Section 10(2A) does not tax sale proceeds of depreciated machinery where receipt is capital realisation, not recoupment.

Section 10(2A) of the Indian Income-tax Act, 1922 applies only where a later receipt is referable to, or in recoupment of, an earlier loss, expenditure or trading liability for which an allowance or deduction was granted. Sale proceeds from machinery not used in the relevant year were held not to fall within that provision because they represented capital realisation on disposal of depreciated assets, not recovery of the earlier depreciation allowance. The separate charging provision for profits on sale of depreciated assets supported this distinction, and the amount was therefore not taxable under Section 10(2A).

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Issues: Whether the sum of Rs. 2,70,593 realised on sale of machinery not used during the relevant previous year was liable to tax under Section 10(2A) of the Indian Income-tax Act, 1922.

Analysis: Section 10(2A) applies only where an amount is received in respect of a loss, expenditure or trading liability for which an allowance or deduction had earlier been made. The depreciation allowance granted in prior years could, at most, be viewed as a capital loss suffered by reason of user of the asset. But the sale price received on disposal of machinery was not a receipt in respect of that earlier depreciation loss; it was a capital gain arising from realisation of an amount in excess of the written down value. The existence of a separate charging provision for profits on sale of depreciated assets also supported this distinction.

Conclusion: The amount of Rs. 2,70,593 was not taxable under Section 10(2A) of the Indian Income-tax Act, 1922, and the question was answered against the department.

Ratio Decidendi: Section 10(2A) is attracted only when the later receipt is referable to, or in recoupment of, an earlier allowance-related loss, and not when the receipt is merely capital gain on sale of an asset.

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