[Section 58]: Amounts Not Deductible in computing the income under the head ‘Income from Other Sources’

As per Section 58, the following payments shall not be deductible in computing the income chargeable under the head ‘Income from Other Sources’:

(a)        Personal Expenses of the Assessee [Section 58(1)(a)(i)];

(b)        like section 40(a)(ia), 30% of any sum payable to a resident on which tax is deductible at source tinder section 192 to section 1 941,A and such tax has not been deducted or after deduction has not been paid on or before the due date specified in section 139(1) [Section 58(1A)].

However, where in respect of any such sum,—

(i)         tax has been deducted in any subsequent year, or

(ii)        has been deducted during the previous year but paid after the due date specified in section 139(1),

30% of such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.

Tax shall be deemed to have been deducted and paid if assessee is not deemed to be in default [Second proviso to section 40(a)(ia) also applicable in this case]:

Where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to section 20 1(1), then, for the purpose of section 40(a)(ia), it shall be deemed that the assessee has—

(a) deducted and

 (b) paid the tax on such sum

on the date of furnishing of return of income by the resident payee referred to in the said proviso.

The amended first proviso to section 201(1) provides as under:

Any person, including the Principal Officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a payee or on the sum credited to the account of a payee shall not be deemed to be an assessee in default in respect of such tax, if such payee—

(i) has furnished his return of income under section 139;

 (ii) has taken into account such sum for computing income in such return of income; and

(iii) has paid the tax due on the income declared by him in such return of income.

Therefore, if the payee satisfies all the above 3 conditions and the deductor furnishes a certificate to this effect from a chartered accountant in such form as may be prescribed, then the deductor will be allowed the deduction of the expenses mentioned in section 40(a)(ia) by assuming that the deductor has deducted and paid the tax on such sum on the date of furnishing return of income by the payee aforesaid;

(c)        interest paid outside India on which tax has not been deducted at source [Section 58(1)(a)(ii)];

(d)        salaries paid outside India on which tax is not deducted at source [Section 58(1)(a)(iii)];

(e)        any expenditure referred to in section 40A [Section 58(2)] like excessive payments to relatives referred to in Section 40A(2)],

Cash Payments exceeding Rs.10,000 / Rs.35,000 made in a mode other than account payee cheque/draft, etc. referred to in section 40A(3) & (3A), payment of gratuity referred in section 40A(7), etc.;

(f)        income-tax paid;

(g)        any expenditure or allowance in connection with winning of lottery, crossword puzzles, etc. as already discussed under para 8.6b. However, expenditure incurred by the assessee for the activity of owning and maintaining race horses shall be allowed as a deduction while computing the income from this activity. [Section 58(4)]