Section 56 of Income Tax Act, 1961

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Section 56 “Income from other sources”

1. Taxable Income which are not specifically covered under any of the “heads of Income” shall be taxable under the head “Income from Other Sources”.

2. Income specifically taxable under the head "Income from other sources":-

• Dividends;

• 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 whatsoever.

• any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Actor any other fund for the welfare of such employees;

• Interest on securities, if not taxable under the head "Profits and gains of business or profession";

• Rental income from machinery, plant or furniture if not taxable under the head "Profits and gains of business or profession";

• Rental Income from machinery, plant or furniture and buildings and the letting of the buildings is inseparable from other assets, if not taxable under the head "Profits and gains of business or profession";

• any sum received under a Keyman insurance policy including bonus if not taxable under the head "Profits and gains of business or profession" or under the head "Salaries";

• interest received on compensation or on enhanced compensation referred to in section 145B

• any compensation for termination of employment or the modification of the terms and conditions relating thereto.

• advance money received for transfer of a capital asset, if:

-such sum is forfeited; and

-the negotiations do not result in transfer of such capital asset;

Section 56(2)(viib)

Shares are Issued above Face Value

Where a closely held company receives any consideration for issue of shares from a Resident that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares will be taxable.

Taxable = Fair Market Value – Consideration

Closely held Company – mean a Company in which public are not substantially interested

Exception: This clause shall not apply where the consideration for issue of shares is received—

• by a venture capital undertaking from a venture capital company or a venture capital fund or a specified fund or

• by a company from a class or classes of persons as may be notified by the Central Government in this behalf:

Fair market value of the shares shall be higher of below:

a) Value as per Rule 11U and 11UA, or

b) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value of its Assets on the date of issue of shares.

Assets includes intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature,

56(2)(x): Gift or Money or Property

Following shall be chargeable to tax under the head “Income from Other Sources” in the hands of Receiver:

(a) Any sum of money received without consideration if the aggregate amount exceeds 50,000 in a financial year. The entire amount will be taxable.

Example: Mr A received gift of INR 20,000 on 1st Apr,2020 and 40,000 on 31st Mar 2021. Entire 60,000 is taxable u/s 56(2)(x) as aggregate gift exceeds 50,000 in a FY

(b) Any property, other than immovable property received:

• without consideration, the aggregate fair market value of which exceeds 50,000 rupees. The aggregate fair market value will be taxable;

• for a consideration, which is less than the aggregate fair market value of the property by an amount exceeding 50,000. The entire excess fair market value will be taxable.

(c) any immovable property received:

• without consideration, the stamp duty value of which exceeds 50,000 rupees. The full stamp duty value of such property will be taxable;

• for a consideration, the stamp duty value of such property as exceeds such consideration will be taxable, if excess amount is more than the higher of the following amounts:

- 50,000 or

- 10% of the consideration:

EXAMPLE

Stamp Duty Value = 5 lac

Purchase Consideration = 3.5 lac

Difference = 1.5 (5 lac- 3.5 lac)

As per 56(2)(x) Entire difference of 1.5 lac will be taxable if it exceeds:

Higher of below:

a) 50,000

b) 35,000 (10% of 3.5 lac )

Hence, 1.5 lac is taxable under "Income from Other Sources" in the hands of receiver of property

Property means the following Capital Assets of the assessee:-

· immovable property being land or building or both;

· shares and securities;

· jewellery;

· archaeological collections;

· drawings;

· paintings;

· sculptures;

· any work of art;

· bullion;

Hence Car, furniture etc. are not covered under this section as they are considered as Personal movable effect.

2. Date of Agreement and Date of Registration of Asset is Different: Whether we should consider stamp duty value as on the Date of agreement or Date of registration??????

The stamp duty Value on the Date of Agreement will be considered subject to below conditions:

• Full or Part of consideration is received on or before the date of agreement. AND

• Amount is received through banking Channel

Banking Channel - Account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed.

Dispute of Stamp Duty Value

Refer Section 50C of Income Tax Act 1961

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

This clause shall not apply to any sum of money or any property received:

a) from any relative; or

b) on the occasion of the marriage of the individual; or

c) under a will or by way of inheritance; or

d) in contemplation of death of the payer or donor, or

e) from any local authority as per clause (20) of section 10; or

f) 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 clause (23C) of section 10; or

g) from or by any trust or institution registered under section 12A or section 12AA or section 12AB or

h) by any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in clause (23C) of section 10; or

i) by way of transaction not regarded as transfer under section section 47; or

j) from an individual by a trust created or established solely for the benefit of relative of the individual;

k) from such class of persons and subject to such conditions, as may be prescribed.

Relatives:

1) in case of an Individual:

• spouse of the individual;

• brother or sister of the individual;

• brother or sister of the spouse of the individual;

• brother or sister of either of the parents of the individual;

• any lineal ascendant or descendant of the individual;

• any lineal ascendant or descendant of the spouse of the individual;

• spouse of the person referred above.

2) In case of a Hindu undivided family, any member thereof;