Taxability of remission of liability depends on clear identification of the earlier deduction and the precise extent remitted.

Section 10(2A) of the Indian Income-tax Act, 1922 applies only where an earlier allowance or deduction was made for a specific loss, expenditure or trading liability, and the later remission or cessation of that same liability is clearly identifiable. On the facts, a lump-sum settlement accepted in full satisfaction of claims, interest and costs did not permit the revenue to isolate any definite portion attributable to remission of interest or to a liability previously allowed as a deduction. Without such certainty, the deeming provision could not be invoked, and the amount was not assessable.

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Issues: Whether the amount treated by the revenue as remission of interest and capital liability could be brought to tax under section 10(2A) of the Indian Income-tax Act, 1922.

Analysis: Section 10(2A) applies only where an allowance or deduction had earlier been made in respect of a loss, expenditure, or trading liability, and thereafter the assessee receives a benefit by way of remission or cessation of that very liability. On the facts, the settlement before the Calcutta High Court was for a lump sum accepted in full satisfaction of the claim, interest, and costs. The record did not permit a conclusive identification of what portion of the settlement represented remission of interest, or whether there had been a complete rebate of the specific liability earlier allowed as a deduction. In the absence of such clear identification, the deeming provision could not be invoked.

Conclusion: The amount was not assessable under section 10(2A); the question was answered in favour of the assessee and against the department.

Ratio Decidendi: Section 10(2A) can be applied only when the particular liability earlier allowed as a deduction is clearly identifiable and the extent of its remission or cessation is ascertainable with certainty.

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