Section 59 of ITA, 1961 : Section 59: Profits Chargeable To Tax

Explanation using Example

Imagine a scenario where Mr. Sharma had previously taken a loan from a friend and recorded it as a liability in his personal financial records. In a certain financial year, the friend forgives the loan, and Mr. Sharma no longer needs to repay it. Under Section 59 of the Income-tax Act, 1961, this waiver of loan is similar to a situation covered under Section 41(1), which deals with business income. Although Mr. Sharma's loan forgiveness is a personal finance matter and would typically be considered under the head "Income from other sources" (Section 56), the provision of Section 41(1) would still apply. Thus, the amount of the loan forgiven could be treated as income and be subject to income tax in the year the loan was forgiven.