Judgment

GROVER, J.:- This is an appeal by certificate from a judgment of the Calcutta High Court answering the following question referred to it in the negative and against the assessee:

"Whether on the facts and in the circumstances of the case, the sum of Rs. 78,749 which was deemed to be the Profits and gains of business under S. 10 (2A) of the Income-tax Act, can be said to be arising from speculative business?"

2. The assessee carried on both speculative as well as non-speculative business. The system of account regularly employed being mercantile, any liability for payment of difference on account of speculative transactions is allowed as a deduction in computing the profit or loss in speculative business. At the commencement of the accounting year relevant for the assessment year 1955-56 i. e. July 1, 1953, there was a balance of such liabilities for speculation differences in the account of one Ramnath Narendranath amounting to Rs. 83,049. Out of this liability the assessee had paid to the party a sum of Rs. 7,825 in cash. The balance of Rs. 75,224 along with a sum of Rs. 3,525 being similar liability due to other two creditors aggregating Rs. 78,749 was written back and taken credit of in the profit and loss account for the year ending June 30, 1954. The creditors had waived their right to receive the amount. The Income-tax Officer treated the amount of Rs. 78,749 as the assessee s income from business in terms of Section 10 (2A) of the Income-tax Act, 1922, hereinafter called the Act. The amount was not set off against the speculative loss either brought forward from the earlier years or suffered by the assessee during the accounting period on the ground that the liability written back and treated as business profit did not partake of the character of speculation profit.

3. The contention of the assessee was that the amount should be treated as profit from speculative business as the liability which was written back related to such business. In other words the assessee claimed that the amount of Rs. 78,749 should be available for set off against speculation loss. The Revenue authorities did not accede to this contention. Before the tribunal it was pressed on behalf of the assessee that the department could not stop by treating the liability written back as income from business but must also categorise and specifically describe what the nature of the business was and since the liability related to the particular business the income could only be construed as arising from that business. The tribunal negatived this contention. According to it the effect of the provision of Section 10 (2A) of the Act is that it charges the amount to tax by its own force as a business income. "The income character of the receipt is designated by the fiction of law and it is to be brought under assessment as an income from business without any further categorisation. It cannot therefore be said that this income arose to the assessee from any speculation business. It is treated as business income only by virtue of the specific provision made in this regard".

4. The High Court referred to the decision of this Court in Donald Miranda v. Commissioner of Income-tax, Bombay City II, 1961-42 ITR 166 but held that there was no warrant for saying that the remission of a speculative liability should be treated as speculative income accruing to the assessee. The decision of this Court was distinguished on the ground that it related to refund of excess profit tax which stood on different footing inasmuch as it had to be paid because of an unusual rise in the income of the assessee over the standard profits and when refund of the tax paid was made it was logical to hold the same as income from business in respect of which the excess profits tax liability arose.

5. Section 10 (2A) of the Act was in these terms:

"Where for the purpose at computing profits or gains under this section, an allowance or deduction has been made in the assessment for any year in r