Remission of liability requires proof of a specific prior deduction before the amount can be taxed as business income.

Section 10(2A) applied only where a prior allowance or deduction had been made in respect of a specific loss, expenditure, or trading liability, and the assessee later obtained remission or cessation of that very liability. The settlement record showed a composite payment in full satisfaction of principal claim, interest, and costs, but it did not establish how much of the sum, if any, represented remission of interest alone. As no definite finding identified a particular liability earlier allowed as a deduction and then remitted, the statutory condition for treating the amount as business income was not met. Section 10(2A) was therefore inapplicable, and the reference was answered against the department and in favour of the assessee.

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Issues: Whether the amount claimed by the revenue could be brought to tax under section 10(2A) of the Indian Income-tax Act, 1922 on the footing that the settlement resulted in remission of interest liability for which an allowance or deduction had earlier been made.

Analysis: Section 10(2A) applies only where an allowance or deduction has been made in an earlier assessment in respect of a loss, expenditure, or trading liability, and thereafter the assessee obtains a remission, cessation, or other benefit in respect of that very liability. The settlement order showed that the creditor accepted a composite sum in full satisfaction of the claim, interest, and costs, but the record did not permit a conclusive identification of how much, if any, of the settlement represented remission of interest alone. In the absence of a definite finding that a specific item previously allowed as a deduction had been remitted, the statutory condition for deeming the amount as business income was not satisfied.

Conclusion: Section 10(2A) was not applicable, and the answer to the reference was in the affirmative, against the department and in favour of the assessee.

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