18 April 1955
Supreme Court


Case number: Appeal (civil) 38 of 1954






DATE OF JUDGMENT: 18/04/1955


CITATION:  1955 AIR  619            1955 SCR  (2) 290

ACT:        I  Indian  Income  Tax Act, 1922 (Act XI of  1922),  s.  34-        Assessment set aside owing to Indian Finance Act of 1939 not        being in force during the assessment year-Indian Finance Act        of   1939  brought  into  force  retrospectively  by   Bihar        Regulation  IV  of  1942-Fresh notice under  s.  34  issued-        Whether such fresh notice valid.

HEADNOTE:        The appellant in this appeal had been assessed to Income Tax        which  was  reduced on appeal but that  assessment  was  set        aside  by  the Income Tax Appellate Tribunal on  the  ground        that the Indian Finance Act of 1939 was not in force  during        the assessment year in Chota Nagpur.  On a reference by  the        Tribunal the High Court con-firmed the setting aside of this        assessment.   By the promulgation of Bihar Regulation IV  of        1942 by the Governor of Bihar (which was assented to by  the        Governor-General) the Indian Finance Act of 1939 was brought        into force in Chota Nagpur retrospectively as from the  30th        March 1939.  On the 8th February 1944 the Income Tax Officer        passed  an  order in pursuance of which a fresh  notice  was        issued  under s. 34 which resulted in the assessment of  the        appellant to income tax.  The question for determination  in        this  appeal was whether the notice under s. 34 was  validly        issued.        Held  (i)  that  for the purposes of s. 34 of  the  Act  the        income,  profits  or  gains  sought  to  be  assessed   were        chargeable to income tax according to the scheme of the  Act        and the provisions of ss. 3 and 4 of the Act;        (ii) that  it  was  a case  of  chargeable  income  escaping        assessment within the meaning of s. 34 and was not a case of        mere  non-assessment  of  income  tax  because  the  earlier        assessment proceedings in the present case had in fact  been        taken  but failed to result in a valid assessment  owing  to        some  lacuna  which was not attributable  to  the  assessing        authorities.              C.I.T., Bombay v. Sir Mahomed Yusuf Ismail ([1944]  12        I.T.R. 8), Fazal Dhala v. C.I.T., B. & O. ([1944] 12  I.T.R.        341),  Baghavalu Naidu & Sons v. C.I.T., Madras  ([1945]  13        I.T.R.  194),  Raja Benoy Kumar Sahas Boy  v.  C.I.T.,  West        Bengal  ([1953]  24 I.T.R. 70), Chatturam v.  C.I.T.,  Bihar



      ([1947]  F.C.R.  116), Whitney v.  Commissioners  of  Inland        Revenue ([1926] A.C. 37), C.I.T. Bombay & Aden v.  Khemchand        Ramdas  ([1938]  6  I.T.R. 414  at  428),  Sir  Rajendranath        Mukherjee  v.  C.I.T., Bengal ([1934] 2  I.T.R.  71),  Madan        Mohan  Lal v. C.I.T., Punjab ([1935] 3 I.T.R. 438),  C.I.T.,        Bombay  v.  Pirojbai N. Contractor ([1937]  5  I.T.R.  338),        Kunwar-                                    291        Bishwanath  Singh  v. C.I.T., C.P. ([1942] 10  I.T.R.  322),        Raja  Bahadur  Kamakshya  Narain Singh v.  C.I.T.  B.  &  0.        ([1946]  14  I.T.R. 683) and Chatturam v. C.I.T.,  B.  &  0.        ([1946] 14 I.T.R. 695), referred to.

JUDGMENT:        CIVIL APPELLATE JURISDICTION: Civil Appeal No. 38 of 1954.        Appeal  from the Judgment and Decree dated the 14th  day  of        March  1951  of  the High Court of Judicature  at  Patna  in        M.J.C. No. 230 of 1949.        Mahabir Prasad, Advocate-General for the State of Bihar  (R.        J.  Bahadur and S. P. Varma, with him’), for the appellant.        C.   K.  Daphtary,  Solicitor-General for  India  (Porus  A.        Mehta and P.O. Gokhale, with him), for the respondent.        1955.  April 18.  The Judgment of the Court was delivered by        JAGANNADHADAS J.-This is an appeal by the assessee on  leave        granted  under  section 66-A of the Indian  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 countries.  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 section 34 of the  Indian  Income-tax        Act, 1922, (Act XI of 1922) (hereinafter referred to as  the        Act).  It is the applicability of this section to the  facts        of  this case that is the sole matter for  consideration  in        this  appeal.   The  circumstances  under  which  the  above        mentioned notice under section 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 the 22nd December, 1939, which was  reduced  on        appeal by Rs. 31,315.  That assessment was set aside by  the        Income-Tax  Appellate Tribunal on the 28th March,  1942,  on        the  ground that the Indian Finance Act of 1939 was  not  in        force during        292        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  the  30th        September,  1943, its judgment confirming the setting  aside        of  the  assessment.   Meanwhile,  the  Governor  of   Bihar        promulgated Bihar Regulation IV of 1942, Which was  assented        to by the Governor-General on the 30th June, 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  the  30th  March 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 the 8th  February,  1944,        the Income-tax Officer passed an order as follows:        "Due  to  recent judgment of the High Court  the  assessment



      under section 23(3) stands cancelled and with it the  notice        under section 34 issued in this case becomes ineffective and        is withdrawn.  Assessee derives income from mica mining  and        dealing,  moneylending,  mining rents  and  non-agricultural        sources of zamindary, and this has escaped assessment in its        entirety.   Issue  notice  under  section  22(2)  read  with        section  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 section 34  has        been cancelled".        It  may  be  mentioned, in passing, that  the  notice  under        section 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 the 8th July, 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                                    293        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 of any proper explanation by        the  assessee.  This prior notice under section  34,  having        been  withdrawn,  has no bearing 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  the  8th        February,  1944, quoted above, a fresh notice under  section        34  of  the  Act was issued to the appellant  on  the,  12th        February,  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.  Before  the        Income-tax  Appellate Tribunal two points were  raised.  (1)        Whether  the  notice dated the 12th  February,  1944,  under        section  34 of the Act was validly-issued. (2)  Whether  the        Income tax authorities were right in holding that the  cash-        credit  items  were secret profits.  Both  the  points  were        decided against the assessee.  On the assessee’s application        to refer both the points for the decision of the High Court,        the  Tribunal  declined to make a reference as  regards  the        second  point but referred the first for the opinion of  the        Court in the following terms:        "Whether in the circumstances of the case, the notice issued        on  12-2-1944 under section 34 of the Indian Income-tax  Act        was validly issued for the assessment year 1939-40?"        The  question was answered against the assessee by the  High        Court  and  hence  this  appeal  before  us.   The  assessee        attempted  to reopen the second question relating to  secret        profits  before  the  High  Court  but  the  learned  Judges        declined to allow it to be canvassed, since the Tribunal did        not  refer  the  question  to  them.   We  are,   therefore,        concerned in this appeal only with the question relating  to        the validity of the notice        294        issued  on the 12th February, 1944, under section 34 of  the        Act.   It  is  obvious that if this notice is  found  to  be        invalid the assessee would get relief for the entire  amount        including the amount of secret profits.        The answer to the question which arises for consideration in        this  appeal  depends  on  a  correct  appreciation  of  the



      requirements  of section 34 of the Act.  Now, it has  to  be        mentioned that section 34 of the Act  as it originally stood        in the Act of 1922, was amended by Act VII of 1939 and  this        was in turn amended by Act XLVIII of 1948.  At the  relevant        date, i.e., for the assessment year 1939-40, section 34  (1)        as  amended by Act VII of 1939 (and before its amendment  in        1948) was in force.  It was as follows:        "If  in consequence of definite information which  has  come        into  his possession the Income-tax Officer  discovers  that        income,  profits  or  gains chargeable  to  income-tax  have        escaped  assessment  in  any  year,  (or  have  been  under-        assessed,  or have been assessed at too low a rate, or  have        been  the  subject of excessive relief under this  Act)  the        Income-tax Officer may, (in any case in which be has  reason        to  believe that the assessee has concealed the  particulars        of   his   income  or  deliberately   furnished   inaccurate        particulars thereof, at any time within eight years and)  in        any  other case at any time within four years of the  end,of        that  year,  serve on the person liable to pay tax  on  such        income,  profits or gains, or, in the case of a company,  on        the  principal officer thereof, a notice containing  all  or        any  of the requirements which may be included in  a  notice        under  sub-section  (2) of section 22, and  may  proceed  to        assess  or re-assess such income, profits or gains  and  the        provisions  of  this  Act shall, so far  as  may  be,  apply        accordingly as if the notice were a notice issued under that        sub-section".        Omitting from the above sub-section those portions which are        inapplicable  to the facts of the present case  -marked  out        within brackets-it may be seen that the facts which  require        to be established for the validity of the notice under  this        sub-section  are (I’ the income, profits or gains sought  to        be  assessed  should be chargeable to  income-tax  and  have        escaped assess-        295        ment in any year, and (2) the Income-tax Officer should have        discovered  it in consequence of definite information  which        has come into his possession.  The contention of the learned        counsel  for  the appellant is that, with reference  to  the        facts of this case, none of these conditions can be said  to        have been satisfied.  It is urged that the income sought  to        be  assessed  under these proceedings was not,  as  a  fact,        chargeable to income-tax during the assessment year 1939-40.        It is said that in any case there can be no question of  the        income  having  escaped assessment because, as a  fact,  the        income-tax authorities did proceed to assess the income  and        that   what   happened  is  that  the   proceedings   became        infructuous  by reason of the High Court  having  pronounced        them  to  be void.  It is also contended that  there  is  no        question  of discovery of any relevant fact or  information,        because the non-assessment of the income of the assessee for        the  period in question was in spite of all the  information        relating   to  the  income  of  the  assessee  having   been        previously  furnished  and being in the  possession  of  the        Income-tax  Officer  as would appear from the order  of  the        Officer dated the 22nd December, 1939.  It is convenient  to        deal with this last objection in the first instance.        It  may  be true that all the information  relating  to  the        relevant  income of the assessee which is now sought  to  be        taxed was in the possession of the Income-tax Officer in the        year 1939 itself when the return was submitted in compliance        with the notice under section 22(2) of the Act then  issued.        But  what  was required under section 34(1) was  not  merely        fresh  information as to the income that escaped  assessment        but information as to the fact of escapement from assessment



      of  the chargeable income.  In the present case the  income-        tax  authorities  proceeded to assess the appellant  in  the        normal way during the assessment year 1939-40 itself.  Those        proceedings became infructuous, by virtue of the decision of        the  Income-tax Appellate Tribunal and the decision  of  the        High  Court confirming it, which disclosed that  the  Indian        Finance Act of 1939 was not in operation in        296        the  relevant  area at the relevant period and that  in  the        absence  thereof  no valid assessment could  be  made.   The        fact,  therefore, that the income of the appellant  for  the        relevant year remained without any valid assessment  emerged        only on the High Court finally giving its decision that  the        assessment  proceedings previously taken were invalid.   If,        in  the circumstances, there was "escapement  of  chargeable        income   from  assessment"-a  question  to  be  dealt   with        presently-there  can  be  no doubt that  this  fact  can  be        reasonably  said to have been discovered by  the  Income-tax        Officer only when he got definite information as to (1)  the        passing  of  the Bihar Regulation IV of  1942  applying  the        Indian Finance Act of 1939 retrospectively for the  relevant        accounting  period, and (2) the judgment of the  High  Court        pronouncing prior proceedings to be invalid It is  knowledge        of both these facts, together, that would, with reference to        the  circumstances  of  the  present  case,  constitute  the        discovery  of the relevant fact in consequence  of  definite        information   received  by  the  Income-tax  Officer.    The        information as to both these facts taken together could only        be  after  the  decision  of the  High  Court  on  the  30th        September,  1943.   As  already  stated,  the  notice  under        section 34(1) , whose validity is in question, was based  on        the order of the Income-tax Officer dated the 8th  February,        1944,  after the judgment of the High Court was  pronounced.        That  order  which has been extracted above,  shows  clearly        that it was in consequence of the judgment of the High Court        in  the back-ground of the promulgation of Regulation IV  of        1942  that  fresh  action under section 34  (1)  -was  being        initiated.        A  number  of  cases (C.I. T. Bombay v.  Sir  Mahomed  Yusuf        Ismail(1); Fazal Dhala v. C.I. T., B.& 0. Raghavalu Naidu  &        Sons  v. C.I. T., Madras(3); and Raja Benoy Kumar Sahas  Roy        v.  C.  I. T., West Bengal(,) have been cited before  us  to        show  how  the phrase "definite information"  and  the  word        "discovery"  used in this section have been  interpreted  by        the various        (1)  [1944] 12 I.T.R. S.        (3)  [1915] 13 I.T.R. 194.        (2)  [1944] 12 I.T.R. 341.        (4)  [1953] 24 I.T.R. 70.        297        High Courts.  It is unnecessary to deal with these cases  at        any  length.   There  is  here no question  as  to  any  new        subjective  facts such as change of opinion consequent on  a        correct appreciation of law by the very same, or another, or        higher  officer,  that is pressed into service  as  bringing        about "definite information " and "discovery".  We are quite        clear  that  the  promulgation of  the  Regulation  and  the        decision of the High Court are objective facts,  information        regarding  which became available to the Income-tax  Officer        when  he passed the order dated the 8th February, 1944,  and        it is only when these facts came to his knowledge, that  the        Income-tax  Officer  can  be said to  have  discovered  that        chargeable income escaped assessment in the relevant year.        The  main question that requires consideration in this  case        is  whether,  on  the facts, it can  be  said  that  "income



      chargeable  to  income-tax  has escaped  assessment  in  the        relevant  year".  The contention of the learned counsel  for        the  appellant is that during the relevant year 1939-40  the        income  was  not chargeable to tax as a fact  and  that  the        retrospective operation of the Finance Act for the  relevant        year  by  virtue  of a later legislation  does  not  make  a        difference for this purpose.  To decide this question it  is        necessary to have a clear idea of the scheme of the  Income-        tax Act and its correlation to the Finance Act of each year.        The Income-tax Act is a standing piece of legislation  which        provides  the entire machinery for the levy  of  income-tax.        The Finance Act of each year imposes the obligation for  the        payment  of a determinate sum for each such year  calculated        with  reference to that machinery.  As has been pointed  out        by  the  Federal  Court in Chatturam v.  C.I.  T.,  Bihar(1)        (quoting  from  the judgment of Lord Dunedin in  Whitney  v.        Commissioners  of  Inland  Revenue (2).   "there  are  three        stages in the imposition of a tax.  There is the declaration        of  liability, that is the part of the statute which  deter-        mines what persons in respect of what property are        (1)  [1947] F.C.R. 116 at 126.        (2)  [1926] A.C. 37.        38        298        liable.  Next, there is the assessment.  Liability does  not        depend on assessment.  That, ex hypothesi, has already  been        fixed.  But assessment particularises the exact sum which  a        person  liable  has  to pay.  Lastly, come  the  methods  of        recovery if the person taxed does not voluntarily pay".  The        same idea has been expressed in slightly different  language        by Lord Romer in the judgment of the Privy Council  reported        in  C.I.T., Bombay & Aden v. Khemchand  Ramdas(1).   Chapter        III  of the Income-tax Act headed "Taxable Income"  contains        the  various  provisions  with reference  to  which  taxable        income  is determined.  The tax is leviable under section  3        and is in respect of the total income of an assessee in  the        previous  year.  The total income is defined in  section  2,        sub-section  (15).  The application of the Act to the  total        income  in the hands of an assessee is governed by  sections        4, 4-A and 4-B and is determined with reference to  concepts        relating  to  residence, receipt and accrual,  as  indicated        therein.   Section  3,  under which  the  actual  charge  of        income-tax arises, is as follows:        "Where  any  Central  Act enacts that  income-tax  shall  be        charged for any year at any rate or rates, tax at that  rate        or those rates shall be charged for that year in  accordance        with, and subject to the provisions of, this Act in  respect        of   the  total  income  of  the  previous  year  of   every        individual,  Hindu  undivided  family,  company  and   local        authority,  and  of  every firm  and  other  association  of        persons  or the partners of the firm or the members  of  the        association individually".        It is by virtue of this section that the actual levy of  the        tax  and  the rates at which the tax has to be  computed  is        determined  each  year by the annual  Finance  Acts.   Thus,        under  the  scheme of the Income-tax Act, 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.   Thus,  income  is        chargeable to tax independent of the passing of the        (1)  [1938] 6 I.T.R. 414 at 428.                                    299        Finance  Act but until the Finance Act is passed no tax  can        be actually levied.  A comparison of sections 3 and 6 of the



      Act  shows that the Act recognises the  distinction  between        chargeability  and  the  actual  operation  of  the  charge.        Section 6 says "save as otherwise provided by this Act,  the        following  heads  of  income, profits and  gains,  shall  be        chargeable   to   income-tax  in  the   manner   hereinafter        appearing,  etc." while section 3, as already quoted  above,        says  that  "where any Central Act  enacts  that  income-tax        shall  be charged for any year at any rate or rates, tax  at        that  rate or those rates,, shall be charged for that  year,        etc."  Though, no doubt, sections 3 and 4 are  the  charging        sections  in the Act as pointed out in Chatturam v.  C.I.T.,        Bihar(1)  at page 125, the wording of section 3 assumes  the        pre-existence  of chargeable income as indicated in  section        6. Hence, according to the scheme of the Act the quality  of        chargeability of any income is independent of the passing of        the  Finance  Act.  In this view, therefore,  though,  as  a        fact, on account of the Finance Act not having been extended        to  the  relevant  area  during  the  year  1939-40,   legal        authority was then lacking for the quantification of the tax        and imposition of the liability therefor, the income of  the        assessee for the relevant year was nonetheless chargeable to        tax  at the time, in the sense explained above.  Indeed,  it        can  also  be said that the very fact of  Regulation  IV  of        1942, having brought the Finance Act of 1939 into  operation        retrospectively, in this area, has factually brought  about,        in  any case, the chargeability of the tax during that  very        year.  The relevant portion of the Regulation says that "the        Indian Finance Act of 1939 shall be deemed to have come into        force  in the area to which this Regulation extends  on  the        30th  day  of  March,  1939".  By  virtue  of  this  deeming        provision  the  Indian Finance Act of 1939 must  be  assumed        even  factually  to  have come into operation  on  the  date        specified  and  the  tax  must  be  taken  to  have   become        chargeable  in that very year, though the  actual  liability        for payment could not arise until proper and        (1)  [1947] F.C.R. 116.        300        valid  steps ’are taken for quantification of the tax.   The        contention, therefore, of the appellant that the income  was        not  chargeable  to  tax  in  the  year  1939-40  cannot  be        accepted.        The next question that arises is whether the income,  though        chargeable  to tax in the year, can be said to have  escaped        assessment  in  the  relevant year.   The  argument  of  the        learned  counsel for the appellant is that since  assessment        proceedings  had in fact been taken during the year  1939-40        by an order of assessment dated the 22nd December, 1939,  it        cannot  be  said that the income "escaped"  assessment.   He        urges  that what happened was that, in spite  of  assessment        having   been  made,  the  assessment   proceedings   became        infructuous  on  account of the decision of  the  Income-tax        Appellate  Tribunal  setting aside the same and  High  Court        agreeing  with it.  He contends that, in the  circumstances,        this is no more than a failure of the assessment proceedings        but that it is not an escapement from assessment.  He relied        upon the Privy Council case in Sir Rajendranath Mukherjee v.        C.I.  P.,  Bengal(1), where their Lordships  say  that  "the        expression  ’has  escaped  assessment’  cannot  be  read  as        equivalent  to  ’has not been assessed"’ and  that  "such  a        reading gives too narrow a meaning to the word  ’assessment’        and  too  wide a meaning to the  word  ’escaped"’.   Learned        counsel for the respondent relies on a number of  subsequent        ’cases  of  the  various High Courts  (Madan  Mohan  Lal  v.        C.I.T.,   Punjab(1);   C.I.  T.,  Bombay  v.   Pirojbai   N.        Contractor(3);  and  Kunwar  Bishwanath Singh  v.  C.I.  T.,



      C.P.(4)  ) which have explained. this decision of the  Privy        Council and pointed out that the particular passage in  that        judgment which is relied upon bad reference to the, facts of        that   case,  viz.,  the  proceedings  by  way  of   initial        assessment  being still pending.  While no doubt  the  Privy        Council case is thus distinguishable, the contention of  the        learned  counsel for the appellant that the escapement  from        assessment is not to be equated to        (1)  [1934] 2 I.T R. 71 at 77.        (3)  [1937] 5 I.T.R. 338.        (2)  [1935] 3 I.T.R. 438.        (4)  [1942] 10 I.T.R. 322.        301        non-assessment  simpliciter  is  not  without  force.   Here        again,   it  is  unnecessary  to  lay  down   what   exactly        constitutes  "escapement from assessment".  For the  purpose        of the present case it appears to us sufficient to say that,        where earlier assessment proceedings had in fact been  taken        but  failed  to result in a valid assessment owing  to  some        lacuna  other  than  that  attributable  to  the   assessing        authorities, notwithstanding the chargeability of income  to        the  tax, it would be a case of chargeable  income  escaping        assessment and not a case of mere non-assessment of  income-        tax.   The  proceedings for assessment in the  present  case        have  failed to result in a valid assessment by virtue of  a        legal  lacuna, viz., the fact of the Indian Finance  Act  of        1939  not having been extended to the relevant area for  the        relevant assessment year.  Learned counsel for the appellant        suggests  that the failure of the assessment proceedings  in        this case must be taken to have been due to the lapse of the        income-tax  authorities.   It  is  said  that  inasmuch   as        Regulation  IV  of  1942  was  actually  passed  during  the        pendency  of the reference in the High Court in  respect  of        the prior proceedings, the result would have been different,        if the Regulation had been brought to the notice of the High        Court.  There is, however, no reason to think so.  The  High        Court’s  jurisdiction  was  only to  answer  the  particular        question that was referred to it by the Income-tax Appellate        Tribunal  and  it is extremely doubtful whether  they  could        have taken notice of a subsequent legislation and answered a        different question.  Learned counsel for the appellant  also        urged  that  in any case the deeming  provision  enacted  in        Regulation  IV of 1942, may be taken to have  validated  the        assessment proceedings previously taken in the year 1939 and        at best to have restored the assessment order passed by  the        Income-tax Officer on the 22nd December, 1939, and confirmed        by the Assistant Commissioner.  But this overlooks the  fact        that the order had in fact been set aside by the  Income-tax        Appellate Tribunal and that the setting aside was  confirmed        by  the High Court on the reference made to it.   Admittedly        the Regulation was  passed after the decision of the        302        Income-tax  Appellate  Tribunal.  Notwithstanding  that  the        Regulation  IV  of 1942 purported to  be  retrospective)  it        cannot have the effect of effacing the result brought  about        by the decision of the Income-tax Appellate Tribunal and the        High Court on reference, unless there are clear and  express        words to that effect.  It might have been quite a  different        matter, if by the date of the Regulation the assessment pro-        ceedings  themselves were still pending as in fact  happened        with  reference to assessment proceedings in this  area,  in        respect  of  a  number  of  assessees  for  the   subsequent        assessment year, 1940-41, which were pending by the date  of        the  relevant  Regulation  and were continued  up  to  their        termination.   They were held to be valid both by  the  High



      Court  and  by  the Federal Court  when  challenged  by  the        assessees.  (See  Raja  Bahadur Kamakshya  Narain  Singh  v.        C.I.T.,  B.  & O.(1); Chatturam v. C.I. T., B. &  O.(1);  as        also Chatturam v. C.I.T., Bihar(1).  It follows,  therefore,        that, in our view, the income of the assessee ’Chargeable to        income-tax escaped assessment in the relevant year  1939-40.        The High Court was, therefore, right in answering as it  did        the question referred to it.        The appeal accordingly fails and is dismissed with costs.        (1) (1946) 14 I.T R.            (2) (1946) 14 I.T.R. 695.        (a)  1947 F.C.R. 116 at 126.                                    303