Taxation of Income under
Amended Sec. 56(2)
C.A. Bhupendra Shah
3/601, Navjivan Society,
Lamington Road,
Mumbai- 400008.
9322507220
bhupendrashahca@hotmail.com
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Issues u/s 56(2) of the Income Tax Act.
By CA Bhupendra Shah***bhupendrashahca@hotmail.com***9322507220
SECTION 56—INCOME FROM OTHER SOURCES
Section 56 reads as under:
Income from other sources.—(1) Income of every kind which is not to be excluded from the total
income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it
is not chargeable to income-tax under any of the heads specified in section 14, items A to E.
(2) In particular and without prejudice to the generality of the provisions of sub-section (1), the
following income shall be chargeable to income-tax under the head "Income from other sources", namely
:—
(i) dividends ;
(ia) income referred to in sub-clause (viii) of clause (24) of section 2;
(ib) income referred to in sub-clause (ix) of clause (24) of section 2;
(ic) income referred to in sub-clause (x) of clause (24) of section 2, if such income is not chargeable
to income-tax under the head "Profits and gains of business or profession";
(id) income by way of interest on securities, if the income is not chargeable to income-tax under the
head "Profits and gains of business or profession";
(ii) income from machinery, plant or furniture belonging to the assessee and let on hire, if the income
is not chargeable to income-tax under the head "Profits and gains of business or profession";
(iii) where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings,
and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the
income from such letting, if it is not chargeable to income-tax under the head "Profits and gains of
business or profession".
(iv) income referred to in sub-clause (xi) of clause (24) of section 2, if such income is not chargeable
to income-tax under the head "Profits and gains of business or profession" or under the head "Salaries".
(v) where any sum of money exceeding twenty-five thousand rupees is received without consideration
by an individual or a Hindu undivided family from any person on or after the 1st day of September, 2004,
but before the 1st day of April, 2006, the whole of such sum:
Provided that this clause shall not apply to any sum of money received—
(a) from any relative; or
(b) on the occasion of the marriage of the individual; or
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Issues u/s 56(2) of the Income Tax Act.
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(c) under a will or by way of inheritance; or
(d) in contemplation of death of the payer.
(e) from any local authority as defined in the Explanation to 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 any trust or institution registered under section 12AA.
Explanation : For the purposes of this clause, "relative" means—
(i) spouse of the individual;
(ii) brother or sister of the individual;
(iii) brother or sister of the spouse of the individual;
(iv) brother or sister of either of the parents of the individual;
(v) any lineal ascendant or descendant of the individual;
(vi) any lineal ascendant or descendant of the spouse of the individual;
(vii) spouse of the persons referred to in clauses (ii) to (vi).
(vi) where any sum of money, the aggregate value of which exceeds fifty thousand rupees, is received
without consideration, by an individual or a Hindu undivided family, in any previous year from any
person or persons on or after the 1st day of April, 2006, but before the 1st day of October, 2009 the whole
of the aggregate value of such sum :
Provided that this clause shall not apply to any sum of money 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
(e) from any local authority as defined in the Explanation to clause (20) of section 10; or
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Issues u/s 56(2) of the Income Tax Act.
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(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 any trust or institution registered under section 12AA.
Explanation : For the purposes of this clause, "relative" means—
(i) spouse of the individual;
(ii) brother or sister of the individual;
(iii) brother or sister of the spouse of the individual;
(iv) brother or sister of either of the parents of the individual;
(v) any lineal ascendant or descendant of the individual;
(vi) any lineal ascendant or descendant of the spouse of the individual;
(vii) spouse of the person referred to in clauses (ii) to (vi).
(vii) where an individual or a Hindu undivided family receives, in any previous year, from any person
or persons on or after the 1st day of October, 2009,—
(a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand
rupees, the whole of the aggregate value of such sum;
(b) any immovable property, without consideration, the stamp duty value of which exceeds fifty
thousand rupees, the stamp duty value of such property;
(c) any property, other than immovable property,—
(i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the
whole of the aggregate fair market value of such property;
(ii) for a consideration which is less than the aggregate fair market value of the property by an amount
exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such
consideration :
Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is
disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer
may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and
sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such
property for the purpose of sub-clause (b) as they apply for valuation of capital asset under those sections
:
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Issues u/s 56(2) of the Income Tax Act.
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Provided further that 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, as the case may be; or
(e) from any local authority as defined in the Explanation to 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 any trust or institution registered under section 12AA.
Explanation : For the purposes of this clause,—
(a) "assessable" shall have the meaning assigned to it in the Explanation 2 to sub-section (2) of
section 50C;
(b) "fair market value" of a property, other than an immovable property, means the value determined
in accordance with the method as may be prescribed;
(c) "jewellery" shall have the meaning assigned to it in the Explanation to sub-clause (ii) of clause
(14) of section 2;
(d) "property" means the following capital asset of the assessee, namely :—means—
(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; or
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Issues u/s 56(2) of the Income Tax Act.
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(ix) bullion
(e) "relative" shall have the meaning assigned to it in the Explanation to clause (vi) of sub-section (2)
of this section;
(f) "stamp duty value" means the value adopted or assessed or assessable by any authority of the
Central Government or a State Government for the purpose of payment of stamp duty in respect of an
immovable property;
(viia) where a firm or a company not being a company in which the public are substantially
interested, receives, in any previous year, from any person or persons, on or after the 1st day of June,
2010, any property, being shares of a company not being a company in which the public are substantially
interested,—
(i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the
whole of the aggregate fair market value of such property;
(ii) for a consideration which is less than the aggregate fair market value of the property by an amount
exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such
consideration :
Provided that this clause shall not apply to any such property received by way of a transaction not
regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of
section 47.
Explanation : For the purposes of this clause, "fair market value" of a property, being shares of a
company not being a company in which the public are substantially interested, shall have the meaning
assigned to it in the Explanation to clause (vii);
(viii) income by way of interest received on compensation or on enhanced compensation referred to
in clause (b) of section 145A.
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Issues u/s 56(2) of the Income Tax Act.
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Sr
Query
W.E.F.
Solution
No
1.
What is the
scope
of
Amendments made
to
Sec.
56(2)
recently?
2.
What is meaning
1/9/04
of, “Any sum of 31/3/06
money
without
consideration
u/s
56(2)(v)”?
3.
What are the
exceptions to above?
4.

N.A
to 

Relatives
Wife/ Husband

Pati/Patni
Brother / sister of
indi.
Brother/sister

Bhai/Behen
7.
Brother/sister of
spouse
Husband’s brother/sister
Wife’s brother or sister


Jeth/Devar/Nanad
Saala/Saali
8.
Brother/Sister of
parents of indi.
Father’s brother/sister
Mother’s brother/sister


Tau or Chacha/Buaa
Mama/Mausi
9.
.Lineal ascendant
Father/mother/Grandfather/gran
/ descendant of indi.
dmother/son/daughter/grandson/gra
nd daughter /great grandfather/great
grandmother etc

Pita/Maata/Daada/Daadi/Putra/Putri
/Pautra/Pautri/Par dada/Par daadi
etc
10.
Lineal
ascendant/descendant
of spouse of indi.





Sasur
Saas
Daada Sasur
Daadi Saas
Par Sasur (bade dada sasur)
5.
Spouse
individual
6.
of
Wife/Husband 's Father
Wife/Husband's Mother
Wife/Husband's Grand Father
Wife/Husband's Grand Mother
Wife/husband's Great Grand
Father
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Issues u/s 56(2) of the Income Tax Act.
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Wife/Husband's Great Grand
Mother
11.
Spouse of the
person from 2 to 6
12.
Gifts received by
minors from a donor,
who is not a brother
or sister of either of
their parents.
13.
Who are Non
relatives?
Who are relative
of HUF?
Can definition of
relative be reversed?
When assessee
fails to substantiate
source of deposits in
brothers’
NRI
accounts, payments
received as gift can
be subjected to tax?
Money received
by minor child of
assessee
from
grandmother’s
brother
What
1/0
Amendments
were 4/06 to
carried out to Sec. 1/10/09
56(2)(v)?
Limit
of
Rs
50.000/-
14.
15.
16.
17.
18.
19.
2. spouse of Brother/sister
3.spouse
of
Husband’s
brother/sister
Wife’s brother or sister
4.
spouse
of
Father’s
brother/sister
Mother’s brother/sister
5.spouse
of
son
/daughter/grandson

Par Saas (badi dadi saas)






Bhabhi/Jija
Jethani/Devarani/Nanadoi
Saalaveli/Saadhubhai
Chachi/Phufa
Mami/Mausa
Bahu/Javai/Pautra vadhu








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Issues u/s 56(2) of the Income Tax Act.
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Are Interest free
__
loans covered u/s ____
56(2)(v)?
21.
What about Sum
received by assessee
for giving up his
rights to contest a
Will?
22.
What
is
the
meaning of property?
23.
Immovable
1/1
property
u/s 0/09
56(2)(vii)

24.
Property
other
1/1
than
immovable 0/09
property
u/s
56(2)(vii)

25.
Whether Private
specific trust are
covered
by
this
amendment?

26.
Shares of Closely
1/1
Held
Company 0/10
(CHC)
only
u/s
56(2)(viia)
27.
Whether the provisions of sub-clause (viia) of Section 56(2) of the
Act would apply to convertible debentures?

28.
Whether Family Settlements wherein the shares are allotted inter-se
amongst family members to avoid disputes would be covered by the
aforesaid provisions.

29.
What would be the position of shares received through “Will” by a
firm or a company?

30.
How would be the provisions of sub-clause (viia) of Section 56(2)
of the Act apply to transfer of right of shares or receipt of bonus shares.

20.
31.



o
Initial allotment of shares
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Issues u/s 56(2) of the Income Tax Act.
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32.
Right shares

33.
Preference share allotment

34.
Shares to non-employees under ESOP

35.
SWEAT Equity to Non employee

36.
Allotment of share otherwise that cash

37.
Conversion of debt into shares

38.
Shares against warrants

39.
Shares allotted under part ix

40.
A firm or a proprietary concern may hold the shares of a closely
held company. On conversion into a company all the Assets of
Firm/Proprietary
concern
become
the assets of the company. On such conversion, if shares are received
by the company at less than the specified value, would the provisions of
Section
56(2)
(viia) be attracted. Likewise, what would be the position of a partner
contributing shares of a closely held company as his capital
contribution on becoming partner of a firm?

41.
Company “A” has issued Bonus shares in the ratio of 1:1. Prior to
the issue of Bonus the price of each share is Rs.2000/- and Ex. Bonus
the
price
is
Rs.1100/-.
In such a case the value of two shares (original and Bonus) is Rs.2200
as against cost/pre Bonus of Rs.2000/. The actual benefit is only
Rs.200/. The Assessing Officer suppose contemplates to adopt the
FMV of the Bonus shares i.e. Ex. Bonus he may consider income of
Rs.1100/- per Bonus Share ignoring the fact that the price of original
share has diminished by Rs.900/- per share due to issue of Bonus
shares. What would be the position?

42.
S.
56(2)(viia)
receipt of shares
without
consideration- Shares
of quoted company.(
S. 92 to 92F).

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43.
Whether
nonresidents are covered
under
this
amendment?

44.
What
is
the
meaning of adequate
consideration?

45.
Period of holding
and indexation

Rule 11U/UA
Sr.
No.
Fair Market Value of shares
and securities
Controversy
2.
1.


Bound washing transactions
Sr
No
1.
2.
u/s 94(1)-94(6)
94(7)


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