Law:

Section:

Section 40(c)( iii) [now section 40A(5)] of the income-tax act, 1961-amounts not deductible-in case of companies-for assessment year 1964-65, corresponding to previous year from 1-7-1962 to 30-6-1963, ito made disallowance in assessee-company's assessment by applying section 40(c)( iii) as inserted by the finance act, 1963-assessee claimed that section 40(c)( iii), as substituted by the finance act, 1964, with effect from 1-4-1964, applied to its assessment since law applicable to assessment was that in force in assessment year-whether in respect of assessment year 1964-65, section 40(c)( iii) as amended by the finance act, 1964, applied-Held, on facts, yes Facts For the assessment year 1964-65, corresponding to the previous year from 1-7-1962 to 30-6-1963, the ITO disallowed the salary paid by the assessee-company to its employees in excess of Rs. 5,000 by applying the provisions of sub-clause (iii) of section 40(c) as it stood prior to 1-4-1964, i.e., as inserted by the Finance Act, 1963. On appeal, the AAC confirmed the disallowance. On further appeal, the assessee contended that for the relevant assessment year, i.e., 1964-65, the entire accounting period was governed by the Finance Act, 1964. The Tribunal accepted the assessee's contention and directed the ITO to make the disallowance on the basis of sub-clause (iii) of section 40(c) as substituted by the Finance Act, 1964 with effect from 1-4-1964. On reference : Held It is a cardinal principle of tax law that the law to be applied is that in force on the first day of the assessment year unless otherwise provided expressly or by necessary implication even though the subject-matter of charge is the income of the previous year relevant to the assessment year. Sub-clause (iii) of section 40(c). originally inserted by the Finance Act, 1963. was substituted by the Finance Act, 1964. with effect from 1-4-1964. The effect of substitution of sub clause (iii ) of section 40(c) was that the sub-clause, as it originally stood, was not in force on the first day of the assessment year 1964-65. It no longer remained applicable as it was removed from the statute book and had the effect of implied repeal. Accordingly,…

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