Key Provisions of Section 56(1): Chargeability of Income from Other Sources

Section 56(1) serves as the residual head of income, capturing all taxable income that does not fall under the other four heads:

1. Salary
2. Income from House Property
3. Profits and Gains of Business or Profession (PGBP)
4. Capital Gains

Conditions for Chargeability:

1. Existence of Income: There must be an actual receipt or accrual of income.
2. Non-Exempt Status: The income must not be exempt under any provision of the Income Tax Act (e.g., agricultural income, gifts from relatives).
3. Exclusion from Other Heads: The income must notbe chargeable under any of the first four heads (Salary, House Property, PGBP, or Capital Gains).

Scope and Application:

• Section 56(1) acts as a “catch-all” provision to prevent tax evasion by ensuring no taxable income escapes taxation.
• It covers both regular income(e.g., interest, dividends) and casual/non-recurring income (e.g., lottery winnings, gifts).
• Examples of income typically taxed under this head:
  • Interest on bank deposits or loans.
  • Family pension (with a standard deduction).
  • Director’s sitting fees (if not part of business income).
  • Sub-letting income by tenants.

Judicial Interpretation:

• Courts have ruled that Section 56(1) applies only when income cannot logically fitunder other heads. For instance:
  • Rental income from machineryis taxed under “Other Sources” if not part of a business.
  • Gifts exceeding ₹50,000from non-relatives are taxed here, unless exempt