Remitted trading liability cannot be taxed under section 10(2A) after business discontinuance; deeming fiction is limited.

Section 12(5) was held inapplicable because the original allowance had been granted under the business head, not as income from other sources. Section 10(2A) was construed as operating only where a business, profession or vocation was carried on during the relevant previous year; the deeming fiction treated the remitted amount as profits and gains accruing in that year, but did not extend to deem a discontinued business as continuing. On that interpretation, a remitted trading liability could not be brought to tax for the year in question.

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Issues: Whether an amount representing an earlier allowed trading liability, which was remitted or had ceased, could be brought to tax for the assessment year 1961-62 under section 10(2A) or section 12(5) of the Indian Income-tax Act, 1922, when the business had already been discontinued before the previous year.

Analysis: Section 12(5) was held inapplicable because the original allowance in the earlier years had been granted under the head of business income and not under the head of income from other sources. On section 10(2A), the provision was read as part of the scheme of section 10 and as operating only where business, profession or vocation was carried on during the previous year. The deeming clause was understood to create fiction only that the remitted amount is profits and gains and that such profits and gains accrued during the relevant previous year. It was not treated as extending to a further fiction that a discontinued business must be deemed to have continued during that year.

Conclusion: The amount could not be included in the assessee-company's income under either section 10(2A) or section 12(5); the answer to the referred question was in the negative and the assessee succeeded.

Ratio Decidendi: Section 10(2A) of the Indian Income-tax Act, 1922 applies only where the business, profession or vocation is carried on during the relevant previous year, and it does not deem a discontinued business to have continued for the purpose of taxing a remitted trading liability.

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