1931 (2) TMI 10 - HC - Income Tax

Summary

Issues:
Assessment under Section 34 of the Income Tax Act for the year 1927-28.

Analysis:
The judgment pertains to a reference made under Section 66 of the Income Tax Act by the Commissioner of Income Tax regarding the assessment of a company for the year 1927-28. The company, a Life Assurance Company, had been assessed for the year 1928-29 based on its profits, but the Income Tax Officer also sought to assess it for the previous year under Section 34 of the Income Tax Act. The main issue was whether this assessment for the year 1927-28 was legal.

The court analyzed Section 34 of the Income Tax Act, which allows the Income Tax Officer to assess or re-assess income that has escaped assessment in any year. The section requires that the income must have been chargeable during the preceding year and must have escaped assessment. The court noted that the income, profits, or gains in question were chargeable, but the key contention was whether they had actually "escaped assessment."

The court distinguished between chargeability and assessability, emphasizing that for the Income Tax Officer to assess the company's income for the year 1927-28, there needed to be a legal mechanism in place for such assessment. The court referred to Rule 25 of the Income Tax Manual, which outlines the method for determining the income of Life Assurance Companies based on actuarial valuation. Since no actuarial valuation had been conducted for the year 1927-28, the court found that there was no legal means for assessing the company's income during that period.

Furthermore, the court highlighted that Rule 25 mandates that the last preceding valuation should be the basis for subsequent assessments. In this case, as there was no preceding valuation for the relevant income, it was not possible to assess the company's income for the year 1927-28. The court concluded that under the existing law and rules, the Income Tax Officer could not have assessed the company for that year, and therefore, it could not be said that the income had "escaped assessment."

In light of these considerations, the court answered the reference in the negative, indicating that the assessment made under Section 34 for the year 1927-28 was not legal. The parties were left to bear their own costs of the proceedings.