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.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 1962-04-01, reported as Section 59, Income-tax Act, 1961; sub-sections (2) and (3) omitted. It bears on section 59, section 41(1), section 56, section 57 of the Income Tax Act 1961, in Assessment & Scrutiny, Deductions & Disallowances and How Tax Law Is Read matters.
This is the provision most practitioners forget, and it works in both directions. For the Assessing Officer it supplies the charge on a remission or cessation of a liability, or a recovery of an amount, where the deduction was originally allowed against income from other sources — without it, s.41(1) on its own terms speaks only of the business head and could not reach the write-back. For the taxpayer it supplies the defence: the words carried across from s.41(1) require that an allowance or deduction has actually been made in an earlier year in respect of the loss, expenditure or trading liability, and that the assessee has since obtained some benefit in respect of it. If no deduction was ever allowed under s.57, s.59 has nothing to operate on. That is exactly how the Departmental Representative put it in Bharti Bhushan Jindal v. ACIT — that only where a deduction is allowed under s.57(iii) are the provisions of s.59(1) to be applied. It also means the whole body of s.41(1) case law — that a unilateral book entry writing off a liability is not by itself a cessation, and that limitation barring the creditor's remedy does not extinguish the debt — travels across, subject to the 'so far as may be' qualification.
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 59 is headed 'Profits chargeable to tax' and falls in the group of sections dealing with income from other sources. Sub-section (1) is the only operative provision; sub-sections (2) and (3) and an Explanation are printed on the departmental page as '[***]', that is, omitted.
The provisions of sub-section (1) of section 41 apply, so far as may be, in computing the income of an assessee under section 56, as they apply in computing the income of an assessee under the head 'Profits and gains of business or profession'.
Section 41(1) is drafted for the business head: it charges as income of the previous year an amount obtained by way of remission or cessation of a trading liability, or a benefit obtained in respect of a loss, expenditure or trading liability for which an allowance or deduction was made in an earlier year. Left alone it would not reach a deduction allowed under s.57 against income assessed under s.56. Section 59 supplies the bridge, and does so by incorporation rather than by re-enactment — the words 'so far as may be' carry the machinery of s.41(1) into the other-sources computation with such adaptation as the different head requires, while the pre-condition built into s.41(1), that an allowance or deduction must have been made in an earlier year, is carried across unchanged.
The provisions of sub-section (1) of section 41 shall apply, so far as may be, in computing the income of an assessee under section 56, as they apply in computing the income of an assessee under the head "Profits and gains of business or profession".
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Handle my notice → Ask a CA on WhatsAppYes, 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. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 59, section 41(1), section 56, section 57 of the Income Tax Act 1961. It is reported as Section 59, Income-tax Act, 1961; sub-sections (2) and (3) omitted. This is the provision most practitioners forget, and it works in both directions. For the Assessing Officer it supplies the charge on a remission or cessation of a liability, or a recovery of an amount, where the deduction was originally allowed against income from other sources — without it, s.41(1) on its own terms speaks only of the business head and could not reach the write-back. For the taxpayer it supplies the defence: the words carried across from s.41(1) require that an allowance or deduction has actually been made in an earlier year in respect of the loss, expenditure or trading liability, and that the assessee has since obtained some benefit in respect of it. If no deduction was ever allowed under s.57, s.59 has nothing to operate on. That is exactly how the Departmental Representative put it in Bharti Bhushan Jindal v. ACIT — that only where a deduction is allowed under s.57(iii) are the provisions of s.59(1) to be applied. It also means the whole body of s.41(1) case law — that a unilateral book entry writing off a liability is not by itself a cessation, and that limitation barring the creditor's remedy does not extinguish the debt — travels across, subject to the 'so far as may be' qualification. If it applies to you, the first step is this: Before conceding a s.59 addition, ask the Assessing Officer to identify the earlier year in which the deduction was allowed under s.57 and the assessment order allowing it. No prior allowance, no charge.
Section 59 is headed 'Profits chargeable to tax' and falls in the group of sections dealing with income from other sources. Sub-section (1) is the only operative provision; sub-sections (2) and (3) and an Explanation are printed on the departmental page as '[***]', that is, omitted. The matter was decided on 1962-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. The provisions of sub-section (1) of section 41 apply, so far as may be, in computing the income of an assessee under section 56, as they apply in computing the income of an assessee under the head 'Profits and gains of business or profession'.
Section 41(1) is drafted for the business head: it charges as income of the previous year an amount obtained by way of remission or cessation of a trading liability, or a benefit obtained in respect of a loss, expenditure or trading liability for which an allowance or deduction was made in an earlier year. Left alone it would not reach a deduction allowed under s.57 against income assessed under s.56. Section 59 supplies the bridge, and does so by incorporation rather than by re-enactment — the words 'so far as may be' carry the machinery of s.41(1) into the other-sources computation with such adaptation as the different head requires, while the pre-condition built into s.41(1), that an allowance or deduction must have been made in an earlier year, is carried across unchanged. In the words reproduced by the source cited on this page: "The provisions of sub-section (1) of section 41 shall apply, so far as may be, in computing the income of an assessee under section 56, as they apply in computing the income of an assessee under the head "Profits and gains of business or profession"."
It was decided by the CBDT Circulars & Instructions on 1962-04-01 and is reported as Section 59, Income-tax Act, 1961; sub-sections (2) and (3) omitted. 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 59, section 41(1), section 56, section 57, 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. The provisions of sub-section (1) of section 41 apply, so far as may be, in computing the income of an assessee under section 56, as they apply in computing the income of an assessee under the head 'Profits and gains of business or profession'. It arises in Assessment & Scrutiny, Deductions & Disallowances and How Tax Law Is Read matters, on section 59, section 41(1), section 56, section 57 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. Match the write-back to the deduction. Section 59 imports s.41(1), which speaks of the loss, expenditure or trading liability in respect of which the allowance was made — an unrelated credit balance is not within it. Take the s.41(1) case law across: the Supreme Court's decisions on what amounts to cessation or remission, and on unilateral entries, apply through s.59 subject to 'so far as may be'. Where the deduction was allowed under a head other than income from other sources, s.59 is not the right provision; check whether s.41(1) itself applies directly. Do not look for anything in s.59(2), s.59(3) or the Explanation; all stand omitted, so the section is now a single operative sub-section.
Still good law. The text was read in the current published edition with the correct heading and Act name, checked against an earlier edition, and corroborated in a High Court judgment that reproduces the operative words. No decided authority construing s.59 was located, so nothing is stated here about how the courts have applied it; the s.41(1) authorities already in this library are the nearest guide and are carried across only subject to the words 'so far as may be'. Three qualifications follow. Neither edition carries an amendment footnote for the section, so its legislative history is not established, and the date this entry uses is the Act's own commencement rather than anything specific to s.59. Because there is no decided authority, the limits of the section are untested. In particular, how much of the s.41(1) jurisprudence survives the words 'so far as may be' — the treatment of a remission or cessation of liability, the position where the earlier deduction was allowed in a year now closed, and whether the successor provisions in s.41(1) apply at all where there is no business — are open questions, and an assessee meeting an addition under s.59 should say so rather than argue the case as though it were a s.41(1) case. And the corroborating judgment turned on a different provision, so it establishes the words of the section and nothing more; it is not authority that s.59 applies to anything, and it should not be cited as though it were. 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 section as published, not a Board circular. 'decided_on' is the commencement date of the Income-tax Act, 1961, 1 April 1962, and not the date of any decision: neither of the editions read carries any amendment footnote for section 59, so no later commencement could be established and the Act's own commencement is used. The current text prints, after the omitted sub-sections (2) and (3), a further omitted 'Explanation.—[***]' which the earlier edition does not show, so the section now stands as sub-section (1) plus three omitted items. The words were read in the published text headed 'Profits chargeable to tax' for the Income-tax Act, 1961, and again in the earlier edition, which prints the same operative words together with '(2) [***]' and '(3) [***]'. They were corroborated outside those texts in the Rajasthan High Court's judgment in C.I.T. v. M/s Hycron India (Income Tax Appeal Nos. 45 of 2006 and 111 of 2007, decided 20 August 2008), which records that 'according to section 59, the provisions of section 41(1) shall apply, so far as may be, in computing the income of an assessee under section 56'. That judgment was read in full and turned on s.10B, so it is cited only as an independent reproduction of the statutory words and not as authority on s.59. Very little judicial material on the section could be found. The only orders located that mention it are Bharti Bhushan Jindal v. ACIT (ITAT Chandigarh, ITA No. 459/Chd/2011), where s.59(1) appears in the parties' submissions and is not decided, and the Hycron judgment. This library therefore has no decided authority on s.59. One point of substance to carry. The section applies s.41(1) 'so far as may be', and those words do the work: what is carried across is the charge on a benefit obtained in respect of an allowance or deduction previously allowed, and what is not carried across is anything in s.41(1) that presupposes a business. The deduction previously allowed must have been allowed under s.57 in computing income under s.56, and the recovery must be of that same allowance; an officer who reaches for s.59 without identifying the earlier deduction has not made out the charge. 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.
The provisions of sub-section (1) of section 41 apply, so far as may be, in computing the income of an assessee under section 56, as they apply in computing the income of an assessee under the head 'Profits and gains of business or profession'.
TaxSphere, “Statutory position — s.59: the s.41(1) deemed-income rule applied to income from other sources”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-section-59-section-41-1-applied-to-income-from-other-sources/ (validity last checked 2026-09-08)
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