Reassessment, substituted service, and taxable remittances under the 1922 Income-tax Act were examined on disclosure and receipt principles.

Reassessment under section 34(1)(a) applies where the assessee fails to disclose material facts fully and truly, whereas section 34(1)(b) depends on later information coming to the Income-tax Officer. Service of notice by affixture on a residential house is not valid unless the substituted service procedure under Order 5, rule 20 of the Code of Civil Procedure is strictly complied with. A remittance made out of the assessee's own credited funds and received in the taxable territories is assessable as income under section 4(1)(b)(iii).

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Issues: (i) Whether the reassessment proceedings were governed by section 34(1)(a) or section 34(1)(b) of the Indian Income-tax Act, 1922; (ii) whether service of notice by affixture on the assessee's residential house was valid; (iii) whether the sum of Rs. 62,500 was assessable as income under section 4(1)(b)(iii) of the Indian Income-tax Act, 1922.

Issue (i): Whether the reassessment proceedings were governed by section 34(1)(a) or section 34(1)(b) of the Indian Income-tax Act, 1922.

Analysis: The material facts showed that the assessee had not disclosed the remittances in its return or in the original assessment proceedings. The omission amounted to concealment of material facts necessary for assessment. The case therefore fell within the clause dealing with escaped income arising from nondisclosure, and not within the clause that depends on later information coming into possession of the Income-tax Officer.

Conclusion: The proceedings were rightly referable to section 34(1)(a) and not to section 34(1)(b), against the assessee.

Issue (ii): Whether service of notice by affixture on the assessee's residential house was valid.

Analysis: Substituted service under Order 5, rule 20 of the Code of Civil Procedure, 1908 requires compliance with the prescribed procedure. In the setting of income-tax proceedings, this meant that affixture on the residence alone was insufficient and that the statutory mode of substituted service had not been duly completed. The alternative mode under the rule also could not be used to validate mere partial affixture.

Conclusion: Service by affixture on the residential house was not valid, in favour of the assessee.

Issue (iii): Whether the sum of Rs. 62,500 was assessable as income under section 4(1)(b)(iii) of the Indian Income-tax Act, 1922.

Analysis: The remittances were found to have been made from the assessee's own credited funds and represented income already attributable to the assessee. When brought from Gwalior to Agra, the amount became taxable as income received in the taxable territories within the statutory provision governing such receipts.

Conclusion: The amount was assessable under section 4(1)(b)(iii), against the assessee.

Final Conclusion: The reference was answered by holding that reassessment lay under clause (a), the affixture service was invalid, and the remitted amount was taxable as income; the decision thus substantially supported the Revenue while setting aside the validity of the notice service.

Ratio Decidendi: Reassessment is governed by the clause applicable to concealment where material facts were not fully and truly disclosed, and substituted service must strictly comply with the prescribed statutory procedure before it can be treated as valid service.

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