Section 59 of Income Tax Act

Section 59 of Income Tax Act 1961 applies to compute income under Profits and Gains of Business or Profession, taxing asset sales under Other Sources.
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Section 59 of Income Tax Act
EXPLORE FUNDS
3 min
27-August-2024
Section 59 of the Income Tax Act refers to the taxation of profits chargeable to tax under specific conditions. This section primarily deals with cases where amounts are deemed to be profits or gains and must be included in the taxable income, despite not being received or accrued directly as profits.

In this article, we will try to understand the specifics of Section 59 which makes an important aspect of the income tax slabs, including its implications for taxpayers, the conditions under which it applies, and relevant case laws that highlight its application. We will also explore practical examples to provide a clearer understanding of this section’s impact on income taxation.

What is section 59 of income tax act?

Section 59 of the Income Tax Act, 1961, addresses the taxation of recovered or remitted amounts that were previously allowed as deductions. This section ensures that if any amount, previously claimed as a deduction under business or profession income, is subsequently recovered, it must be treated as income and subjected to tax in the year of recovery. This provision prevents the misuse of deductions by ensuring that any recovered amounts are brought back into the tax net. Section 59 is crucial for maintaining the integrity of the taxation system by ensuring fair treatment of recovered amounts.

Synopsis: Section 59

ActIncome Tax Act 1961
Section59
ApplicabilityProfits and loss for sold, discarded, demolished, or destroyed assets
Related SectionsSection 41, Section 56, Section 32


Key provisions of section 59

Section 59 of the Income Tax Act includes several critical provisions designed to maintain the integrity of the taxation system:

1. Recovery of Deductions: Amounts previously allowed as deductions must be added back to income if recovered.

2. Remitted Amounts: If an amount previously considered a bad debt is recovered, it must be included as income.

3. Income Year: The recovered amount is taxable in the year it is received.

4. Applicability: Pertains to income from business or profession.

5. Fair Taxation: Ensures all recovered deductions are taxed appropriately to prevent misuse.

Application of section 59

Section 59 of the Income Tax Act is primarily applied in scenarios where an amount previously written off as a loss or expense is later recovered. For instance, if a business had claimed a bad debt as a deduction in a prior year and subsequently recovered that debt, the recovered amount must be included as income in the year it is received. This section ensures that all recovered amounts, which had previously reduced taxable income, are brought back into the tax net, thus maintaining the integrity of the tax system. Additionally, it applies to refunds or remissions of previously allowed expenditures, ensuring they are taxed appropriately.

Interpretation of section 59 of income tax act

Section 59 of the Income Tax Act, 1961, ensures that any amount previously deducted as a business expense or loss, if later recovered, must be included in the income of the year it is received. This prevents the misuse of deductions and ensures that recovered amounts do not escape taxation. For instance, if a bad debt written off in a previous year is recovered, it must be treated as income in the year of recovery. This section upholds the principle of fair taxation by maintaining the integrity of income declarations.

Explore these essential articles on income tax for comprehensive insights

Recent amendments

There have been no significant amendments to Section 59 recently. However, the section continues to play a crucial role in the overall tax framework, ensuring that all recovered amounts are appropriately taxed. Amendments in related sections or interpretations by judicial pronouncements may affect the application of Section 59, but the core principle remains unchanged: recovered deductions must be treated as income.

Section 59 of the Indian Income Tax Act, 1961, addresses the taxation of profits from the transfer of capital assets. According to this section, if an assessee receives an amount from transferring a capital asset, and this amount exceeds either the asset's cost of acquisition or its fair market value as of April 1, 2001 (whichever is higher), the excess amount is taxable. This taxable amount is the difference between the received sum and the higher of the cost of acquisition or fair market value. The tax is applicable for the financial year in which the asset is sold.

For example, if an individual sells a property for Rs. 80 lakh, and the property's acquisition cost was Rs. 50 lakh, the Rs. 30 lakh excess will be taxable as income in the year of sale. It's important to note that Section 59 only applies to assets transferred after April 1, 2017. Additionally, the fair market value as of April 1, 2001, is considered only for assets held for over 24 months.

Conclusion

Understanding and complying with Section 59 of the Income Tax Act is vital for businesses and professionals to ensure accurate tax declarations. The Bajaj Finserv Platform, with 1000+ mutual fund schemes listed, adheres to these guidelines, ensuring transparent and fair tax practices along with options to compare and calculate mutual funds. Utilising such comprehensive platforms helps in maintaining compliance and achieving financial clarity.

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Frequently asked questions

Who can initiate rectification under Section 59?
Rectification under Section 59 can be initiated by the tax authority, the taxpayer, or any other person affected by the order. The purpose is to correct any mistakes apparent from the record in the order passed by the authority.

What constitutes a mistake apparent from the record under Section 59?
A mistake apparent from the record under Section 59 refers to an obvious and clear error in the order, which can be identified without extensive investigation or argument. Examples include clerical or arithmetical errors.

What types of mistakes can be rectified under Section 59?
Mistakes that can be rectified under Section 59 include clerical errors, arithmetical mistakes, or any errors that are evident from the record. These are errors that do not require elaborate arguments or investigations to identify.

Can taxpayers request rectification under Section 59?
Yes, taxpayers can request rectification under Section 59 if they identify any mistakes apparent from the record in the order affecting them. They must file a rectification application to the relevant tax authority.

Is there a time limit for initiating rectification under Section 59?
Yes, there is a time limit for initiating rectification under Section 59. Generally, rectification must be initiated within a specific period from the date of the order, which varies depending on the specific tax law and jurisdiction.

What is the procedure for rectification under Section 59?
The procedure for rectification under Section 59 involves submitting a rectification application to the relevant tax authority, detailing the mistake and the desired correction. The authority reviews the application and, if the mistake is apparent, rectifies the order accordingly.

Can rectification under Section 59 alter the substantive rights of the taxpayer?
Rectification under Section 59 cannot alter the substantive rights of the taxpayer. It is intended only to correct mistakes apparent from the record and not to change the fundamental nature or rights arising from the original order.

Is rectification under Section 59 subject to appeal?
Yes, rectification under Section 59 is subject to appeal. If the taxpayer or any affected party is dissatisfied with the rectification order, they can appeal to the higher authority or tribunal as prescribed by the relevant tax laws.

Are there any exceptions to the applicability of Section 59?
Yes, there are exceptions to the applicability of Section 59. For instance, rectification cannot be used to address issues requiring extensive debate or re-examination of evidence. It is limited to correcting clear and obvious errors.

Can rectification under Section 59 be made after the expiry of the time limit?
No, rectification under Section 59 cannot generally be made after the expiry of the prescribed time limit. However, in some exceptional cases, the tax authority may condone the delay if sufficient cause is shown for the delay in filing the rectification request.

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