Deemed Income Under Income Tax Act, 1961.
Introduction
The requirement of each countrvs economy and society requires taxation of some
other type of receipt which may not be a income under its normal definition. This is
known as deemed income.
Extended definition of income
The term "income" in section 2(24) of the income-tax act is an inclusive definition by which
the normal definition of income is extended to include some other type of receipt as
income. The capital receipts like capital gain, voluntary contributions received by trust,
compensation on termination of employment (termed as profit in lieu of salary u/s 17) are
also included as income. Similarly surplus from mutual activities like insurance business
and income of cooperative society is also included as income. Even windfall gain and
casual receipts are included as income.
The receipts which are deemed as income under the income
tax act are as follows : -
1. Deemed Dividend
Under section 2(22) of the income-tax act, dividend includes:
a) Distribution by a company of accumulated profit in the form of release of assets to
the shareholders
b) Distribution by a company of debentures, debenture stock or deposit certificate to
its shareholders and bonus shares to preference shareholders to the extent of
accumulate profit.
Distribution by company on liquidation to the extent of accumulated profit.
d) Distribution by a company to shareholder on the reduction of capital to the extent
of accumulated profit,
Distribution in kind may also be termed as a deemed dividend.
When, a company issues bonus shares capitalizing its profits then there is no
release of assets and* consequently, bonus shares are not taken as dividend.
Reorganization of Capital — No reduction of capital in the aggregate, section 2(22)
(d) will not apply.
2. Clubbing of Income
Under the provisions of the income tax act, income of some other person like spouse,
minor child can also get taxed as the income of the individual though it is not his own
income.
The Following are the circumstances where the income of the other person is
included in the income of the assessee.
i. Transfer of income without the transfer the transfer of asset (Sec 60).
ii. Revocable transfer of assets (sec 61)
Irrevocable transfer of assets for a specified period (sec 62)
iv. Transfer and revocable transfer defined. (Sec 63)
v. Income of an individual to include income of spouse, minor child etc. (Sec 64)
Remuneration of a spouse from a concern in which the other spouse has
substantial interest. [Sec 64(1)(ii)]
Income from assets transferred to the spouse.
Income from assets transferred to son's wife [ 64(1)(vi)]
Income from assets transferred to a person for the benefit of Spouse of the
transferor[64( l)(vii)]
Income from assets transferred to a person for the benefit of son's wife of the
transferor [64(1)(viii)l
Clubbing of income of a minor child [64( IA))
value of which exceeds Rs.50000 Stamp duty value of immovable property
• for a consideration which is less than its
stamp duty value by an amount exceeding Difference between the stamp duty value
Rs. 50,000. and consideration
any property other than immovable
property, -
• without consideration, the aggregate whole of the aggregate of FMV (as per
FMV of which exceeds Rs. 50,000; prescribed method) of movable property
• for a consideration which is less than aggregate of FMV (as per prescribed
the aggregate FMV of the property by method) of movable property in excess of
an amount exceeding Rs.S0000 consideration
Exemption is provided to the extent that gift received from relative, gift on the occasion of
the marriage of the individual, receipt under a will or in contemplation of the death of the
donor is not covered by this section.
Relative for the purpose of this section means, spouse, brother, sister, brother of spouse,
sister of spouse, brother of mother/father, sister of mother/father, any lineal ascendant or
descendant of individual or his/her spouse and spouse of all brothers and sisters listed
before. Gifts from local authority or from any registered/approved charitable fund or
institution or educational institution or hospital are also exempted.
Under Section 56(2)(viia)
Where a firm or a company being a closely held company receives in any previous year,
from any person or persons on or after the 15t day of June, 2010
any property being shares of closely held
company, -
• without consideration, the aggregate whole of the aggregate of FMV (as per
FMV of which exceeds Rs. 50,000; prescribed method) of movable property
• for a consideration which is less than aggregate of FMV (as per prescribed
the aggregate FMV of the property by method) of movable property in excess of
an amount exceeding RsÆOOOO consideration
Provided that this clause shall not apply to any such property received by way of a
• by a Company from a class or classes of persons as may be notified by the Central
Government in this behalf.
4. Cash Credit (section 68)
If there is some credit (deposit) in the books of the assessee, then the assessee has
to prove the identity of the payer, creditworthiness of the payer and genuineness of
transaction, otherwise the credit will be deemed as the income of the assessee.
5. Unexplained Investments (section 69)
If the assessee has made an investment which is not recorded in the books and for
which no satisfactory explanation has been provided, the value of investment is the
deemed income of the assessee.
6. Unexplained money (section 69A)
If the assessee has found to be in possession of money, bullion, jewellery or
valuable article which is not recorded in the books and for which no satisfactory
explanation has been provided, the money and the value of the bullion, jewellery or
valuable article is deemed income of the assessee.
7. Amount of investment not fully disclosed in books (section
69B)
If the assessee has made investment or he is found to be in possession of money,
bullion, Jewellery or valuable article and this is not fully recorded in the books and no
satisfactory explanation has been provided* the excess is deemed income of the assessee.
8. Unexplained expenditure (section 69C)
If the assessee has incurred any expenditure and he does not give satisfactory
explanation about the source of such expenditure, the unexplained part is deemed as the
income of the assessee and is also not allowed as deduction as expenditure under any
head Employer's contribution to recognized provident fund in excess of 12% of salary.
Interest credited on the balance to the credit of the employee in an account of recognized
provident fund, in excess of 9% per annum.
An amount representing interest and employer's contribution transferred from
unrecognized provident fund to recognized provident fund or paid out from
unrecognized provident fund.
Payment from recognized provident fund in case the total period of contribution is
less than 5 years.
In the case of pension fund (section 80CCC) or pension scheme (section 80CCD),
any amount is received on maturity, it is taxable.
