The income of an assessee attracts the quality of taxability with reference to the standing provisions of the Act but the payability and the quantification of the tax depend on the passing and application of the annual Finance Act.

Judgment

JAGANNADHADAS, J. : This is an appeal by the assessee on leave granted under S. 66-A, Income-tax Act. The assessee by name Chatturam Horilram Ltd., who is the appellant before us, is a private limited company carrying on in Chota Nagpur the business of exporting mica for sale to foreign coutries. The assessment in question is for the year 1939-40 and the accounting year is the calendar year 1938. These proceedings were initiated on a notice issued to the assessee under S. 34, Income-tax Act 1922 (Act 11 of 1922) (hereinafter referred to as the Act).

It is the applicability of this section to the fact of this case that is the sole matter for consideration in this appeal. The circumstances under which the above mentioned notice under S. 34 was issued are as follows. The appellant had previously been assessed to tax on an income of Rs. 1,09,200 for the same year 1939-40 by an order dated 22-12-1939 which was reduced on appeal by Rs. 31,315. That assessment was set aside by the Income-tax Appellate. Tribunal on 28-3-1942, on the ground that the Indian Finance Act of 1939 was not in force during the assessment year 1939-40 in Chota Nagpur, which was a partially-excluded area.

On a reference by the Tribunal at the instance of the Income-tax authorities the High Court of Patna agreed with this view and pronounced on 30-9-1943, its judgment confirming the setting aside of the assessment. Meanwhile, the Governor of Bihar promulgated Bihar Regulation 4 of 1942, which was assented to by the Governor-General on 30-6-1942. By this Regulation, the Indian Finance Act of 1939 (along with Finance Acts of other years with which we are not concerned) was brought into force in Chota Nagpur retrospectively as from 30-3-1939. The relevant portion of the Regulation was in the following terms:

"The Indian Finance Act, 1939, shall be deemed to have come into force in the area to which this Regulation extends on the 30th day of March, 1939".

On 8-2-1944, the Income-tax Officer passed an order as follows:

"Due to recent judgment of the High Court the assessment under S. 23(3) stands cancelled and with it the notice under S. 34 issued in this case becomes ineffective and is withdrawn. Assessee derives income from mica mining and dealing, money-lending, mining rents and non-agricultural sources of zamindary, and this has escaped assessment in its entirety. Issue notice under S. 22(2) read with S. 34 again to file a return of income in the prescribed form and within the prescribed time, and inform the assessee that the original notice under S. 34 has been cancelled".

It may be mentioned, in passing, that the notice under S. 34 which is referred to in the above order as having become ineffective and as, therefore, withdrawn was a prior one which was issued on 8-7-1941, i.e. during the pendency of the assessee s appeal relating to the earlier assessment before the Income tax Appellate Tribunal. It is not quite clear from the record in what circumstances that notice came to be issued. But it looks probable that it relates to certain items appearing in the accounts as cash-credits to the tune of four lakhs which, as will appear presently, were treated in the later proceedings as concealed income in the absence at any proper explanation by the asssessee.

This prior notice under S. 34 having been withdrawn, has no hearing on the question at issue before us in this appeal and has not been relied on by either side. In pursuance of the order dated 6-2-1944. quoted above, a fresh notice under S. 34 of the Act was issued to the appellant on 12-2-1944. The income of the assessee-company was thereupon determined at a sum of Rs. 4,86,351, which on appeal to the Assistant Commissioner, was reduced by Rs.11,187. Out of this amount a sum of Rs. 4,04,618 related to two items of cash-credits appearing in the name of the partners of the Company which in the absence of any satisfactory explanation, was treated by the Income-tax authorities as secreted profits of the Company.

B