Retrospective tax notification and validating regulation can cure earlier procedural defects where valid notice was served and complied with.

Tax liability in an excluded area arose only when the Finance Act of the relevant year became operative there, and a later notification under Section 92(1) of the Government of India Act, 1935 could bring the Indian Finance Act, 1940 into force for the assessment proceedings. Any objection that the assessment had begun before that operative date was treated as curable by the validating regulation, so the assessment completed after the Act applied was valid. The objection based on lack of prior applicability did not survive where the assessee had also received a valid notice under Section 22(2) of the Indian Income-tax Act, 1922, appeared, and filed a return. The proceedings were therefore upheld as valid.

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Issues: Whether the notification and validating regulation could validly apply the Indian Finance Act, 1940 retrospectively to the assessment proceedings and thereby validate the assessment initiated before the date of application in the excluded area, and whether the notice and proceedings were vitiated for want of prior applicability of the Act.

Analysis: The liability to tax did not attach until the Finance Act of the relevant year became operative in the area. Once the notification under Section 92(1) of the Government of India Act, 1935 took effect, the Indian Finance Act, 1940 governed the proceedings, and the assessment completed thereafter was valid. The alleged defect in the earlier commencement of proceedings did not defeat the assessment, because the validating regulation, if necessary, could operate to make the Act applicable from the earlier date. The assessee had also been served with a valid notice under Section 22(2) of the Indian Income-tax Act, 1922 and had appeared and filed a return, so the objection based on Section 22(1) did not survive.

Conclusion: The question was answered in the affirmative and the assessment proceedings were held valid.

Ratio Decidendi: Tax liability and assessment proceedings become effective when the taxing statute is brought into force for the relevant area, and a subsequent valid notification or validating regulation may cure prior procedural objections where the assessee has participated under a valid notice.

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