Income-tax recovery under the new Act can start after default; a demand notice under the old Act does not itself begin recovery.

Section 297 of the Income-tax Act, 1961 preserves pending appellate, reference and revision matters, but not recovery proceedings. A notice of demand issued under the repealed 1922 Act is part of the assessment process and does not itself commence enforced recovery; recovery starts only on default after the demand. As no recovery proceeding had been initiated before the 1961 Act came into force, recovery could validly be commenced under the new Act, and section 297(2)(c) did not require continuation under the 1922 Act. The ruling clarifies that section 297(2)(j) authorises recovery of sums payable under the repealed Act through the 1961 Act.

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Issues: (i) Whether a tax recovery proceeding could be initiated under the Income-tax Act, 1961 where assessment and demand had been made under the Indian Income-tax Act, 1922 before the new Act came into force; (ii) whether a notice of demand under the 1922 Act itself amounted to commencement of a recovery proceeding so as to attract the saving provision in section 297 of the Income-tax Act, 1961.

Issue (i): Whether a tax recovery proceeding could be initiated under the Income-tax Act, 1961 where assessment and demand had been made under the Indian Income-tax Act, 1922 before the new Act came into force.

Analysis: The saving clause in section 297(2)(c) preserves proceedings pending by way of appeal, reference or revision before income-tax authorities, tribunals or courts. It does not extend to recovery proceedings. Section 297(2)(j) specifically authorises recovery of sums payable under the repealed Act under the new Act, while preserving action already taken under the repealed Act. The demand having been issued before the new Act did not bar initiation of recovery under the 1961 Act after the assessee failed to pay.

Conclusion: The recovery proceeding was maintainable under the Income-tax Act, 1961, and the Revenue was entitled to proceed under the new Act.

Issue (ii): Whether a notice of demand under the 1922 Act itself amounted to commencement of a recovery proceeding so as to attract the saving provision in section 297 of the Income-tax Act, 1961.

Analysis: A notice of demand forms part of the assessment process and does not itself commence enforced recovery. Recovery begins only when there is default in payment after the demand. Since the assessee had not yet defaulted when the new Act came into force, no recovery proceeding had been initiated under the old Act. The saving clause therefore did not require continuation under the 1922 Act.

Conclusion: A notice of demand did not amount to initiation of recovery proceedings, and the proceedings could validly start under the 1961 Act.

Final Conclusion: The impugned order refusing to recognise the recovery steps under the new Act was set aside, and the recovery proceedings under the Income-tax Act, 1961 were directed to continue.

Ratio Decidendi: A notice of demand in income-tax assessment is part of the assessment process and does not start recovery proceedings; recovery may be commenced under the repealed or new Act according to the saving provisions only after default occurs, and section 297(2)(c) does not apply to recovery proceedings.

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