Deemed business profit under income tax law arises only from actual prior deductions, not mere estimation data or notional allowances.
Section 10(2A) of the Indian Income-tax Act, 1922 applies only where an earlier assessment has actually allowed or deducted a loss, expenditure or trading liability; a merely notional factor used in estimating profits is insufficient. On that basis, remission of lease consideration and royalty of Rs. 50,000 and Rs. 24,000 was not taxable as deemed profit because no actual deduction had been made in assessment. The amount of Rs. 5,000 was taxable, as the assessee failed to show it was only a reversal of a wrong entry. Only Rs. 5,000 out of the total remission was chargeable as deemed business profit.
Issues: (i) Whether the remission of Rs. 50,000 and Rs. 24,000 in respect of lease consideration and royalty was taxable as deemed profit under section 10(2A) of the Indian Income-tax Act, 1922; (ii) Whether the amount of Rs. 5,000 was taxable as deemed profit under section 10(2A) of the Indian Income-tax Act, 1922.
Issue (i): Whether the remission of Rs. 50,000 and Rs. 24,000 in respect of lease consideration and royalty was taxable as deemed profit under section 10(2A) of the Indian Income-tax Act, 1922.
Analysis: The provision applies only where an allowance or deduction has in fact been made in an earlier assessment in respect of loss, expenditure, or trading liability. Here, no trading account or profit and loss account for the forest contract was maintained, and the profits were assessed only on estimated sales and estimated gross profit. The lease money and royalty may have been considered as part of the data for estimation, but they were not actually allowed or deducted in the assessments.
Conclusion: The remission of Rs. 50,000 and Rs. 24,000 was not taxable under section 10(2A) and was in favour of the assessee.
Issue (ii): Whether the amount of Rs. 5,000 was taxable as deemed profit under section 10(2A) of the Indian Income-tax Act, 1922.
Analysis: The finding recorded was that the assessee had failed to establish that this amount represented a mere reversal of a wrong entry made in 1953. On that footing, the amount did not fall outside the assessable income.
Conclusion: The amount of Rs. 5,000 was rightly included in the assessable income and was against the assessee.
Final Conclusion: Only Rs. 5,000 out of the total remission of Rs. 79,000 was chargeable as deemed business profit, while the balance of Rs. 74,000 was not taxable under section 10(2A).
Ratio Decidendi: Section 10(2A) applies only to amounts received against a loss, expenditure, or trading liability for which an actual allowance or deduction had earlier been made in assessment; a mere notional consideration in estimating profits is insufficient.