Law:

Section:

Section 147 of the Income-tax Act, 1961 (Corresponding to section 34 of the Indian Income-Tax Act, 1922) - Income escaping assessment - General - Assessment year 1946-47 - Assessee-firm was a resident in an Indian State - Assessment for relevant assessment year was completed on 4-3-1947 - After merger of states, ITO discovered that on 25-1-1946, assessee encashed certain high denomination notes, which escaped assessment - Whether, on facts, ITO was competent to make assessment under section 23(4) read with section 34 of 1922 Act in respect of assessment year in question - Held, yes FACTS The assessee-firm was a resident in an Indian State. On 4-3-1947, the ITO completed the assessment of the assessee for the assessment year 1946-47. After the merger of the States, ITO discovered that on 25-1-1946, the assessee encashed forty-nine high denomination notes of Rs. 1,000 each. After giving an opportunity to the assessee, the ITO held that the said sum was income liable to tax and, therefore, re-assessed the income of the assessee under section 23(4) read with section 34 of the Gangpur State Income-tax Act, read with the Taxation Laws (Extension to Merged States and Amendment) Act, 1949. On second appeal the Tribunal held that there was omission on the part of the assessee to disclose this fact before the ITO and that the period of limitation for initiating the proceedings under section 34 of 1922 Act was eight years. On reference: HELD The Rules for assessment of income-tax in the Gangpur State clearly stated that the 1922 Act was adopted subject to the following local rules enumerated in the said order and one of those rules was the fixation of rates of income-tax leviable. The State at that time was, for all internal administrative purposes, a sovereign State. From the rules made thereunder it fixed once for all the rates of tax leviable on certain incomes. Thereby it clearly indicated that no annual Finance Act need be passed as the rates were fixed once for all or the annual Central Act adopted. It was, therefore, not necessary that the Gangpur State should have passed the Finance Act in order to enable the State to levy the assessment. It is only the rules and…

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