What the courts have decided on section 59, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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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.
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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.
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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.
