Undisclosed income assessable in the immediately following year; transitional provisions do not alter substantive tax liability.

Undisclosed income relating to a period before 31 March 1961 remained assessable in the immediately following assessment year on the ordinary financial-year basis where no accounts existed and no option under the 1922 Act was shown. Section 297(2)(b) of the Income-tax Act, 1961 was confined to procedural machinery for returns filed after commencement of the new Act and did not enlarge or alter substantive tax liability. The Karnataka HC therefore treated the provision as inapplicable to justify assessment in assessment year 1962-63, and the inclusion of the disputed sums in that year was unsustainable.

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Issues: Whether sums attributable to an undisclosed source arising prior to 31 March 1961 could be assessed in assessment year 1962-63 under the Income-tax Act, 1961, and whether section 297(2)(b) of that Act displaced the rule that such income was assessable in the immediately following year.

Analysis: The sums in question related to a period prior to 31 March 1961 and were treated as income from undisclosed sources. The governing principle was that, where no accounts exist for an undisclosed source and no option under the corresponding provision of the 1922 Act is shown, such income is assessable on the basis of the ordinary financial year and in the immediately following assessment year. Section 297(2)(b) of the 1961 Act was held to apply only the procedural machinery of the new Act to returns filed after its commencement and not to enlarge or alter the substantive liability of the assessee. Since the dispute concerned liability, the revenue could not rely on that provision to justify assessment in assessment year 1962-63.

Conclusion: The inclusion of the disputed sums in assessment year 1962-63 was unsustainable and the assessee succeeded.

Ratio Decidendi: Transitional provisions preserving the procedure of a repealed income-tax statute do not alter the substantive year of assessability of undisclosed income, which remains governed by the rule that such income is assessable in the immediately following assessment year.

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