Assessment-year law governs income-tax exemption, so later notifications controlled the assessee's exemption entitlement.

Income-tax exemption is determined by the law and notifications in force for the assessment year, not merely by those operating when the income accrued in the previous year. The distinction between tax rates and exemptions was rejected because both form part of the assessment machinery. The later notification applicable to the assessment year therefore controlled the extent of exemption, and the assessee was entitled only to the limited exemption then in force.

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Issues: Whether the exemption applicable to the assessee's income was to be determined by the notification in force during the previous year when the income arose, or by the notification in force during the assessment year when the assessment was made.

Analysis: The income had accrued in the previous year ended 31 March 1936, but the assessment was made for the assessment year 1936-37. The governing statutory position was that the assessment had to be made according to the law and rules in force for the assessment year, not according to those in force only during the year of income. The distinction urged between rates of tax and exemption from tax was rejected, as both were integral to the assessment machinery. The later notification in force for the assessment year therefore controlled the extent of exemption.

Conclusion: The question was answered in the affirmative, in favour of the Revenue, and the assessee was entitled only to the limited exemption in force for the assessment year.

Ratio Decidendi: An income-tax assessment is governed by the statutory law and notifications in force for the assessment year, even where the income assessed accrued in an earlier previous year.

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