Judgment

SUBBA RAO, J. : (for himself and on behalf of B. P. Sinha C.J.I. Rajagopala Ayyangar J.)

This appeal by special leave raises the question of the construction of the proviso to sub-sec. (3) of S. 34 of the Indian Income-tax Act, 1922, as amended by Act 25 of 1933 hereinafter called the Act.

2. The facts lie in a small compass and they are as follows : The respondent is a firm carrying on business in different lines. It was assessed to income-tax under S. 23 (4) of the Act for the assessment year 1949-50 on the ground that the notice issued under sub-ss (2) and (4) of S. 22 of the Act had not been complied with. On September 27, 1955, the said assessment was cancelled under S. 27 of the Act. But before the said cancellation it was found that an interest income of Rs. 88,737/- in the shape of U. P. Encumbered Estates Act Bonds revived by him in discharge of the debts due from third parties had escaped assessment as the assessee failed to disclose the same. The Income-tax Officer issued a notice under S. 34(1) (a) of the Act for the assessment year 1949-50 on the ground that the said sum of Rs. 88,737/- had escaped assessment in the said assessment year. After the assessment of