INCOME FROM OTHER SOURCES

Introduction to the income from other sources

This is a residuary head of income, all kinds of income, which are not covered within
the ambit of other heads of income, are covered under this head of income. Section
39 of the Ordinance elaborates its scope in the following manner:

Scope, basis of chargeability and contents of income from other sources

1. Income of every kind received by a person in a tax year, if it is not included in

any other heading, other than income exempt from tax under this Ordinance,
shall be chargeable to tax in that year under the heading Income from Other
Sources.
2. As may be seen from above, income from other sources is chargeable to tax
on receipt basis. Thus, any income from other sources which is accrued for a tax
year but is not received is not chargeable in that tax year.
3. Income from other sources may include the following namely:
a. Dividend
b. Royalty;
c. Profit on debt;
d. Additional payment on delayed refund under any tax law;
e. Ground rent;
f. Rent from the sub-lease of land or a building;
g. Income from the lease of any building together with plant or
machinery;
h. Income from provision of amenities, utilities or any other service
connected with renting of building;
i. Income deemed u/s 111- unexplained assets or income;
j. Any annuity or pension;
k. Any prize bond, or winnings from a raffle, lottery, prize on winning a
quiz or cross-word puzzle;
l. Any other amount received as consideration for the provision, use or
exploitation of property, including from the grant of a right to explore
for, or exploit, natural resources;
m. The fair market value of any benefit, whether convertible to money or
not, received in connection with the provision, use or exploitation of
property; and,
n. Any amount received by a person as consideration for vacating the
possession of a building or part thereof, reduced by any amount paid by the
person to acquire possession of such building or part thereof. This income
shall be taxable in 10 years from the year of receipt in equal proportion.
o. Any amount received by a person from Approved Income Payment Plan or
Approved Annuity Plan under Voluntary Pension System Rules, 2005.
p. Income arising to the shareholder of a company, from the issuance of bonus
shares.
q. Any amount received as a loan, advance, and deposit for issuance of shares
or gift by a person in a tax year from another person other than a banking
company or financial institution or not through a crossed cheque drawn on a
bank or a banking channel or not from a person holding a National Tax
Number. However, advance for the sale of goods or supply of services are
outside the scope of this clause.

4. Where any profit on debt derived from National Savings Deposit Certificate
including DSCs is paid to a person in arrears and as a result his income is
chargeable to higher rate of tax than would have been applicable if the
amount had been paid in the tax year to which it relates, he may by a notice
in writing to the Commissioner by the due date for furnishing persons return
of income, elect for the amount to be taxed at the rates that would have
been applicable if the amount had been paid in the tax year to which it
relates.

Important aspects of taxation of income from other sources

Income, which does not fall under any other heading of income, would fall within
this heading of income. Therefore, the kinds of income elaborated above from (a) to
(l) if fall within any other heading of income, then the same may not be included
again under this heading of income. For example, sole business of the banks is
earning profit on debt and it is therefore, classified as income from business in their hands,
hence, the said income cannot be classified as Income from other sources again. Section
39(5) of the Ordinance therefore, specifically inserted to clarify this position and the
said section stipulates that:
This section shall not apply to any income received by a person in a tax year that is
chargeable to tax under any other heading of income or subject to tax under section
5 [income from dividends], 6[income of non-resident person from technical fee &
royalty] or 7 [income of shipping and air transport]. Therefore, it is imperative to
decide the classification of an income under a specific heading of income after
considering the scope of activities of the taxpayer.
For example: The sole business of a company is to manage its investment in
different subsidiaries of a group. Then the ultimate income of the said company
would be dividend income and capital gains from sale of shares. The income of the
company from dividends then would be chargeable to tax under the heading income
from business and not under the heading income from other sources.
However, on the other hand, in case a manufacturing company earns dividend
income in addition to income arising from sale of manufactured goods, then the said
dividend income would be chargeable to tax under the heading income from other
sources.

Special provisions relating to different incomes covered under

income from other sources

Dividend
Dividend income under the Ordinance has its own meaning and is taxable under
final tax regime in respect of all taxpayers including companies.
Definition: Dividend
Section 2(19) Dividend includes
(a) any distribution by a company of accumulated profits to its shareholders,
whether capitalised or not, if such distribution entails the release by the company
to its shareholders of all or any part of the assets including money of the
company;
(b) any distribution by a company, to its shareholders of debentures,
debenturestock or deposit certificate in any form, whether with or without profit,
to the extent to which the company possesses accumulated profits whether
capitalised or not;

(c) any distribution made to the shareholders of a company on its liquidation, to

the extent to which the distribution is attributable to the accumulated profits of
the company immediately before its liquidation, whether capitalised or not;
(d) any distribution by a company to its shareholders on the reduction of its
capital, to the extent to which the company possesses accumulated profits,
whether such accumulated profits have been capitalised or not; any payment by a
private company as defined in the Companies Ordinance, 1984 (XLVII of 1984) or
trust of any sum (whether as representing a part of the assets of the company or
trust, or otherwise) by way of advance or loan to a shareholder or any payment
by any such company or trust on behalf, or for the individual benefit, of any such
shareholder, to the extent to which the company or trust, in either case,
possesses accumulated profits; but does not include
a) a distribution made in accordance with 7[sub-clause] (c) or (d) in respect of any
share for full cash consideration, or redemption of debentures or debenture stock,
where the holder of the share or debenture is not entitled in the event of
liquidation to participate in the surplus assets;
b) any advance or loan made to a shareholder by a company in the ordinary
course of its business, where the lending of money is a substantial part of the
business of the company;
c) any dividend paid by a company which is set off by the company against the
whole or any part of any sum previously paid by it and treated as a dividend
within the meaning of sub clause (e) to the extent to which it is so set off; and
d) Remittance of after tax profit by a branch of Petroleum Exploration and
Production (E&P) foreign company, operating in Pakistan.
(e) remittance of after tax profit of a branch of a foreign company operating in
Pakistan;
Profit on debt
The term profit on debt is defined in section 2(46) of the Ordinance in the following
manner:
Definition: Profit on debt
any profit, yield, interest, discount, premium or other amount, owing under a
debt, other than a return of capital; or
any service fee or other charge in respect of a debt, including any fee or
charge incurred in respect of a credit facility which has not been utilized;
This definition not only explains the term for the recognition of income but it also
gives the basis of ascertaining the nature of profit on debt as admissible expenditure.
We already clarified the basis for taxation of profit on debt with the example of a bank;
the same matter is elucidated in section 18 in the following manner:
Any profit on debt derived by a person where the persons business is to derive such
income shall be chargeable to tax under the heading Income from Business and not
under the heading Income from Other Sources.
Where a lessor, being a scheduled bank or an investment bank or a
development finance institution or a modaraba or a leasing company has leased out
any asset, whether owned by it or not, to another person, any amount paid or
payable by the said person in connection with the lease of said asset shall be

treated as the income of the said lessor and shall be chargeable to tax under the
heading Income from Business.
Any amount received by a banking company or a non-banking finance company,
where such amount represents distribution by a mutual fund or a Private Equity and
Venture Capital Fund out of its income from profit on debt, shall be chargeable to
tax under the heading Income from Business and not under the heading Income from
Other Sources.
The aforesaid provisions of law only specify heading of income under which certain
types of income would be assessed and subsequently subjected to tax. However,
Income from profit on debt is covered within final tax regime as contained in section
169 read with section 151 of the Income Tax Ordinance, 2001. It is worthwhile to
mention here that section 169 highlights income liable to taxation under final tax
regime. Such income would not be included in any head of income. Hence, income
from profit on debt will not be deduction of tax and accordingly, included in total
income as defined in section 9 of the Ordinance.
Some examples of amounts covered under income from other sources
Following are examples of some amounts which are covered under the heading of
income from other sources and are part of syllabus:
Ground rent:
A ground rent is a fixed amount generally received annually on the land on which
payer constructs a building. Under this arrangement, receiver leases, rather than
sells the land.
Rent from the sub-lease of land or a building
An arrangement in which a lessee of land or a building, against an agreed rent, subleases the said land or building.
Income from provision of amenities, utilities or any other service connected with
renting of building.
An amount received as consideration for vacating the possession of building or
part thereof, reduced by any amount paid by the person to acquire possession of
such building or part thereof. The amount so received shall be chargeable to tax
under the heading Income from Other Sources in the tax year in which it was received
and the following nine tax years in equal proportion.

Admissible deductions

In computing the income under the head "Income from Other Sources", the
following allowances and deductions shall be made, namely:
(i). Any expenditure paid for earning Income from Other Sources other than
expenditure of capital nature. It is important to note that as the basis of chargeability
of income from other sources is receipt basis, therefore the basis for allowability of deductions
is paid basis.
(ii). In the case of profit on debt, any zakat paid (at the time of receipt of profit) by
the person under Zakat & Usher Ordinance, 1980.
(iii). In the case of income from sub-lease of land or a building or from lease of
building together with machinery or plant, deduction for depreciation on plant,
machinery and building u/s 22 and initial allowance on plant and machinery only u/s
23.

No deduction is allowable to a person under this head to the extent that the
expenditure is deductible in computing the income of the person underanother head
of income.
The provisions of section 21- Deductions not allowed shall apply in determining
the deductions allowed to a person under this head in the same manner as they
apply in determining the deductions allowed in computing theincome of the person
under the head "Income from Business".
Expenditure is of a capital nature if it has a normal useful life of more than one
year.