The Assessing Officer has disallowed items in my other-sources computation without going near s.57(iii). What does s.58 actually shut out?
Section 58 is headed 'Amounts not deductible' and opens with a non obstante clause overriding s.57. It bars personal expenses; expenditure of the nature referred to in s.40A(12); interest chargeable under the Act payable outside India on which tax has not been paid or deducted under Chapter XVII-B; and any payment chargeable under the head Salaries payable outside India unless tax has been paid or deducted. Sub-section (1A) carries s.40(a)(ia) and s.40(a)(iia) across, sub-section (2) carries the whole of s.40A across, sub-section (3) carries s.44D across for a foreign company, and sub-section (4) denies any deduction at all against winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 1987-04-01, reported as Section 58, Income-tax Act, 1961; sub-section (4) inserted by the Finance Act 1986 with effect from 1 April 1987. It bears on section 58, section 58(1), section 58(4), section 57, section 40(a)(ia), section 40A, section 44D, section 115BB, section 2(24)(ix) of the Income Tax Act 1961, in Deductions & Disallowances, TDS Defaults, Cash Transaction Limits and How Tax Law Is Read matters.
Practitioners argue s.57(iii) and forget that s.58 begins 'Notwithstanding anything to the contrary contained in section 57'. Two carry-across provisions do the most damage in practice. Sub-section (1A) applies s.40(a)(ia) to this head, so interest, rent, commission or professional fees paid without deduction of tax suffer the same thirty per cent disallowance in an other-sources computation as in a business one. Sub-section (2) applies s.40A, which brings in s.40A(2) on payments to related persons and s.40A(3) on cash payments, so a cash payment above the s.40A(3) threshold is disallowed even where it plainly satisfies the wholly-and-exclusively test in s.57(iii). Sub-section (4) is the reason a s.115BB assessment allows nothing; its proviso takes an assessee who owns horses maintained for running in horse races outside the bar for the activity of owning and maintaining those horses, and the Explanation confines 'horse race' to one on which wagering or betting may be lawfully made.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 58(1) opens 'Notwithstanding anything to the contrary contained in section 57, the following amounts shall not be deductible in computing the income chargeable under the head "Income from other sources", namely:—' and lists, in the case of any assessee, personal expenses; expenditure of the nature referred to in sub-section (12) of section 40A; interest chargeable under the Act payable outside India, not being interest on a loan issued for public subscription before 1 April 1938, on which tax has not been paid or deducted under Chapter XVII-B; and any payment chargeable under the head Salaries if payable outside India unless tax has been paid thereon or deducted therefrom under Chapter XVII-B. Clause (iv) of sub-section (1)(a) and clause (b) of sub-section (1) are marked as omitted. Sub-section (1A) applies s.40(a)(ia) and s.40(a)(iia) to this head; sub-section (2) applies s.40A; sub-section (3) applies s.44D in the case of a foreign company. Sub-section (4) is set out in the holding below.
In the case of an assessee having income chargeable under the head income from other sources, no deduction in respect of any expenditure or allowance in connection with such income is allowed under any provision of the Act in computing the income by way of any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever; but nothing in that sub-section applies in computing the income of an assessee being the owner of horses maintained by him for running in horse races, from the activity of owning and maintaining such horses. The Explanation defines 'horse race' for that sub-section as a horse race upon which wagering or betting may be lawfully made.
Section 57 is a permissive provision and section 58 an overriding prohibition, which is why it opens with a non obstante clause. The structure is deliberate: sub-section (1) states substantive disallowances of its own; sub-sections (1A), (2) and (3) do no more than carry across machinery already enacted for the business head, so that a taxpayer cannot escape the withholding-tax disallowance, the s.40A restrictions or s.44D by returning the income under s.56 rather than s.28; and sub-section (4) is a complete bar on any deduction against the classes of winnings that s.2(24)(ix) deems to be income and s.115BB taxes at a special rate. The proviso to sub-section (4) exists because the activity of owning and maintaining race horses is a continuing activity with real costs, and is correspondingly excluded from s.115BB itself.
In the case of an assessee having income chargeable under the head "Income from other sources", no deduction in respect of any expenditure or allowance in connection with such income shall be allowed under any provision of this Act in computing the income by way of any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature, whatsoever
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Handle my notice → Ask a CA on WhatsAppSection 58 is headed 'Amounts not deductible' and opens with a non obstante clause overriding s.57. It bars personal expenses; expenditure of the nature referred to in s.40A(12); interest chargeable under the Act payable outside India on which tax has not been paid or deducted under Chapter XVII-B; and any payment chargeable under the head Salaries payable outside India unless tax has been paid or deducted. Sub-section (1A) carries s.40(a)(ia) and s.40(a)(iia) across, sub-section (2) carries the whole of s.40A across, sub-section (3) carries s.44D across for a foreign company, and sub-section (4) denies any deduction at all against winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 58, section 58(1), section 58(4), section 57, section 40(a)(ia), section 40A, section 44D, section 115BB, section 2(24)(ix) of the Income Tax Act 1961. It is reported as Section 58, Income-tax Act, 1961; sub-section (4) inserted by the Finance Act 1986 with effect from 1 April 1987. Practitioners argue s.57(iii) and forget that s.58 begins 'Notwithstanding anything to the contrary contained in section 57'. Two carry-across provisions do the most damage in practice. Sub-section (1A) applies s.40(a)(ia) to this head, so interest, rent, commission or professional fees paid without deduction of tax suffer the same thirty per cent disallowance in an other-sources computation as in a business one. Sub-section (2) applies s.40A, which brings in s.40A(2) on payments to related persons and s.40A(3) on cash payments, so a cash payment above the s.40A(3) threshold is disallowed even where it plainly satisfies the wholly-and-exclusively test in s.57(iii). Sub-section (4) is the reason a s.115BB assessment allows nothing; its proviso takes an assessee who owns horses maintained for running in horse races outside the bar for the activity of owning and maintaining those horses, and the Explanation confines 'horse race' to one on which wagering or betting may be lawfully made. If it applies to you, the first step is this: Run the s.58 checklist before arguing s.57(iii); a deduction that satisfies s.57 can still be lost under the overriding words of s.58(1).
Section 58(1) opens 'Notwithstanding anything to the contrary contained in section 57, the following amounts shall not be deductible in computing the income chargeable under the head "Income from other sources", namely:—' and lists, in the case of any assessee, personal expenses; expenditure of the nature referred to in sub-section (12) of section 40A; interest chargeable under the Act payable outside India, not being interest on a loan issued for public subscription before 1 April 1938, on which tax has not been paid or deducted under Chapter XVII-B; and any payment chargeable under the head Salaries if payable outside India unless tax has been paid thereon or deducted therefrom under Chapter XVII-B. Clause (iv) of sub-section (1)(a) and clause (b) of sub-section (1) are marked as omitted. Sub-section (1A) applies s.40(a)(ia) and s.40(a)(iia) to this head; sub-section (2) applies s.40A; sub-section (3) applies s.44D in the case of a foreign company. Sub-section (4) is set out in the holding below. The matter was decided on 1987-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. In the case of an assessee having income chargeable under the head income from other sources, no deduction in respect of any expenditure or allowance in connection with such income is allowed under any provision of the Act in computing the income by way of any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever; but nothing in that sub-section applies in computing the income of an assessee being the owner of horses maintained by him for running in horse races, from the activity of owning and maintaining such horses. The Explanation defines 'horse race' for that sub-section as a horse race upon which wagering or betting may be lawfully made.
Section 57 is a permissive provision and section 58 an overriding prohibition, which is why it opens with a non obstante clause. The structure is deliberate: sub-section (1) states substantive disallowances of its own; sub-sections (1A), (2) and (3) do no more than carry across machinery already enacted for the business head, so that a taxpayer cannot escape the withholding-tax disallowance, the s.40A restrictions or s.44D by returning the income under s.56 rather than s.28; and sub-section (4) is a complete bar on any deduction against the classes of winnings that s.2(24)(ix) deems to be income and s.115BB taxes at a special rate. The proviso to sub-section (4) exists because the activity of owning and maintaining race horses is a continuing activity with real costs, and is correspondingly excluded from s.115BB itself. In the words reproduced by the source cited on this page: "In the case of an assessee having income chargeable under the head "Income from other sources", no deduction in respect of any expenditure or allowance in connection with such income shall be allowed under any provision of this Act in computing the income by way of any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature, whatsoever"
It was decided by the CBDT Circulars & Instructions on 1987-04-01 and is reported as Section 58, Income-tax Act, 1961; sub-section (4) inserted by the Finance Act 1986 with effect from 1 April 1987. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 58, section 58(1), section 58(4), section 57, section 40(a)(ia), section 40A, section 44D, section 115BB, section 2(24)(ix), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. In the case of an assessee having income chargeable under the head income from other sources, no deduction in respect of any expenditure or allowance in connection with such income is allowed under any provision of the Act in computing the income by way of any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever; but nothing in that sub-section applies in computing the income of an assessee being the owner of horses maintained by him for running in horse races, from the activity of owning and maintaining such horses. The Explanation defines 'horse race' for that sub-section as a horse race upon which wagering or betting may be lawfully made. It arises in Deductions & Disallowances, TDS Defaults, Cash Transaction Limits and How Tax Law Is Read matters, on section 58, section 58(1), section 58(4), section 57, section 40(a)(ia), section 40A, section 44D, section 115BB, section 2(24)(ix) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Check TDS compliance on every payment in the other-sources computation, because s.58(1A) imports s.40(a)(ia) — this is the disallowance most often missed at the assessment stage. Check the mode of payment: s.58(2) imports the whole of s.40A, so the cash-payment disallowance and the related-party test in s.40A(2) apply to this head as well. Segregate anything personal. Where an expense serves both the source of income and the assessee, expect an apportionment fight and be ready with a basis. Where interest is payable outside India, confirm tax has been paid or deducted under Chapter XVII-B before claiming it; the bar in s.58(1)(a)(ii) is absolute otherwise, and the same applies to salaries payable outside India under clause (iii). For winnings, claim nothing at all under s.58(4) unless you are within the proviso, and if you are, keep the owning-and-maintaining activity in a separate computation from betting receipts.
Still good law. The text was read on a departmental page carrying the 'Year: 2025' stamp with the correct heading and Act name, checked against the year-stamped page for 2022, and sub-section (4) with its proviso was corroborated in a High Court judgment reproducing it. Sub-sections (1A), (2) and (3) were re-transcribed verbatim from the live Year-2025 page on a verification pass and match the wording given here. The commencement date given for sub-section (4) is taken from the Madras High Court's statement in CIT v. Dr. M.A.M. Ramaswamy and not from the departmental footnotes. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This is a statutory entry, not a decision; 'tier' is set to 'cbdt' because the library's fixed tier vocabulary has no value for a statutory entry, and the source is the Income-tax Department's own section page, not a Board circular. 'decided_on' is the commencement date of sub-section (4), 1 April 1987, the provision on which this entry turns, and not the date of any decision; section 58 itself dates from the commencement of the Income-tax Act, 1961. The current text was read on the department's page carrying the stamp 'Year: 2025' with the heading 'Amounts not deductible' for the Income-tax Act, 1961, and was cross-checked against the year-stamped page for 2022, which prints the same section including sub-sections (1A), (2), (3) and (4) and marks s.58(1)(a)(iv) and s.58(1)(b) as omitted. Sub-sections (1A), (2) and (3), the whole of sub-section (1) including clauses (i), (ia), (ii) and (iii) of (a) and the '[***]' markers at (a)(iv) and (b), and sub-section (4) with its proviso and Explanation, were all transcribed verbatim from the live Year-2025 page on a verification pass, so no part of this entry now rests on the archived Year-2022 page. Sub-section (4) is corroborated independently in the Madras High Court's judgment in CIT v. Dr. M.A.M. Ramaswamy, which reproduces it with its proviso, and which records at its para 7 that s.58(4) was inserted by the Finance Act 1986 with effect from 1 April 1987. The internal reference in s.58(1)(a)(ia) is printed on the departmental pages as 'sub-section (12) of section 40A'; that cross-reference was not separately verified against the text of s.40A in this pass. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
In the case of an assessee having income chargeable under the head income from other sources, no deduction in respect of any expenditure or allowance in connection with such income is allowed under any provision of the Act in computing the income by way of any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever; but nothing in that sub-section applies in computing the income of an assessee being the owner of horses maintained by him for running in horse races, from the activity of owning and maintaining such horses. The Explanation defines 'horse race' for that sub-section as a horse race upon which wagering or betting may be lawfully made.
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