1983 (1) TMI 21 - HC - Income Tax

Summary

Issues:
Assessment of cash credits for the assessment years 1958-59 and 1959-60 under the Income Tax Act, 1961

Analysis:
The judgment by the Bombay High Court dealt with the assessment of cash credits in the account books of an assessee-company for the assessment years 1958-59 and 1959-60. Initially, the Assessing Officer added the total cash credits of Rs. 3,36,000 as income for the assessment year 1959-60. However, the Appellate Assistant Commissioner (AAC) found that Rs. 2,50,000 out of the total cash credits fell within the previous year relevant to the assessment year 1958-59. Consequently, the AAC deleted the sum of Rs. 2,50,000 from the assessment year 1959-60.

Subsequently, the Income Tax Officer (ITO) issued a notice under section 147(a) of the Income Tax Act, 1961, for the assessment year 1958-59 to include the unexplained cash credits of Rs. 2,25,000. The AAC accepted that the amount was assessable in the assessment year 1959-60, not in 1958-59, based on the provisions of section 297(2)(d)(ii) read with section 68 of the Income Tax Act, 1961. The AAC canceled the assessment made by the ITO, a decision upheld by the Tribunal.

The High Court addressed the question of whether the inclusion of unexplained cash credits, when the assessment for 1958-59 is reopened, should be governed by section 68 of the Income Tax Act, 1961, or the law under the Indian Income Tax Act, 1922, in view of section 297(2)(d)(ii) of the Income Tax Act, 1961. The Court emphasized the Supreme Court's decision in Govinddas v. ITO [1976] 103 ITR 123, which clarified that substantive law determining the liability to tax must be the law under the old Act that applied during the relevant assessment years.

The Court disagreed with the AAC and the Tribunal, stating that section 68 of the Income Tax Act, 1961, is a substantive provision determining the liability of the assessee for unexplained cash credits. Therefore, the liability in this case should be determined under the old Act, not under section 68. The Court concluded that the unexplained cash credits would be governed by the law as it was under the Indian Income Tax Act, 1922. Consequently, the Court answered the question by holding that the cash credits should be governed by the old Act, not section 68 of the Income Tax Act, 1961.