Illustration 3 - Taxation of dividends received from domestic companies : XYZ Ltd.
a domestic company, declared dividend of Rs. 150 lakh for the Financial Year 2018-19
and distributed the same on 31-07-2019. Mr. A holding 10% share in XYZ Ltd. received
dividend of Rs. 15 lakh in July, 2019. Mr. B holding 5% share in XYZ Ltd. received dividend
of Rs. 7.5 lakh in July, 2019.
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. (3 Marks,
May 2018)
Illustration 4 - Taxation of dividends received from domestic companies : Mr. X
resident individual 45 years of age gives the following information pertaining to the
assessment year 2020-21:
Particulars Rs.
Business Income 15,00,000
12,50,000
Dividend from shares of Indian company on which the company has paid
dividend distribution tax
under section 115-0
Expenses incurred on collecting such dividends 12,500
3,20,000
Loan received from ABC Pvt. Ltd. company in which Mr. X owns 15%
voting power. The accumulated
profits of the company are Rs. 5,00,000.
Long term capital gains on sale of building 18,60,000
Determine the amount of Total Income and tax liability for the assessment year 2020-
21.
Illustration 5
- Taxation of dividends received from domestic companies : Ms. XYZ
firm resident in India gives the following information pertaining to the assessment year
2020-21:
Particulars Rs.
Business Income 3,00,000
25,00,000
Dividend from shares of Indian company on which the company has paid dividend
distribution tax under section 115-O
Expenses incurred on collecting such dividends 25,000
Long term capital gains on sale of land 2,00,000
Illustration 6
- Taxability of deemed dividend u/s 2(22)(e): Rahul, holding 28% of
equity shares in a company, took a loan of Rs. 5,00,000 from the same company. On the
date of granting the loan, the company had accumulated profits of Rs. 4,00,000. The
company is engaged in some manufacturing activity.
(i) Is the amount of loan taxable as deemed dividend in the hands of Rahul, if the
company is a company in which the public are substantially interested?
(ii) What would be your answer, if the lending company is a private limited company
(i.e.) a company in which the public are not substantially interested?
- Taxability of the gifts : Check the taxability of the following gifts
received by Mrs. Rashmi during the previous year and compute the taxable income from
gifts :
Illustration 7
(i) On the occasion of her marriage on 14-8-2019, she has received Rs. 90,000 as gift
out of which Rs. 70,000 are from relatives and balance from friends.
(ii) On 12-9-2019, she has received gift of Rs. 18,000 from cousin of her mother.
(iii) A cell phone of Rs. 21,000 is gifted by her employer on 15-08-2019.
(iv) She gets gift of Rs. 25,000 from elder brother of her husband's grandfather on 25-
09-2019.
(v) She has received gift from her friend of Rs. 2,000 on 14-04-2019.
Illustration 8
- Taxability of gifts : Discuss the taxability of the following receipts in
the hands of Mr. Sanjay Kamboj under the Income-tax Act, 1961 for A.Y. 2020-21:
(i) Rs. 51,000 received from his sister living in US on 1-6-2019.
(ii) Received a car from his friend on payment of Rs. 2,50,000, the FMV of which was
Rs. 5,50,000. Provisions of taxability or Non-taxability must be discussed.
Illustration 9 - Taxability under various heads of Income : Decide the following
transactions in the context of Income- tax Act, 1961: (6 Marks, PCC May 2011) (i) Mr. B
transferred 500 shares of Reliance Industries Ltd. to M/s. B Co. (P) Ltd. on 10-10-2019
for Rs. 3,00,000 when the market price was Rs. 5,00,000. The indexed cost of acquisition
of shares for Mr. B was computed at Rs. 4,45,000. The transfer was not subjected to
securities transaction tax. Determine the income chargeable to tax in hands of Mr. B and
M/s. B Co (P) Ltd. because of the above said transaction.
(ii) Ms. Chhaya transferred a vacant site to Ms. Dayama for Rs. 4,25,000. The stamp
valuation authority fixed the value of vacant site for stamp duty purpose at Rs.
6,00,000. The total income of Chhaya and Dayama before considering the transfer
of vacant site are Rs. 50,000 and Rs. 2,05,000 respectively. The indexed cost of
acquisition for Ms. Chhaya in respect of vacant site is Rs. 4,00,000 (computed).
Determine the total income of both Ms. Chhaya and Ms. Dayama taking into
account the abovesaid transaction.
(iii) Mr. Cheqian is employed in a company with taxable salary income of Rs. 5,00,000.
He received a cash gift of Rs. 1,00,000 from Atma Charitable Trust (registered
under section 12AA) in December 2019 for meeting his medical expenses. Is the
cash gift so received from the trust chargeable to tax in the hands of Mr. Cheqian ?
Illustration 10 - Taxability of the gifts : The following details have been furnished by
Mrs. Hemali, pertaining to the year ended 31-3-2020:
(i) Cash gift of Rs. 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.
(ii) On the above occasion, a diamond necklace worth Rs. 2 lakhs was presented by
her sister living in Dubai.
(iii) When she celebrated her daughter's wedding on 21-2-2020, 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 Rs.
51,000.
Compute the income, if any, assessable as income from other sources.
Illustration 11 - Taxability of the gifts : Mr. Sharma asks you to compute his taxable
income from the following transactions which took place with his friends during January
2020 -
(i) Cash gifts received by him from Mr. A and Mr. Z : Rs. 32,000 each;
(ii) Two plot of lands gifted to him by Mr. B and Mr. C whose stamp values are Rs.
3,50,000 and Rs. 50,000 respectively;
(iii) He purchased a residential house at Rs. 6,00,000 from Mr. D, which was not
registered, but the prevalent stamp value of which was Rs. 7,50,000;
(iv) A sculpture and jewellery worth Rs. 50,000 and Rs. 35,000 respectively were
gifted by Mr. E and Mr. F;
(v) A silver coin purchased by him at Rs. 10 lakhs from Mr. G, when prevalent market
value is Rs. 10.5 lakhs and shares purchased by him at Rs. 3 lakhs from Mr. H, when
fair market value thereof was Rs. 3.3 lakhs.
(vi) A diamond ring purchased at Rs. 50 lakhs from M/s. Pearl Jewels (a jewellery shop
of his close friend) when the fair market value was Rs. 55 lakhs for the purpose of
Sharma Gem and Jewellery Mart (a jewellery shop owned by Mr. Sharma).
Illustration 12 - Taxability of gifts : Discuss the taxability or otherwise of the following
in the hands of the recipient under section 56(2)(x) the Income-tax Act, 1961 -
(i) Ankit HUF received Rs. 1,75,000 in cash from niece of Ankit (i.e., daughter of
Ankit's sister). Ankit is the Karta of the HUF.
(ii) Nikita, 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 Rs.
19,00,000.
(iii) Mr. Rakshit received 100 shares of A Ltd. from his friend as a gift on occasion of
his 25th marriage anniversary. The fair market value on that date was Rs. 120 per
share. He also received jewellery worth Rs. 45,000 (FMV) from his nephew on the
same day.
(iv) Rakesh HUF gifted a car to son of Karta for achieving good marks in XII board
examination. The fair market value of the car is Rs. 3,00,000.
(v) Ms. Kareena purchased a land from PMC Co. a partnership concern for Rs.
7,15,000. The stamp duty value of the same was Rs. 12,00,000.
Illustration 13 - Taxability of various receipts: Discuss the taxability or otherwise in
the hands of the recipients, as per the provisions of the Income-tax Act, 1961:
(2x4 = 8 Marks, May 2016)
(i) ABC Private Limited, a closely held company, issued 10,000 share at Rs. 130 per
share. (The face value of the share is Rs. 100 per share and the fair market value
of the share is Rs. 120 per share).
(ii) Mr. A received an adyance of Rs. 50,000 on 1-9-2019 against the sale of his house.
However, due to non-payment of instalment in time, the contract has cancelled
and the amount of Rs. 50,000 was forfeited.
(iii) Mr. N, a member of his father's HUF, transferred a house property to the HUF
without consideration. The value of the house is Rs. 10 lacs as per the registrar of
stamp duty.
(iv) Mr. Kumar gifted a car to his sister's son (Sunil) for achieving goods marks in CA
Final exam. The fair market value of the car is Rs. 5,00,000.
Illustration 14 - Capital gains & Gift in case of inadequate consideration : Mr. Raj
Kumar sold a house to his friend Mr. Dhruv on 1st November, 2019 for a consideration
of Rs. 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 Rs. 45,00,000, which was the
Government guideline value. Mr. Raj Kumar preferred an appeal to the Revenue
Divisional Officer, who fixed the value of the house as Rs. 32,00,000 (Rs. 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 Rs. 32,00,000, what are
the tax implications in the hands of Mr. Raj Kumar and Mr. Dhruv for the assessment
year 2020-21 ? Mr. Raj Kumar had purchased the land on 1st June, 2006 for Rs. 5,19,000
and completed the construction of house on 1st December, 2017 for Rs. 14,00,000.
Illustration 15 - Computation of Total Income: Ms. Mohini transferred a house to her friend
Ms. Ragini for Rs. 35,00,000 on 01-10-2019. The Sub Registrar valued the land at Rs.
48,00,000. Ms. Mohini contested the valuation and the matter was referred to
Divisional Revenue Officer, who valued the house at Rs. 46,50,000. Accepting the said
value, differential stamp duty was also paid and the transfer was completed.
The total income of Mohini and Ragini for the assessment year 2020-21, before considering
the transfer of said house are Rs. 2,80,000 and Rs. 3,45,000, respectively. Ms. Mohini
had purchased the house on 15th May 2010 for Rs.25,00,000 and registration expenses
were Rs. 1,50,000.
You are required to explain provisions of Income-tax Act, 1961 applicable to present case and
also determine the total income of both Ms. Mohini and Ms. Ragini taking into account the
above said transactions.
Illustration 16 - Capital gains & Gift in case of inadequate consideration : Mr. Subramani sold a
house plot to Mrs. Vimala for Rs. 45 lakhs on 12-05-2019. The valuation determined by
the stamp valuation authority was Rs. 53 lakhs. Discuss the tax consequences of above,
in the hands of each one of them, viz, Mr. Subramani & Mrs. Vimala. Mrs. Vimala has
sold this plot to Ms. Padmaja on 21-03-2020 for Rs. 55 lakhs. The valuation as per stamp
valuation authority remains the same at Rs. 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 & Ms. Padmaja are related to each
other; the transactions are between outsiders.
Illustration 17 - Interest on enhanced compensation: On 10-10-2019, Mr. Govind (a bank
employee) received Rs. 5,00,000 towards interest on enhanced compensation from State
Government in respect of compulsory acquisition of his land effected during the financial year
2011-12. Out of this interest, Rs. 1,50,000 relates to the financial year 2015-16; Rs. 1,65,000
to the financial year 2016-17; Rs. 1,85,000 to the financial year 2017-18. He incurred Rs. 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 for assessment year 2020-
21Rs.
Illustration 18 - Dividend stripping : Chandu purchased units of UTI worth Rs. 15,46,000 on 1-
5-2019. He received dividend of Rs. 2,00,000 on such units on 1-6-2019 (Record date :
31-5-2019). He sold the units on 30-11-2019 for Rs. 12,00,000. His other income under
the head 'Capital Gains' is Rs. 10,00,000. Compute his total income for the assessment
year 2020-21.
Illustration 19 - Computation of gross total income : J furnishes the following particulars
relating to his house properties and other incomes and expenditure for the year 2020-
21:
(1) First House : This house is taken by him on lease for 10 years which is let to a tenant,
for his residence, at a monthly rent of Rs. 2,400. He has incurred the following expenses
during this year :
Lease rent Rs. 1,000 per month
Salary of Durban Rs. 200 per month
Interest on loan taken to pay for the acquisition of the lease Rs. 200 per month
(2) Second House : This house was constructed by him in 1988, but was transferred to his
wife in 1992 out of love and affection. He, however, continues to stay in this house with
his wife till date. He has taken a loan for the construction of this house for which
interest of Rs. 6,000 becomes due for the year, but had not been paid by him. He has
paid repair expenses of Rs. 1,000 during the year.
(3) Taxable income from business for this year amounts to Rs. 64,000. Compute gross total
income of J for the assessment year 2020-21
Illustration 20 - Computation of income from other sources : From the following particulars of
Pankaj for the previous year ended 31st March, 2020 compute the Income under the
head "Income from other Sources":
[Link]. Particulars Rs.
(i) Directors Fee from a Company 10,000
(ii) Interest on Bank Deposits 3,000
(iii) Income from undisclosed source 12,000
(iv) Winnings from Lotteries (Net) 33,936
(v) Royalty on a book written by him 9,000
(vi) Lectures in Seminars 5,000
(vii) Interest on loan given to a relative 7,000
(viii) Interest on Debentures of a Company (listed in a Recognized Stock 7,200
Exchange) Net of Taxes
(ix) Interest on Post Office Savings Bank Account 500
(x) Interest on Government Securities 2,200
(xi) Interest on Monthly Income Scheme of Post office 33,000
He paid Rs. 1 ,000 for typing the manuscript of book written by him.
Illustration 21 - Taxability of various receipts: State with brief reasoning whether the following
receipts are chargeable to income-tax or are exempt (if chargeable, the amount taxable
is to be mentioned) for the assessment year 2020-21:
Nature of receipt Amount (Rs.)
Interest on enhanced compensation received on 12-03-2020 for acquisition of 96,000
urban land, of which 40% relates to the earlier year.
Rent received for letting out agricultural land for a movie shooting. 72,000
Computation is NOT required.
Illustration 22 - Taxability of various receipts: Discuss the tax implications under section 56(2)
in respect of each of the following transactions—
(1) Mr. Tejpal received a .painting by M. F. Hussain worth Rs. 2 lakh from his nephew on
his 10th wedding anniversary.
(2) Verma's son transferred shares of D Ltd. to Verma HUF without any consideration. The
fair market value of the shares is Rs. 2.5 lakh.
(3) Sunshine (P) Ltd. purchased 9,500 equity shares of Saturn (P) Ltd. at Rs. 86 per share.
The fair market value of the share on the date of transaction is Rs. 105.
(4) Bijali (P) Ltd. issued 28,000 equity shares of Rs. 10 each at a premium of Rs. 8. The fair
market value of each share on the date of issue is Rs. 15.
(5) Mr. Sharan's land was acquired by the Government in August 2011. He received
interest of Rs. 5,40,000 on enhanced compensation in January, 2020, out of which Rs.
1,20,000 related to the year 2016-17, Rs. 1,60,000 related to the year 2017-18, Rs.
2,00,000 related to the year 2018-19 and 60,000 related to the year 2019-20.
(6) Mr. Rajan decided to sell capital asset to Mr. Mahajan and received an advance of Rs.
1,00,000 on 1st October, 2019. Mr. Mahajan could not pay the balance sum and
advance money was forfeited by Mr. Rajan on 15th January, 2020.
Illustration 23 - Taxability of gifts - Section 9(1)(viii) and Section 56(2)(x) : Mr. Y a non resident
has received the following gifts from his friend X who is resident in India during the half
year ending 31-03-2020. Determine his Income from other sources.
(1) Gift of Rs. 25 lakh by NEFT transfer from X's bank account (PNB, Mumbai) to Y's bank
account in New York, US.
(2) Gift of Rs. 15 lakh to Y (X has a bank account in Citibank, New York. Permission of RBI
has taken for this purpose. This gift is transferred from Citibank, New York account of X
to the account of Y in Deutsche Bank, New York).
(3) Gift of house property situated in New Jersey (market value: Rs. 2.70 crore).
(4) Diamond Jewellery (market value Rs. 50 lakh) given in New York from X's locker in New
York.
