023-24 and
distributed the same on 31-07-2023. Mr. A, holding 10% share in XYZ Ltd. received net dividend of
₹ 13.5 lakh in July, 2023. Mr. B holding 5% share in XYZ Ltd. received net dividend of ₹ 6.75 lakh in July,
2023.
CA

Discuss the tax liabilities in the hands of Mr. A and Mr. B assuming that Mr. A and Mr. B have not
received dividend from any other domestic company during the year.

CA NISHANT KUMAR 13
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Solution

In both the cases, dividend received from shares of Indian company shall be chargeable tot tax in the
hands of the shareholder. Gross dividend will be taxable in the hands of shareholders.

Dividend chargeable to tax in the hands of Mr. A:

13,50,000 × 100

UM
= ₹ 15,00,000
90
Dividend chargeable to tax in the hands of Mr. B:
6,75,000 × 100
= ₹ 7,50,000
90

Question 15 – November, 2018 – 2 Marks

TK
Examine with brief reasons, whether the following is chargeable to income tax and the amount liable
to tax with reference to the provisions of the Income-tax Act, 1961: During the previous year 2023-24,
Mrs. Aishwarya, a resident, received a sum of ₹ 7,65,000 as dividend from Indian Companies and
₹ 3,60,000 as dividend from Indian equity oriented mutual fund units.

Solution

Dividend from shares of Indian Company and dividend from units of Indian Equity Oriented Mutual
Funds is taxable in the hands of Mrs. Aishwarya.
AN
Total amount received = ₹ 7,65,000 + ₹ 3,60,000 = ₹ 11,25,000

Gross amount taxable in the hands of Mrs. Aishwarya:

₹ 11,25,000 × 100
= ₹ 12,50,000
90
SH

Question 16

Mr. X, a resident individual aged 45 years gives the following information pertaining to the assessment
year 2024-25:

Particulars ₹
Business Income 15,00,000
Dividend from shares of Indian Company (net) 9,00,000
Interest expenses incurred on making investment in shares 2,50,000
NI

Long term capital gains on sale of building 18,60,000

Determine the amount of total income and tax liability for assessment year 2024-25 assuming that he
has decided to shift out of the default scheme u/s 115BAC.

Solution

Computation of Total Income and Tax Liability of Mr. X for A.Y. 2024-25
Particulars ₹
CA

Business Income 15,00,000

Long Term Capital Gains on Sale of Building 18,60,000

CA NISHANT KUMAR 14
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Income from Other Sources:
Dividend from Shares of Indian Company (₹ 9,00,000 × 100 ÷ 90) 10,00,000
Less: Interest expenses incurred for making investment in shares 2,00,000
Less: (₹ 2,50,000; subject to maximum of 20% × ₹ 10,00,000) 8,00,000
Total Income 41,60,000
.

UM
Computation of Tax Liability
Long Term Capital Gains @ 20% 3,72,000
Balance Income, i.e., ₹ 41,60,000 – ₹ 18,60,000 = ₹ 23,00,000
On First ₹ 2,50,000 -
From ₹ 2,50,000 till ₹ 5,00,000 (5% × ₹ 2,50,000) 12,500
From ₹ 5,00,000 till ₹ 10,00,000 (20% × ₹ 5,00,000) 1,00,000
From ₹ 10,00,000 till ₹ 23,00,000 (30% × ₹ 13,00,000) 3,90,000 5,02,500
8,74,500
Add: Health and Education Cess @ 4% 34,980
9,09,480

TK
Less: TDS u/s 194 on Dividends (₹ 9,00,000 × 10 ÷ 90) 1,00,000
Tax Payable 8,09,480

Consideration Received in Excess of FMV of Shares of a Closely Held

Company, Where Such Shares are Issued at a Premium [Section
56(2)(viib)]
If a closely held company (private ltd.) issues shares in excess of their face value (at premium) to a
AN
resident or a non-resident person, then the following is chargeable to tax under the head Income from
Other Sources:

𝐼𝑠𝑠𝑢𝑒 𝑃𝑟𝑖𝑐𝑒 𝑜𝑓 𝑆ℎ𝑎𝑟𝑒𝑠 – 𝐹𝑎𝑖𝑟 𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑆ℎ𝑎𝑟𝑒𝑠

Face FMV Issue Applicability of Section 56(2)(viib)

Value Price
100 120 130 Income u/s 56(2)(viib) = ₹ 130 – ₹ 120 = ₹10
100 120 110 Income u/s 56(2)(viib) = NIL
SH

100 90 98 Income u/s 56(2)(viib) = NIL

100 90 110 Income u/s 56(2)(viib) = ₹ 110 – ₹ 90 = ₹20

Question 17 – ICAI SM – Examples 1 to 4

The following are the details of the shares issued by different companies during the financial year 2023-
24. Discuss the applicability of provisions of section 56(2)(viib) in the hands of the company:
NI

Issuing Number of Face Value of FMV of Issue Price of

Company Shares Shares Shares Shares
A (P) Ltd. 10,000 100 120 130
B (P) Ltd. 20,000 100 120 110
C (P) Ltd. 30,000 100 90 98
D (P) Ltd. 40,000 100 90 110
CA

Solution

CA NISHANT KUMAR 15
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Issuing Number Face FMV of Issue Applicability of Section 56(2)(viib)
Company of Value Shares Price of
Shares of Shares
Shares
A (P) Ltd. 10,000 100 120 130 The provisions of section 56(2)(viib) are
attracted in this case since the shares are

UM
issued at a premium (i.e., issue price
exceeds the face value of shares). The
excess of the issue price of the shares over
the FMV would be taxable under section
56(2)(viib). ₹ 1,00,000 [10,000 × ₹ 10 (₹ 130
- ₹ 120)] shall be treated as income in the
hands of A (P) Ltd.
B (P) Ltd. 20,000 100 120 110 The provisions of section 56(2)(viib) are
attracted since the shares are issued at a
premium. However, no sum shall be

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chargeable to tax in the hands of B (P) Ltd.
under the said section as the shares are
issued at a price less than the FMV of
shares.
C (P) Ltd. 30,000 100 90 98 Section 56(2)(viib) is not attracted since the
shares are issued at a discount, though the
issue price is greater than the FMV.
D (P) Ltd. 40,000 100 90 110 The provisions of section 56(2)(viib) are
attracted in this case since the shares are
AN
issued at a premium. The excess of the issue
price of the shares over the FMV would be
taxable under section 56(2)(viib).
Therefore, ₹ 8,00,000 [40,000 × ₹ 20 (₹ 110
- ₹ 90)] shall be treated as income in the
hands of D (P) Ltd.
SH

Question 18 – November, 2019 – 4 Marks

MLX Investments (P) Ltd. was incorporated during the previous year 2019-20 having a paid up capital
of ₹ 10 lakhs. In order to increase its capital, the company further issues, 1,00,000 shares (having face
value of ₹ 100 each) during the year at par as on 01-08-2023. The FMV on such share as on 01-08-2023
was ₹ 85.

1. Determine the tax implications of the above transaction in the hands of company, assuming it
is the only transaction made during the year.
NI

2. Will your answer change, if shares were issued at ₹ 105 each?

3. What will be your answer, if shares were issued at ₹ 105 and FMV of the share was ₹ 120 as
on 01-08-2023?

Solution

According to Section 56(2)(viib), where a company, not being a company in which the public are
substantially interest, receives, in any previous year, from any person being a resident, any
CA

consideration for issue of shares that exceeds the face value of such shares, the aggregate

CA NISHANT KUMAR 16
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consideration received for such shares as exceeds the fair market value of the shares shall be taxable
as Income from Other Sources in the hands of the company.

1. In this case, since MLX Investments (P) Ltd., a closely held company issued 1,00,000 shares
(having face value of ₹ 100 each) at par, i.e., ₹ 100 each, though issue price is greater than
FMV, no amount would be chargeable to tax as income from other sources.
2. In case shares are issued at premium of ₹ 5 per share, the difference between issue price and

UM
FMV of shares, i.e., (₹ 105 – ₹ 85) × 1,00,000 = ₹ 20,00,000 shall be taxable as Income from
Other Sources.
3. If shares are issued at ₹ 105 each and FMV of shares is ₹ 120 each, no amount would be
chargeable to tax even though the shares were issued at a premium, since shares are issued
at a price which is less than the fair market value.
However, as per Section 56(2)(x), if any property is received for inadequate consideration, and
the difference between the FMV and consideration exceeds ₹ 50,000, it is taxable in the hands
of the recipient. “Shares” are included in the definition of “property”. In the present case, the

TK
shareholder has received the shares at ₹ 105, while the FMV is ₹ 120. The total amount is
(₹ 120 – ₹ 105) × 1,00,000 = ₹ 15,00,000. Since this exceeds ₹ 50,000, it’ll be taxable in the
hands of the shareholder u/s 56(2)(x).

Question 19 – May, 2016 – (2 × 4 = 8) Marks

Discuss the taxability or otherwise in the hands of the recipients, as per the provisions of the Income-
tax Act, 1961:
AN
1. ABC Private Limited, a closely held company, issued 10,000 shares at ₹ 130 per share. (The face
value of the share is ₹ 100 per share and the fair market value of the share is ₹ 120 per share).
2. Mr. A received an advance of ₹ 50,000 on 01-09-2023 against the sale of his house. However,
due to non-payment of instalment in time, the contract has cancelled and the amount of
₹ 50,000 was forfeited.
3. Mr. N, a member of his father’s HUF, transferred a house property to the HUF without
consideration. The value of the house is ₹ 10 lakhs as per the registrar of stamp duty.
SH

4. Mr. Kumar gifted a car to his sister’s son (Sunil) for achieving good marks in CA Final exam. The
fair market value of the car is ₹ 5,00,000.

Solution

1. The provisions of section 56(2)(viib) are attracted in this case since the shares of a closely held
company are issued at a premium (i.e., the issue price of ₹ 130 per share exceeds the face
value of ₹ 100 per share) and the issue price exceeds the fair market value of such shares.
NI

The consideration received by the company in excess of the fair market value of the shares
would be taxable u/s 56(2)(viib).
Therefore, ₹ 1,00,000 [i.e., (₹ 130 – ₹ 120) × 10,000 shares] shall be the income chargeable u/s
56(2)(viib) in the hands of ABC Private Limited.
2. If any sum is received as advance in the course of negotiations for transfer of a capital asset,
and it is forfeited, and the negotiations do not result in the transfer of such asset, the forfeited
amount is chargeable to tax under the head Income from Other Sources u/s 56(2)(ix).
CA

3. Any property received without consideration by an HUF from its relative is not taxable u/s
56(2)(x). Since N is a member of his father’s HUF, he is a “relative” of the HUF. Therefore, if
HUF receives any property (house, in this case) from its member, i.e., N, without consideration,

CA NISHANT KUMAR 17
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then the stamp value of such property will not be chargeable to tax in the hands of the HUF,
since gift received from a relative is excluded from the scope of section 56(2)(x).
4. Car is not included in the definition of property as per section 56(2)(x), therefore, the same
shall not be taxable.

Taxation of Certain Incomes

UM
Income Winnings from lotteries, Unexplained cash Net winnings from
crossword puzzles, races credits/ investments/ online games
including horse races, card money, bullion, jewellery
games and other games, etc./ expenditure, etc.
gambling, betting etc. (other
than winning from any online
game)
Section 115BB 115BBE 115BBJ
Tax Rate 30% of such winnings (further 60% of such income plus 30% of net winnings

TK
increased by surcharge, if surcharge @25% of tax from online game
applicable, and health and (Effective rate of tax is (further increased by
education cess @ 4%) 78%, including health and surcharge, if applicable,
education cess @ 4%) and health and
education cess @ 4%)
Other ➢ No expenditure or allowance can be allowed from such income.
Conditions ➢ Deduction under Chapter VI-A is not allowable from such income.
➢ Adjustment of unexhausted basic exemption limit is also not permitted
against such income.
AN
➢ Set-off of losses is not permissible against such income.
TDS 30%, if aggregate amount > 30%, without any
₹10,000 (u/s 194BB) threshold (u/s 194BA)

Interest Received on Compensation/Enhanced Compensation [Section

56(2)(viii)]
• This is deemed to be the income of the year of receipt.
SH

• It is taxable under the head Income from Other Sources.

• A flat deduction of 50% is allowed u/s 57.

Question 20 – November, 2011 – 4 Marks; ICAI SM – Question 3; ICAI SM – Illustration 6 (Similar)

On 10.10.2023, Mr. Govind (a bank employee) received ₹ 5,00,000 towards interest on enhanced
compensation from State Government in respect of compulsory acquisition of his land effected during
the financial year 2015-16.
NI

Out of this interest, ₹ 1,50,000 relates to the financial year 2016-17; ₹ 1,65,000 to the financial year
2017-18; and ₹ 1,85,000 to the financial year 2018-19. He incurred ₹ 50,000 by way of legal expenses
to receive the interest on such enhanced compensation.

How much of interest on enhanced compensation would be chargeable to tax in the A.Y.2024-25?

Solution
CA

Section 145B provides that interest received by the assessee on enhanced compensation shall be
deemed to be the income of the assessee of the year in which it is received, irrespective of the method
of accounting followed by the assessee and irrespective of the financial year to which it relates.

CA NISHANT KUMAR 18
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Section 56(2)(viii) states that such income shall be taxable as ‘Income from other sources’.

50% of such income shall be allowed as deduction by virtue of section 57(iv) and no other deduction
shall be permissible from such Income.

Therefore, legal expenses incurred to receive the interest on enhanced compensation would not be
allowed as deduction from such income.

UM
Computation of interest on enhanced compensation taxable as “Income from other sources” for
the A.Y 2024-25
Particulars ₹
Interest on enhanced compensation taxable u/s 56(2)(viii) 5,00,000
Less: Deduction under section 57(iv) (50% × ₹ 5,00,000) 2,50,000
Taxable interest on enhanced compensation 2,50,000

Question 21 – November, 2020 – 4 Marks

TK
Ms. Julie received the following amounts during the previous year 2023-24:

1. Received loan of ₹ 5,00,000 from ABC Private Limited, a closely held company engaged in
textile business. She is holding 10% of the equity share capital in the said company. The
accumulated profit of the company was ₹ 2,00,000 on the date of the loan.
2. Received interest on enhanced compensation of ₹ 5,00,000. Out of this interest, ₹ 1,50,000
relates to the previous year 2018-19, ₹ 1,90,000 relates to the previous year 2019-20 and
₹ 1,60,000 relates to the previous year 2020-21. She paid ₹ 1 lakh to her advocate for his
AN
efforts in the matter.

Discuss the tax implications, if any, arising from these transactions in her hand with reference to
Assessment Year 2023-24.

Solution

The tax implications are discussed as under:

SH

1. Any payment by way of a loan by a closely held company to its shareholder holding not less
than 10% of voting power is deemed as dividend, to the extent of accumulated profits of the
company. According, out of ₹ 5 lakhs given by ABC Pvt. Ltd. to Ms. Julie, loan to the extent of
₹ 2 lakhs would be treated as deemed dividend for A.Y. 2024-25 and will be taxable in her
hands.
2. Interest on enhanced compensation is chargeable to tax under the head “Income from Other
Sources” in the year of receipt after providing for deduction of 50% of such income.
Accordingly, ₹ 2,50,000 [₹ 5,00,000 – ₹ 2,50,000, being 50% of ₹ 5 lakhs] would be chargeable
NI

to tax in the hands of Ms. Julie under the head “Income from Other Sources” for the A.Y. 2024-
25.

Question 22 – ICAI SM – Illustration 2

Mr. A, a dealer in shares, received the following without consideration during the P.Y. 2023-24 from
CA

his friend Mr. B:

1. Cash gift of ₹ 75,000 on his anniversary, 15th April, 2023.

CA NISHANT KUMAR 19
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2. Bullion, the fair market value of which was ₹ 60,000, on his birthday, 19th June, 2023.
3. A plot of land at Faridabad on 1st July, 2023, the stamp value of which is ₹ 5 lakh on that date.
Mr. B had purchased the land in April, 2009.

Mr. A purchased from his friend Mr. C, who is also a dealer in shares, 1000 shares of X Ltd. @ ₹ 400
each on 19th June, 2023, the fair market value of which was ₹ 600 each on that date. Mr. A sold these
shares in the course of his business on 23rd June, 2023.

UM
Further, on 1st November, 2023, Mr. A took possession of property (office building) booked by him two
years back at ₹ 20 lakh. The stamp duty value of the property as on 1st November, 2023 was ₹ 32 lakh
and on the date of booking was ₹ 23 lakh. He had paid ₹ 1 lakh by account payee cheque as down
payment on the date of booking.

On 1st March, 2024, he sold the plot of land at Faridabad for ₹ 7 lakh.

Compute the income of Mr. A chargeable under the head “Income from other sources” and “Capital

TK
Gains” for A.Y. 2024-25.

Solution

Computation of Income from Other Sources of Mr. A for A.Y. 2024-25

Particulars ₹
Cash Gift from Friend (Note 1) 75,000
Bullion received from Friend (Note 2) 60,000
Plot of Land at Faridabad (Note 3) 5,00,000
Shares purchased from C (Note 4) -
AN
Possession of Property (Office Building) (Note 5) 3,00,000
Income from Other Sources 9,35,000

Computation of Capital Gains of Mr. A for A.Y. 2024-25

Particulars ₹
Full Value of Consideration 7,00,000
Less: Cost of Acquisition (Note 6) 5,00,000
SH

Short Term Capital Gains 2,00,000

Notes:

1. Monetary gifts received from friends are taxable, if the aggregate value of such gifts exceed
₹ 50,000. Therefore, in this case, cash gift of ₹ 75,000 is taxable.
2. Any property received by a friend without consideration is taxable, if the aggregate fair market
value of the property exceeds ₹ 50,0000. Bullion is covered in the definition of property.
Therefore, in this case, bullion worth ₹ 60,000 is taxable.
3. Any immovable property received by a friend without consideration is taxable, if the stamp
NI

duty value of such property exceeds ₹ 50,0000. Therefore, in this case, plot of land worth
₹ 5,00,000 is taxable.
4. Shares are covered in the definition of property. However, property received without
consideration or for inadequate consideration is taxable only if it is received as a capital asset,
and not if it is received as raw materials, consumable stores, stock in trade, etc. In the present
case, since Mr. A is a dealer in shares, these shares represent his stock-in-trade. Therefore,
receipt of such shares is not taxable.
CA

5. Usually, stamp duty value as on the date of registration is to be considered. However, if the
date of agreement and date of registration are different, then stamp duty value on the date of

CA NISHANT KUMAR 20
 AR
agreement can be considered provided whole or part of the consideration is received in any
specified mode. In the present case, stamp duty value on the date of agreement was
₹ 23,00,000, while the consideration agreed was ₹ 20,00,000. Since the stamp duty value
exceeds 110% of the sale consideration, and the difference between stamp duty value and sale
consideration exceeds ₹ 50,000, the difference between the stamp duty value and sale
consideration is taxable.

UM
6. When an immovable property is acquired at a price less than the stamp duty value, but the
difference has been taxed under the head Income from Other Sources, the cost of acquisition
of this property is taken to be the stamp duty value which was considered for taxing it under
the head Income from Other Sources. The period of holding of this asset is counted from the
date the property became the asset of the assessee. Therefore, short term capital gains shall
arise.

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Question 23 – ICAI SM – Illustration 4

Mr. Hari, a property dealer, sold a building in the course of his business to his friend Mr. Rajesh, who
is a dealer in automobile spare parts, for ₹ 90 lakh on 1.1.2024, when the stamp duty value was ₹ 150
lakh. The agreement was, however, entered into on 1.9.2023 when the stamp duty value was ₹ 140
lakh. Mr. Hari had received a down payment of ₹ 15 lakh by a crossed cheque from Rajesh on the date
of agreement. Discuss the tax implications in the hands of Hari and Rajesh, assuming that Mr. Hari has
purchased the building for ₹ 75 lakh on 12th July, 2022.

Would your answer be different if Hari was a share broker instead of a property dealer?
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Solution

Case 1 – Tax Implications if Mr. Hari is a Property Dealer

In the Hands of Mr. Hari (the seller)

In the hands of Hari, the provisions of section 43CA would be attracted, since the building represents
his stock-in-trade and he has transferred the same for a consideration less than the stamp duty value;
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and the stamp duty value exceeds 110% of consideration. Under section 43CA, the option to adopt the
stamp duty value on the date of agreement can be exercised only if whole or part of the consideration
has been received on or before the date of agreement by way of account payee cheque or draft or by
use of ECS through a bank account or through credit card, debit card, net banking, IMPS (Immediate
payment Service), UPI (Unified Payment Interface), RTGS (Real Time Gross Settlement), NEFT (National
Electronic Funds Transfer), and BHIM (Bharat Interface for Money) Aadhar Pay on or before the date
of agreement. In this case, since the down payment of ₹ 15 lakh is received on the date of agreement
by crossed cheque and not account payee cheque, the option cannot be exercised. Therefore, ₹ 75
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lakh, being the difference between the stamp duty value on the date of transfer i.e., ₹ 150 lakh, and
the purchase price i.e., ₹ 75 lakh, would be chargeable as business income in the hands of Mr. Hari,
since stamp duty value exceeds 110% of the consideration.

In the Hands of Mr. Rajesh (the buyer)

Since Mr. Rajesh is a dealer in automobile spare parts, the building purchased would be a capital asset
in his hands. The provisions of section 56(2)(x) would be attracted in the hands of Mr. Rajesh who has
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received immovable property, being a capital asset, for inadequate consideration and the difference
between the consideration and stamp duty value exceeds ₹ 9,00,000, being the higher of ₹ 50,000 and

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10% of consideration. Therefore, ₹ 60 lakh, being the difference between the stamp duty value of the
property on the date of registration (i.e., ₹ 150 lakh) and the actual consideration (i.e., ₹ 90 lakh) would
be taxable under section 56(2)(x) in the hands of Mr. Rajesh, since the payment on the date of
agreement is made by crossed cheque and not account payee cheque/draft or ECS or through credit
card, debit card, net banking, IMPS (Immediate payment Service), UPI (Unified Payment Interface),
RTGS (Real Time Gross Settlement), NEFT (National Electronic Funds Transfer), and BHIM (Bharat

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Interface for Money) Aadhar Pay.

Case 2 –Tax Implications if Mr. Hari is a Share Broker

In the Hands of Mr. Hari (the seller)

In case Mr. Hari is a share broker and not a property dealer, the building would represent his capital
asset and not stock-in-trade. In such a case, the provisions of section 50C would be attracted in the
hands of Mr. Hari, since building is transferred for a consideration less than the stamp duty value; and
the stamp duty value exceeds 110% of consideration. Thus, ₹ 75 lakh, being the difference between

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the stamp duty value on the date of registration (i.e., ₹ 150 lakh) and the purchase price (i.e., ₹ 75 lakh)
would be chargeable as short-term capital gains. It may be noted that under section 50C the option to
adopt the stamp duty value on the date of agreement can be exercised only if whole or part of the
consideration has been received on or before the date of agreement by way of account payee cheque
or draft or by use of ECS through a bank account or through credit card, debit card, net banking, IMPS
(Immediate payment Service), UPI (Unified Payment Interface), RTGS (Real Time Gross Settlement),
NEFT (National Electronic Funds Transfer), and BHIM (Bharat Interface for Money) Aadhar Pay on or
before the date of agreement. In this case, since the down payment of ₹ 15 lakhs has been received
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on the date of agreement by crossed cheque and not account payee cheque, the option cannot be
exercised.

In the Hands of Mr. Rajesh (the buyer)

There would be no difference in the taxability in the hands of Mr. Rajesh, whether Mr. Hari is a property
dealer or a stock broker, (except where the property transferred in a residential unit fulfilling the
stipulated conditions, which is not so in this case). Therefore, the provisions of section 56(2)(x) would
be attracted in the hands of Mr. Rajesh who has received immovable property, being a capital asset,
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for inadequate consideration and the difference between the consideration and stamp duty value
exceeds ₹ 9,00,000, being the higher of ₹ 50,000 and 10% of consideration. Therefore, ₹ 60 lakh, being
the difference between the stamp duty value of the property on the date of registration (i.e., ₹ 150
lakh) and the actual consideration (i.e., ₹ 90 lakh) would be taxable under section 56(2)(x) in the hands
of Mr. Rajesh, since the payment on the date of agreement is made by crossed cheque and not account
payee cheque/draft or ECS or through credit card, debit card, net banking, IMPS (Immediate payment
Service), UPI (Unified Payment Interface), RTGS (Real Time Gross Settlement), NEFT (National
Electronic Funds Transfer), and BHIM (Bharat Interface for Money) Aadhar Pay.
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Question 24 – ICAI SM – Question 2

Examine whether the following are chargeable to tax and the amount liable to tax:

1. A sum of ₹ 1,20,000 was received as gift from non-relatives by Raj on the occasion of the
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marriage of his son Pravin.

2. Interest on enhanced compensation of ₹ 96,000 received on 12-3-2024 for acquisition of urban
land, of which 40% relates to P.Y. 2022-23.

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Solution

1. The exemption from applicability of section 56(2)(x) would be available if, inter alia, gift is
received from a relative or gift is received on the occasion of marriage of the individual himself.
In this case, since gift is received by Mr. Raj from a non-relative on the occasion of marriage of
his son, it would be taxable in his hands under section 56(2)(x).
2. As per the provisions of the law, interest received by the assessee on enhanced compensation

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shall be deemed to be the income of the year in which it is received, irrespective of the method
of accounting followed by the assessee. Interest of ₹ 96,000 on enhanced compensation is
chargeable to tax in the year of receipt i.e., P.Y. 2023-24 under section 56(2)(viii) after
providing deduction of 50% under section 57(iv). Therefore, ₹ 48,000 is chargeable to tax
under the head “Income from other sources”.

Advance Forfeited Due to Failure of Negotiations for Transfer of a

Capital Asset [Section 56(2)(ix)]

Deductions Allowable [Section 57]

S.
No.
Particulars
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Any advance money received and forfeited by any person due to the failure of negotiations for transfer
of a capital asset on or after 01-04-2014 is taxed under the head Income from Other Sources in the
year of receipt.

Deduction

1. In case of dividend or income in Interest expenditure to earn such income. However,

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respect of units of mutual fund or such interest expenses cannot exceed 20% of such
income in respect of units from a income included in total income, without deduction
specified company under this section.
2. In case of interest on Securities Any reasonable sum paid by way of commission or
remuneration to a banker or any other person.
3. Income consists of recovery from Amount of contribution remitted before the due
employees as contribution to any PF, date under the respective Acts, in accordance with
superannuation fund etc. the provisions of section 36(1)(va)
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4. Income from letting on hire of Current repairs to the machinery, plant, furniture or
machinery, plant and furniture, with or building, insurance premium, depreciation/
without building unabsorbed depreciation
5. Family Pension Sum equal to
• 33 1/3% of such income or
• ₹15,000,
whichever is less
6. Interest on compensation/ enhanced 50% of such interest income
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compensation received

Deductions Not Allowable [Section 58]

S. Particulars
No.
1. Any personal expense of the assessee
2. Any interest chargeable to tax under the Act which is payable outside India on which tax has
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not been paid or deducted at source.

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3. Any payment chargeable to tax under the head “Salaries”, if it is payable outside India unless
tax has been paid thereon or deducted at source.
4. Any expenditure in respect of which a payment is made to a related person, to the extent the
same is considered excessive or unreasonable by the Assessing Officer, having regard to the
FMV.
5. Any expenditure in respect of which a payment or aggregate payments exceeding ₹10,000 is

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made to a person in a day otherwise than by account payee cheque or draft or ECS through
bank account or through such other prescribed electronic mode such as credit card, debit
card, net banking, IMPS, UPI, RTGS, NEFT, and BHIM Aadhar Pay.
6. Any expenditure or allowance in connection with income by way of earnings from lotteries,
cross word puzzles, races including horse races, card games and other games of any sort or
from gambling or betting of any form or nature.
7. 30% of expenditure in respect of sum which is payable to a resident on which tax is deductible
at source, if such tax has not been deducted or after deduction has not been paid on or before
the due date of return specified in section 139(1)

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