Section 57

Section 57 — the law in short

What the courts have decided on section 57, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Totgars Co-operative Sale Society Ltd v ITO Supreme CourtHelps department
  My society invested surplus funds in short-term bank deposits. Is that interest covered by 80P?
  No. Interest on surplus funds not required for immediate business use is not attributable to providing credit to members or to marketing their produce. It is income from other sources under s.56 and outside s.80P(2)(a)(i).
• Tuticorin Alkali Chemicals and Fertilizers Ltd v CIT Supreme CourtHelps department
  My company is still building its plant. It parked the unused part of its term loans in short-term bank deposits. Can I set the interest earned off against the interest I am paying, or must I pay tax on it?
  You must pay tax on it, under the head income from other sources. Interest earned on surplus borrowed funds parked in deposits before business commences is income the moment it accrues, and it cannot be adjusted against the interest payable on the term loans, because s.57 sets out exhaustively what may be deducted from income assessable under s.56 and interest on term loans taken to build the plant is not in that list.
• Smt. Padmavati Jaikrishna v Addl. CIT Supreme CourtHelps department
  I borrowed rather than sell my shares, and used the money to pay my income-tax and wealth-tax and to make the compulsory annuity deposit. The interest on that borrowing has been disallowed under s.57(iii). Was that right?
  Yes, it was right. Interest on money borrowed to discharge a personal liability such as income-tax and wealth-tax is not expenditure laid out wholly and exclusively for the purpose of making or earning the income, and even where the borrowing produced some interest — the annuity deposit did fetch interest — the deduction fails because the dominant purpose was to meet a statutory liability and not to earn income.
• Madhav Prasad Jatia v CIT Supreme CourtHelps department
  I borrowed on overdraft to honour a personal donation rather than sell my shares. Can I deduct the interest as it protected my income-earning assets?
  No. The Supreme Court held that interest on money borrowed to meet a personal obligation is not deductible, either as interest on capital borrowed for the purpose of business or as business expenditure. The borrowing here was completely unrelated to the purpose of the business and was actually used for making charity. The argument that the overdraft was drawn on to avoid selling shares did not make the borrowing a business borrowing. The Court also refused a deduction for interest credited on the unpaid part of the donation, since no trust in favour of the college had come into existence. The appeals were dismissed with costs.
• Sanjay Aggarwal v National Faceless Assessment Centre High CourtHelps taxpayer
  You asked for a personal hearing and the faceless unit ignored it. Does 'may' mean they can?
  No. Section 144B(7) uses 'may', but that usage cannot absolve the Revenue of the obligation to consider a request for a personal hearing. The assessment order was set aside.
• K.2058 Saravanampatti Primary Agricultural Co-operative Credit Society Ltd v ITO High CourtHelps taxpayer
  The Assessing Officer taxed our interest on deposits under s.56 by simply citing Totgars, without answering our case that the deposits are a statutory reserve we are obliged to maintain and that the interest we paid on borrowings should be netted against it. Is that order sustainable?
  No. The Madras High Court set aside the assessments as non-speaking and passed without application of mind, holding it a fatal flaw that the Assessing Officer had brushed aside, in a single line, the society's arguments that the deposits were a statutory reserve and not surplus funds, that Nawanshahar Central Cooperative Bank applied, and that at worst the interest received should be netted against the interest paid. The Court expressed no opinion on the merits and remanded for a speaking order.
• Lalitamba Pattina Souharda Sahakari Niyamita v ITO High CourtHelps taxpayer
  The Tribunal refused my society's s.80P(2)(a)(i) claim on bank fixed deposit interest saying it had already been given s.80P(2)(d). Can the two clauses be treated as interchangeable, and if the interest really is income from other sources, what happens to my cost of funds?
  No, they cannot. The Karnataka High Court held that s.80P(2)(a)(i) and s.80P(2)(d) are entirely different and distinct provisions, that a deduction given under (d) does not disentitle a society from claiming under (a)(i), and that the authorities cannot reject an (a)(i) claim by mixing up the two. It further held that even if the interest is assessable under s.56, the Tribunal, as the last fact finding authority, was obliged to examine the proportionate cost of funds and administrative expenses deductible under s.57, and it remanded the matter to the Assessing Officer.
• Jay Metal Industries Pvt. Ltd. v CIT High CourtCuts both ways
  I let a fully furnished, centrally air-conditioned office with a generator on a single lease and claimed the thirty per cent standard deduction under s.24(a). The Assessing Officer has taxed the whole rent as income from other sources. Can I still get some deduction?
  The Delhi High Court held that the lease was composite, that the rent answered the description in s.56(2)(iii), and that the standard deduction under s.24(a) was therefore not available. But it did not leave the assessee with nothing: it directed that while giving appeal effect the Assessing Officer grant the benefit of s.57 — recorded in the judgment as s.57(iii) — in respect of the deduction corresponding to the letting, the Revenue not having disputed that the assessee had never claimed depreciation.
• Punjab State Cooperative Federation of House Building Societies Ltd v CIT-II High CourtHelps department
  We lost on s.80P before the Tribunal. Can we raise the s.57 cost of funds point for the first time in the High Court, and does interest we charge our own employees qualify under s.80P(2)(a)(i)?
  No on both counts, on this decision. The Punjab and Haryana High Court refused to entertain questions on s.57(iii) and on deduction of costs against interest assessed under s.56 because no such plea had been argued before the Tribunal, holding that they did not arise from the Tribunal's order and raised no substantial question of law. It also upheld the Tribunal's view that s.80P(2)(a)(i) is available only in respect of the society's core activities, so that interest from other banks and interest received from employees who are not members does not qualify.
• ITO v Sahakara Nagar Credit Co-operative Society ITATCuts both waysNo later treatment found
  My society has nominal and associate members. Does that alone destroy the 80P deduction?
  No. Where the State Co-operative Societies Act permits those classes of membership, their presence is not by itself a ground to disallow s.80P. The outcome was mixed, though: rental, commission and miscellaneous receipts were held ineligible.
• Striton Properties Private Limited v DCIT ITATCuts both waysNo later treatment found
  I have claimed depreciation on plant and machinery used at a club house and garden. The Assessing Officer says I showed no income from letting them out and is not the owner of the facilities. Can I still claim depreciation under s.57?
  No. The Mumbai Bench held that s.57(ii) has to be read with s.56(2)(ii) and (iii), and that on a conjoint reading the income must actually be chargeable under the head income from other sources before depreciation can be claimed against it. Since no income had been shown, the mandatory condition was not fulfilled and the disallowance was upheld.
• Venus Parkland Co-Op Housing Service Society Ltd v ITO ITATHelps taxpayer
  The Assessing Officer has taxed our society's bank FD interest as income from other sources and refused to allow the maintenance expenditure against it. Is there an answer?
  On these facts, yes - but read what the Tribunal actually did before relying on it. The Ahmedabad Bench held that a co-operative housing service society's fixed deposit interest was directly linked to the activity of maintaining the society, so the receipts had to be set against the maintenance expenditure they funded rather than taxed gross. The addition of Rs 24,31,919 on the fixed deposit interest was deleted, and the rent and other small receipts were treated the same way, leaving the net surplus of Rs 4,64,486 that the society had itself shown. The Tribunal then directed the Assessing Officer to allow the deduction of Rs 50,000 claimed under section 80P(2)(c)(ii). The reasoning ran through the principle of mutuality as stated by the Supreme Court in Venkatesh Premises Co-operative Society, and it did not deal with the Secunderabad Club decision on which the Commissioner (Appeals) had relied.
• Bharti Bhushan Jindal v ACIT ITATHelps departmentValidity unconfirmed
  I lend money on the side and offer the interest as income from other sources. Four borrowers have not repaid and I have written the principal off. Can I deduct it under s.57(iii), or as a bad debt?
  Neither. The Chandigarh Bench held that the principal advanced is a capital outflow, and s.57(iii) expressly excludes expenditure in the nature of capital expenditure, so a write-off of the principal cannot be deducted from interest assessed under s.56. The bad-debt route under s.36 also failed, because the amount written off had never been taken into account in computing income in any earlier year — only the interest had been offered.
• Statutory position — s.57(iia): the family pension deduction, and the higher figure under s.115BAC from AY 2025-26 CBDT Circulars & InstructionsCuts both ways
  My client receives a family pension. What deduction can she take, and is the higher figure under the new regime available from AY 2024-25?
  The deduction under s.57(iia) is one-third of the family pension or Rs 15,000, whichever is less. A proviso substitutes Rs 25,000 for Rs 15,000 where income-tax is computed under clause (ii) of sub-section (1A) of s.115BAC — and that proviso takes effect from 1 April 2025, so the higher figure is available from AY 2025-26 and not from AY 2024-25.
• Statutory position — the Finance (No. 2) Act 2024 buy-back regime: s.2(22)(f) deemed dividend from 1 October 2024 CBDT Circulars & InstructionsCuts both ways
  My client's company bought back its shares in March 2025. Does the company still pay buy-back tax, and what does the selling shareholder put in his return?
  For a buy-back that takes place on or after 1 October 2024 the company pays nothing: a proviso inserted in s.115QA(1) disapplies the 20 per cent additional tax to such buy-backs, and a proviso inserted in s.10(34A) withdraws the shareholder's exemption. Instead the whole consideration is a dividend in the shareholder's hands under the new s.2(22)(f), and a proviso to s.46A deems the value of the consideration to be nil for capital-gains purposes, so the cost of the shares comes out as a capital loss.
• Statutory position — s.46A: buy-back in the shareholder's hands, and the proviso that deems the consideration NIL for any buy-back on or after 1 October 2024 CBDT Circulars & InstructionsCuts both ways
  My client tendered shares in a buy-back. How is he taxed under section 46A, and does it make a difference that the buy-back closed after 1 October 2024?
  It makes all the difference, and the dividing line is the date the buy-back takes place: for a buy-back BEFORE 1 October 2024 the main limb of s.46A applies normally, and for a buy-back ON OR AFTER 1 October 2024 the proviso inserted by Act No. 15 of 2024 deems the consideration to be nil. The main limb says that where a shareholder receives any consideration from a company for purchase of its own shares or other specified securities, then, subject to s.48, the difference between the cost of acquisition and the value of consideration received is deemed to be the capital gains of the year in which the company purchased them. The proviso says that where the shareholder receives consideration "of the nature referred to in sub-clause (f) of clause (22) of section 2" in respect of a buy-back "that takes place on or after the 1st day of October, 2024", then "for the purposes of this section, the value of consideration received by the shareholder shall be deemed to be nil".
• Statutory position — the proviso to s.57: only interest, capped at twenty per cent of the dividend, from AY 2021-22 CBDT Circulars & InstructionsCuts both ways
  Dividends are taxable in my hands again. What can I actually deduct against dividend income, and is there a limit?
  Only interest expense, and not more than twenty per cent of the dividend income included in your total income for that year computed without this deduction. The proviso to s.57 was inserted by the Finance Act 2020 with effect from 1 April 2021, so it applies from AY 2021-22 onwards; the same amendment substituted the word 'dividends' in clause (i) for 'dividends, other than dividends referred to in section 115-O', which is what brought ordinary dividends back into the shareholder's assessment.
• Statutory position — s.3 of the Black Money Act: the charge at thirty per cent, the proviso to s.3(1) that fixes the year of charge for an undisclosed foreign asset, and what ss.4 and 5 bring in and refuse to take out CBDT Circulars & InstructionsCuts both waysValidity unconfirmed
  The department has issued a Black Money Act notice for a foreign bank account opened in 2007. The Act only came into force in 2015. On what does the charge on that asset actually rest, and in which year is it charged?
  On s.3(1) and its proviso. The Act came into force on 1 July 2015 (s.1(3): "Save as otherwise provided in this Act, it shall come into force on the 1st day of July, 2015"). Section 3(1) charges tax "on every assessee for every assessment year commencing on or after the 1st day of April, 2016 ... in respect of his total undisclosed foreign income and asset of the previous year at the rate of thirty per cent of such undisclosed income and asset". The proviso to s.3(1) is the provision that matters for an old asset: "Provided that an undisclosed asset located outside India shall be charged to tax on its value in the previous year in which such asset comes to the notice of the Assessing Officer." So the year of charge for an asset is not the year of acquisition but the year of coming to notice, and s.3(2) defines the "value of an undisclosed asset" as its fair market value determined in the prescribed manner. Section 4(1) puts three things into the total: (a) undisclosed income from a source outside India, (b) income from a source outside India where a return was required under s.139 of the Income-tax Act and none was furnished in time, and (c) the value of an undisclosed asset located outside India. Section 4(2) keeps out of the total any variation made under ss.29 to 43C, ss.57 to 59 or s.92C of the Income-tax Act, and s.4(3) keeps what is charged here out of total income under that Act. Section 5(1)(i) forbids any deduction for expenditure or allowance and any set off of loss, "whether or not it is allowable in accordance with the provisions of the Income-tax Act"; s.5(1)(ii) allows one reduction only — income already assessed or assessable under the Income-tax Act or under this Act is reduced from the value of the undisclosed asset if the assessee furnishes evidence to the Assessing Officer's satisfaction that the asset was acquired from that income — and s.5(2) prorates that reduction for immovable property.
• Statutory position — s.115D: no expenditure or allowance against investment income, no Chapter VI-A deduction, and the disapplication of the SECOND proviso to s.48 only CBDT Circulars & InstructionsCuts both ways
  My NRI client has interest income from debentures of an Indian public company acquired in foreign exchange, taxed under section 115E. The assessing officer has disallowed his collection charges, his section 80C deduction and his indexation. Is all of that correct, and what exactly is he allowed to lose?
  Broadly yes, but the third disallowance needs care. Section 115D(1) denies any deduction for expenditure or allowance under any provision of the Act in computing investment income; s.115D(2)(a) denies Chapter VI-A deductions altogether where the gross total income consists ONLY of investment income or long-term capital gains or both, and in that case also disapplies the second proviso to s.48, which is the indexation proviso. The section does NOT disapply the FIRST proviso to s.48, and it has not referred to that proviso since 1 April 1993.
• Statutory position — s.115-I: the non-resident Indian's annual election OUT of Chapter XII-A, made in the return itself CBDT Circulars & InstructionsCuts both ways
  Chapter XII-A gives my NRI client a flat twenty per cent with no deductions, but on his numbers the ordinary slab rates with Chapter VI-A relief come out cheaper. Can he simply not use the chapter, and does he have to commit for good?
  He can, and the election is for one assessment year at a time. Section 115-I lets a non-resident Indian elect not to be governed by Chapter XII-A for any assessment year by furnishing his return for that year under section 139 and DECLARING THEREIN that the chapter shall not apply to him for that year; if he does so, his total income for that year is computed and taxed in accordance with the other provisions of the Act.
• Statutory position — s.58: what can never be deducted against income from other sources CBDT Circulars & InstructionsCuts both ways
  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.
• Statutory position — s.59: the s.41(1) deemed-income rule applied to income from other sources CBDT Circulars & InstructionsCuts both ways
  I was allowed a deduction under s.57 in an earlier year for a liability that has now been written back. Is the write-back taxable, and under which head?
  Yes, and under the head income from other sources. Section 59(1) provides that s.41(1) applies, so far as may be, in computing the income of an assessee under s.56 as it applies in computing income under the head profits and gains of business or profession. Sub-sections (2) and (3) of s.59 stand omitted.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.