Trading liability remission applies only to deducted liabilities; a financing arrangement does not fall within the deeming provision.

Section 10(2A) of the Indian Income-tax Act, 1922 applies only where a trading liability, earlier allowed as a deduction, is remitted or ceases to exist. Amounts relating to purchases of goods and interest satisfied that test and were taxable, but the disputed sum of Rs. 1,80,000 did not. It arose from the creditor paying a Bombay supplier on the assessee's behalf and was treated, as between the assessee and creditor, as a borrowing or financing arrangement rather than a liability for stock-in-trade purchases. The deeming provision could not be extended beyond its language, so the addition was rightly deleted.

---

---

Issues: Whether the sum of Rs. 1,80,000 credited in the account with the creditor represented a trading liability remitted or ceased to exist within section 10(2A) of the Indian Income-tax Act, 1922, so as to justify inclusion in the assessee's income.

Analysis: Section 10(2A) applies only where the liability in question is a trading liability and the corresponding amount had been allowed as a deduction in earlier assessments. The sums relating to purchases of goods and interest satisfied that test and were rightly brought to tax. The disputed sum of Rs. 1,80,000, however, arose because the creditor had paid the Bombay supplier on the assessee's behalf; vis-a -vis the assessee and the creditor, that amount represented a borrowing or financing arrangement and not a liability incurred for purchase of stock-in-trade. The statutory fiction in section 10(2A) could not be extended beyond its language.

Conclusion: The amount of Rs. 1,80,000 did not constitute a trading liability within section 10(2A), and the Tribunal was right in deleting that addition. The reference was answered in the affirmative and against the Commissioner.

Ratio Decidendi: Section 10(2A) of the Indian Income-tax Act, 1922 is attracted only to a trading liability that had been allowed as a deduction in earlier years; a borrowing or payment made on behalf of the assessee does not fall within that deeming provision.

---