Trading liability write-back is not taxable unless the underlying obligation is actually remitted or has ceased in law.

Unclaimed employee dues previously allowed as trading deductions do not become taxable merely because the assessee writes them back from a liability account to the profit and loss account. A mere lapse of limitation does not extinguish the debt, and a unilateral accounting entry cannot by itself create remission or cessation of liability. Where the unpaid wages, salaries and bonus remain enforceable under labour law, the liability continues in law and the bookkeeping treatment does not alter that position. The benefit under section 10(2A) arises only when a trading liability is actually remitted or has ceased in law; accordingly, such amounts are not assessable as deemed income on the facts discussed.

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Issues: Whether an assessee is taxable under section 10(2A) of the Indian Income-tax Act, 1922, on unpaid wages, salaries and bonus that had earlier been allowed as deductions, when the assessee transfers the amount from liability account to profit and loss account.

Analysis: The amount in question had been deducted in earlier years as a trading liability. Mere expiry of the period of limitation does not extinguish the debt, and a unilateral book entry by the debtor cannot by itself bring about remission or cessation of liability. The liability was also capable of enforcement under labour legislation, including the Industrial Disputes Act and the Bombay Labour Welfare Funds Act, 1953, which treated unpaid accumulated wages and similar dues as subsisting obligations. Section 13 of the Act did not make the assessee's accounting entry ative of taxability, because bookkeeping treatment cannot override the real legal position. The benefit contemplated by section 10(2A) is only a benefit arising from remission or cessation of the trading liability.

Conclusion: The amount was not assessable as deemed income under section 10(2A); the issue was decided in favour of the assessee.

Final Conclusion: Unclaimed employee dues, even if written back in the accounts, do not become taxable merely because the assessee has transferred them to profit and loss account where the liability has neither been remitted nor ceased in law.

Ratio Decidendi: A trading liability previously allowed as a deduction is not treated as income unless the liability has actually been remitted or has ceased in law; a unilateral accounting entry does not constitute remission or cessation.

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