INCOME FROM OTHER SOURCES Any income, profits or gains includible in the total income of an assessee, which cannot be included under any of the preceding heads of income, is chargeable under the head ‘Income from other sources’. Thus, this head is the residuary head of income and brings within its scope all the taxable income, profits or gains of an assessee which fall outside the scope of any other head. Therefore, when any income, profit or gain does not fall precisely under any of the other specific heads but is chargeable under the provisions of the Act, it would be charged under this head.
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INCOMES CHARGEABLE UNDER THIS HEAD [SECTION 56]
- (i) The income chargeable only under the head ‘Income from other sources’
- Dividend income [Section 56(2)(i)]
The term ‘dividend’ as used in the Act has a wider scope and meaning than under the general law.
Dividend [covered by sections 2(22)(a) to (e)]:
According to section 2(22), the following receipts are deemed to be dividend:
- Distribution of accumulated profits, entailing the release of company’s assets – Any distribution of accumulated profits, whether capitalised or not, by a company to its shareholders is dividend if it entails the release of all or any part of its assets. For example, if accumulated profits are distributed in cash, it is dividend in the hands of the share- holders. Where accumulated profits are distributed in kind, for example by delivery of shares etc. entailing the release of company’s assets, the market value of such shares on the date of such distribution is deemed as dividend in the hands of the shareholder.
- Distribution of debentures, deposit certificates to shareholders and bonus shares to preference shareholders – Any distribution to its shareholders by a company of debentures, debenture stock or deposit certificate in any form, whether with or without interest, and any distribution of bonus shares to preference shareholders to the extent to which the company possesses accumulated profits, whether capitalised or not, will be deemed as dividend.
The market value of such bonus shares is deemed as dividend in the hands of the preference shareholder.
In the case of debentures, debenture stock etc., their value is to be taken at the market rate and if there is no market rate they should be valued according to accepted principles of valuation.
Note: Bonus shares given to equity shareholders are not treated as dividend.
- Distribution on liquidation – Any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not, is deemed to be dividend income.
Note: Any distribution made out of the profits of the company after the date of the liquidation cannot amount to dividend. It is a repayment towards capital. (INCOME FROM OTHER SOURCES)
- Distribution on reduction of capital – Any distribution to its shareholders by a company on the reduction of its capital to the extent to which the
company possessed accumulated profits, whether capitalised or not, shall be deemed to be dividend.
- Advance or loan by a closely held company to its shareholder – Any payment by a company in which the public are not substantially interested, of any sum by way of advance or loan to any shareholder who is the beneficial owner of 10% or more of the equity capital of the company will be deemed to be dividend to the extent of the accumulated profits. If the loan is not covered by the accumulated profits, it is not deemed to be dividend.
Advance or loan by a closely held company to a specified concern
– Any payment by a company in which the public are not substantially interested, to any concern (i.e. HUF/ Firm/ AOP/ BOI/ Company) in which a shareholder, having the beneficial ownership of atleast 10% of the equity shares is a member or a partner and in which he has a substantial interest (i.e. atleast 20% share of the income of the concern) will be deemed to be dividend.
Also, any payments by such a closely held company on behalf of, or for the individual benefit of any such shareholder will also be deemed to be dividend. However, in both cases the ceiling limit of dividend is to the extent of accumulated profits.
Exceptions: The following payments or loan given would not be deemed as dividend:
- If the loan is granted in the ordinary course of its business and lending of money is a substantial part of the company’s business, the loan or advance to a shareholder or to the specified concern is not deemed to be dividend.
- Where a loan had been treated as dividend and subsequently, the company declares and distributes dividend to all its shareholders including the borrowing shareholder, and the dividend so paid is set off by the company against the previous borrowing, the adjusted amount will not be again treated as a dividend.
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Other exceptions (INCOME FROM OTHER SOURCES)
Apart from the exceptions cited above, the following also do not constitute “dividend” –
- Any payment made by a company on purchase of its own shares
