Escaped assessment under income-tax law upheld where retrospective legislation cured the earlier defect and definite information emerged later.

Section 34 of the Indian Income-tax Act, 1922 was held applicable where the Income-tax Officer obtained definite information that chargeable income had escaped assessment after retrospective legislation and judicial clarification removed an earlier legal defect. The Court held that income remained chargeable under the Act even though actual levy was postponed until the Finance Act became operative, and that a failed prior assessment caused by a legal lacuna not attributable to the assessee could justify treatment of the income as escaped assessment. On that basis, the reassessment notice was valid and the challenge failed.

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Issues: Whether the notice issued under section 34 of the Indian Income-tax Act, 1922, for the assessment year 1939-40 was validly issued.

Analysis: Section 34 required that the Income-tax Officer discover, in consequence of definite information, that chargeable income had escaped assessment. The Court held that the relevant information arose only after the Bihar Regulation IV of 1942 retrospectively brought the Indian Finance Act, 1939 into force in the area and after the High Court affirmed that the earlier assessment was invalid. The Court further held that income may be chargeable to tax under the standing provisions of the Act even though actual levy could not be made until the Finance Act operated, and that where earlier assessment proceedings had failed to produce a valid assessment because of a legal lacuna not attributable to the assessee, the income could properly be treated as having escaped assessment.

Conclusion: The notice under section 34 was validly issued and the challenge to reassessment failed.

Ratio Decidendi: Income is chargeable to tax under the Income-tax Act even if actual levy is postponed by the absence of an operative Finance Act, and where prior assessment proceedings fail to result in a valid assessment because of a legal defect later removed by retrospective legislation, the income is treated as having escaped assessment for the purposes of section 34 upon discovery of that fact through definite information.

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