Deductions allowable [Section 57] :
The income chargeable under the head “Income from other sources” shall be computed after making the following deductions:
(i) In the case of dividends (other than dividends referred to in section 115-O) or interest on securities, any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of realising such dividend or interest on behalf of the assessee.
(ii) Where the income consists of recovery from employees as contribution to any provident fund etc. in terms of clause (x) of section 2(24), then, a deduction will be allowed in accordance with the provisions of section 36(1)(va) i.e. to the extent the contribution is remitted before the due date under the respective Acts.
(iii) Where the income to be charged under this head is from letting on hire of machinery, plant and furniture, with or without building, the following items of deductions are allowable in the computation of such income:
(a) the amount paid on account of any current repairs to the machinery, plant or furniture.
(b) the amount of any premium paid in respect of insurance against risk of damage or destruction of the machinery or plant or furniture.
(c) the normal depreciation allowance in respect of the machinery, plant or furniture, due thereon.
(iv) In the case of income in the nature of family pension, a deduction of a sum equal to 331/3 per cent of such income or Rs 15,000, whichever is less, is allowable. For the purposes of this deduction “family pension” means a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of his death.
(v) Any other expenditure not being in the nature of capital expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income.
(vi) 50% of income by way of compensation/enhanced compensation received chargeable to tax under section 56(2)(viii). No deduction would be allowable under any other clause of section 57 in respect of such income.
Illustration
Interest on enhanced compensation received by Mr.G during the previous year 2015 -16 is Rs 5,00,000. Out of this interest, Rs 1,50,000 relates to the previous year 2011-12, Rs 1,65,000 relates to previous year 2012-13 and Rs 1,85,000 relates to previous year 2013-14. Discuss the tax implication, if any, of such interest income for A.Y.2016-17.
Solution
The entire interest of Rs 5,00,000 would be taxable in the year of receipt, namely, P.Y.2015-16.
| Particulars | Rs |
| Interest on enhanced compensation taxable u/s 56(2)(viii) | 5,00,000 |
| Less: Deduction under section 57(iv) @50% | 2,50,000 |
| Interest chargeable under the head “Income from other sources” | 2,50,000 |
Note – The Supreme Court held in CIT v. Rajindra Prasad Moody [1978] 115 ITR 519, that in order to claim deduction under section 57 in respect of any expenditure, it is not necessary that income should in fact have been earned as a result of the expenditure. In this view of the matter, the Court held that the interest on money borrowed for investment in shares which had not yielded any taxable dividend was admissible as a deduction under section 57 under the head, “Income from other sources”.