Income-tax exemption under repealed notification cannot override the 1961 Act's specific exemption scheme and section 263 revision.

A notification issued under the repealed Indian Income-tax Act, 1922 could not continue to govern exemption claims after the Income-tax Act, 1961 came into force, because section 297 preserved only what was specifically saved and the new Act created its own exemption framework for co-operative societies under section 80P. An assessment granting complete exemption on the basis of the old notification was therefore erroneous and prejudicial to revenue, so revision under section 263 was justified. The Tribunal's view sustaining the old notification and setting aside the revision was unsustainable; the matter had to be examined afresh under section 80P.

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Issues: (i) Whether the notification issued under the Indian Income-tax Act, 1922 could continue to govern the assessee's claim for exemption after the coming into force of the Income-tax Act, 1961. (ii) Whether the Commissioner was justified in invoking revisionary power under section 263 of the Income-tax Act, 1961 and whether the Tribunal was right in setting aside that order.

Issue (i): Whether the notification issued under the Indian Income-tax Act, 1922 could continue to govern the assessee's claim for exemption after the coming into force of the Income-tax Act, 1961.

Analysis: The assessment was made under the 1961 Act, and the old notification was pressed into service to claim a complete exemption. The repeal and savings provision in section 297 of the 1961 Act was held to preserve only such notifications and matters as were saved by that provision. Once the new Act had made specific provision for co-operative societies through section 80P, the earlier notification could not be treated as continuing to override the new statutory scheme.

Conclusion: The old notification could not be relied upon to claim exemption under the 1961 Act; the issue was decided against the assessee.

Issue (ii): Whether the Commissioner was justified in invoking revisionary power under section 263 of the Income-tax Act, 1961 and whether the Tribunal was right in setting aside that order.

Analysis: The assessment order granting complete exemption was found to be based on a legal premise inconsistent with the 1961 Act and therefore erroneous. Since section 263 permits revision where an order is erroneous in so far as it is prejudicial to the interests of revenue, the Commissioner's interference was upheld. The Tribunal's view, which sustained the old notification and restored the assessment, was held unsustainable.

Conclusion: The Commissioner's revision was justified and the Tribunal was not right in setting aside it; this issue was decided in favour of the Revenue.

Final Conclusion: The reference was answered by holding that the old notification could not survive as a basis for exemption under the 1961 Act and that the revision under section 263 was valid, with the matter to be examined afresh under section 80P.

Ratio Decidendi: A notification issued under the repealed 1922 Act cannot displace the specific exemption framework enacted under the 1961 Act, and an assessment founded on that incorrect premise is erroneous and prejudicial to the interests of revenue for the purposes of section 263.

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