Undisclosed income must be assessed in the year it accrued, not a later year, for encashed demonetised notes.

Income from an undisclosed source is assessable only with reference to the ordinary financial year in which it accrued. Applying that principle to cash linked with encashment of high denomination notes under the Demonetisation Ordinance, the High Court found the relevant accounting year to be 1 April 1945 to 31 March 1946. The amount, if taxable at all as undisclosed income, therefore belonged to assessment year 1946-47 and could not be brought to tax in assessment year 1947-48. The answer was against the revenue and in favour of the assessee.

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Issues: Whether the sum of Rs. 1,38,000 treated as income from undisclosed sources could be assessed in the assessment year 1947-48.

Analysis: The reference arose under section 66(2) of the Indian Income-tax Act, 1922. The sum in question was connected with encashment of high denomination notes declared under the High Denomination Bank Notes (Demonetisation) Ordinance, 1946. The Court applied the settled principle that income from an undisclosed source can be assessed only with reference to the ordinary financial year in which it accrued. On the facts, the relevant accounting year was April 1, 1945 to March 31, 1946, so the amount, if taxable as undisclosed income, fell in the assessment year 1946-47 and not in 1947-48.

Conclusion: The amount of Rs. 1,38,000 could not be assessed in the assessment year 1947-48 and the answer was against the revenue and in favour of the assessee.

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