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CA Final · Direct Tax Laws & International Taxation · Income from Other Sources

Sanjay Iyer negotiated to sell a capital asset and received Rs. 2,00,000 as advance from the buyer. The negotiations failed and Sanjay forfeited the advance. Under the Income-tax Act, 2025, the amount is dealt with as follows:

The forfeited Rs. 2,00,000 is chargeable as Income from other sources under section 92(2)(h). The sum was received during negotiations for transferring a capital asset, it was forfeited, and the negotiations did not result in a transfer, so both conditions of the clause are met.

  1. AChargeable as Income from other sources under section 92(2)(h)Correct
  2. BNot taxable because it is a capital receipt
  3. CChargeable as Capital gains only
  4. DChargeable as Salaries

Explanation

Section 92(2)(h) charges any sum received as advance or otherwise during negotiations for transfer of a capital asset, if the sum is forfeited and the negotiations do not result in transfer. Both conditions are satisfied here. The capital receipt argument does not help because the clause specifically brings the forfeited sum into Income from other sources.

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