Escaped assessment under tax law depends on lawful assessability, especially where actuarial valuation is mandatory for life insurers.

Section 34 of the Income-tax Act, 1922 applies only where income, profits or gains chargeable to tax had escaped assessment in a year. For life assurance companies, the statutory machinery required income to be determined by the average annual net profits shown by the last preceding actuarial valuation. Where no such valuation existed for the relevant year, there was no lawful basis for assessment, and the ordinary method could not be substituted. The distinction between chargeability and assessability was therefore critical: income is assessable only when the applicable statutory machinery exists. On that reasoning, an assessment under Section 34 for 1927-28 was held not to be legally sustainable.

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Issues: Whether an assessment made under Section 34 of the Income-tax Act, 1922 for the year 1927-28 was legal in the case of a life assurance company whose profits for that year had not yet been ascertained by actuarial valuation.

Analysis: Section 34 applies only where income, profits or gains chargeable to income tax have escaped assessment in a year. A distinction was drawn between chargeability and assessability: the former denotes liability to tax, while the latter depends on the existence of lawful machinery for assessment. Under Section 59 of the Income-tax Act, 1922, the rule framed for life assurance companies required their income to be determined by the average annual net profits disclosed by the last preceding actuarial valuation. For the year in question, no such valuation existed, so there was no lawful basis for assessment. The rule governing life assurance companies was mandatory and excluded resort to the ordinary method of assessment.

Conclusion: The assessment under Section 34 for 1927-28 was not legal, because the income of the company had not escaped assessment within the meaning of the section.

Final Conclusion: The reference was answered against the Revenue and in favour of the company, with costs left to be borne by the parties themselves.

Ratio Decidendi: Income can be said to have escaped assessment under Section 34 only when it was capable of lawful assessment in the relevant year under the applicable statutory machinery.

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