Retrospective tax amendment can withdraw an assessment-year exemption and apply in a newly covered territory.

A retrospective amendment withdrawing the section 14(2)(c) exemption was treated as operating on the assessment year, so it also affected the corresponding previous year for income accruing in Rajasthan before 1 April 1950. The application of the Indian Income-tax Act to Rajasthan under the Indian Finance Act, 1950 was not treated as incorporation by reference that would freeze the Act against later amendment. Parliament therefore retained power to amend the law retrospectively for that territory, and the retrospective fiction removed the exemption without any saving provision preserving the earlier relief.

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Issues: Whether the retrospective amendment to section 14(2)(c) of the Indian Income-tax Act, 1922 withdrew the exemption in respect of income accruing in Rajasthan before 1 April 1950, and whether the Income-tax Act, as applied to Rajasthan by the Indian Finance Act, 1950, was incorporated by reference so as to prevent the later amendment from operating in that territory.

Analysis: The exemption under section 14(2)(c) was linked to liability in the assessment year, and therefore the withdrawal of the exemption with retrospective effect from 1 April 1950 necessarily affected the income of the previous year relevant to the assessment year 1950-51. The application of the Indian Income-tax Act to Rajasthan under the Indian Finance Act, 1950 did not amount to incorporation by reference of the Act into the Finance Act. Once the Act was applied to the new taxable territory, Parliament retained competence to amend it retrospectively, and the amendment operated in that territory as well. The retrospective fiction was intended to obliterate the exemption from the relevant assessment year, and no saving preserved the earlier exemption.

Conclusion: The retrospective amendment validly removed the exemption, and the assessee's challenge failed.

Ratio Decidendi: Where a tax exemption is attached to the assessment year, a retrospective amendment withdrawing that exemption operates on the corresponding previous year, and an Act applied to a territory is not thereby frozen as an incorporated text immune from later retrospective amendment.

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