Taxation Concessions Order excludes locally assessed Daman income from rate computation and permits challenge to interest in assessment appeal.

Income earned in Daman for the previous year ending 31 December 1962, though assessed under local law, was held excluded from total income for rate purposes under the Income-tax Act, 1961 read with the Taxation Concessions Order, 1964, because the concession exempted income already chargeable and assessed locally from assessment under the Act. The Court treated that income as distinct and not part of the assessee's total income for computing the tax rate, answering the issue in favour of the assessee. It was also held that interest levied under sections 139(1) and 217 could be challenged in an appeal against the assessment order as a whole, again in favour of the assessee.

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Issues: (i) Whether income earned in Daman in the previous year ending on 31 December 1962, though assessed under the local law, was to be included in the assessee's total income for rate purposes under the Income-tax Act, 1961 read with the Taxation Concessions Order, 1964; (ii) Whether the assessee could challenge the levy of interest under sections 139(1) and 217 of the Income-tax Act, 1961 in an appeal against the assessment order as a whole.

Issue (i): Whether income earned in Daman in the previous year ending on 31 December 1962, though assessed under the local law, was to be included in the assessee's total income for rate purposes under the Income-tax Act, 1961 read with the Taxation Concessions Order, 1964.

Analysis: Paragraph 5(1) of the Taxation Concessions Order, 1964 exempted from assessment under the Income-tax Act, 1961 income of the previous year ending on 31 December 1962 which had already been chargeable to tax and assessed under the local law. The expression used in paragraph 3(1)(ii) that such income would have been "included in his total income" was construed as referring only to income that would otherwise have formed part of the total income but for the special concessions. The Court treated the Daman income as distinct from the remaining income and held that the exemption operated to exclude it from the computation of total income for rate purposes.

Conclusion: The question was answered in the affirmative in favour of the assessee; the Daman income was not includible in the total income for determining the rate of tax.

Issue (ii): Whether the assessee could challenge the levy of interest under sections 139(1) and 217 of the Income-tax Act, 1961 in an appeal against the assessment order as a whole.

Analysis: The question was governed by the existing Full Bench authority holding that where an appeal is directed against the assessment order as a whole, the levy of interest under the specified provisions can be questioned in that appeal. No contrary distinction was accepted on the facts before the Court.

Conclusion: The question was answered in the affirmative in favour of the assessee; the challenge to interest was maintainable in the appeal.

Final Conclusion: Both referred questions were decided for the assessee, and the reference was disposed of accordingly with costs awarded against the revenue.

Ratio Decidendi: Where a concession order expressly exempts income already assessed under the local law from assessment under the Income-tax Act, that income is excluded altogether from total income for rate purposes; and a levy of interest that forms part of the assessment order may be challenged in an appeal against that order.

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