1962 (11) TMI 49 - SC - Income Tax

Whether on the facts and circumstances of the case it was necessary for the Income-tax Officer to initiate action under section 34 of the Indian Income-tax Act in order to tax the deemed income distributed by virtue of the order under section 23A(1) of the Act made in the case of the A. C. E. C Private (India) Ltd. ? If the answer to question No. 1 is in the affirmative whether the notice served on 1st April, 1954, was out of time ? Held that - Appeal dismissed. As an assessment cannot be made under section 23A of the Act because that section does not make provision for an assessment to be made and assessment can only be made under section 34 of the Act. Answer given by the High Court to the second question was correct and the assessment made under section 34(1)(b) of the Act after four years from the end of the relevant assessment year was out of time.

Issues:
Jurisdiction of Income-tax Officer under section 34 of the Income-tax Act.
Validity of notice served under section 34(1)(b) of the Act.
Interpretation of section 23A(1) regarding deemed distribution of dividends.
Applicability of time limit for assessment under section 34(1)(b).

Jurisdiction of Income-tax Officer under section 34:
The case involved three appeals brought against the High Court of Bombay's judgment and order by the Commissioner of Income-tax. The appeals concerned the jurisdiction of the Income-tax Officer to initiate proceedings under section 34 of the Income-tax Act. The Tribunal accepted the plea that the notices served on the respondents were beyond the allowed period of four years under section 34(1)(b) of the Act. This decision led to the referral of two questions to the High Court for consideration.

Validity of notice served under section 34(1)(b):
The primary issue before the High Court was whether the notice served on April 1, 1954, was out of time. The Commissioner of Income-tax argued that there was no specific limitation for orders under section 23A of the Act and contended that the notice was within the permissible period. However, the High Court, considering the relevant provisions of the Act, held that the notice served after four years from the end of the relevant assessment year was indeed out of time. The High Court's decision on this issue was upheld.

Interpretation of section 23A(1) regarding deemed distribution of dividends:
Section 23A(1) empowers the Income-tax Officer to assess individual members of certain companies where dividends distributed are less than 60% of the assessable income. The section deems the undistributed portion of the assessable income to have been distributed as dividends amongst the shareholders. The deemed distribution is considered to have occurred at the date of the general meeting of the company. In the present case, the Income-tax Officer correctly determined the undistributed income based on the provisions of section 23A(1) and the timeline of the general meeting.

Applicability of time limit for assessment under section 34(1)(b):
The assessment under section 23A(1) necessitates compliance with the time limits prescribed under section 34(1)(b) for serving notices. The High Court's interpretation emphasized the importance of adhering to the statutory time limits for assessment purposes. The Supreme Court affirmed the correctness of the High Court's decision regarding the timeliness of the notice served under section 34(1)(b) and dismissed the appeals.

In conclusion, the Supreme Court upheld the High Court's decision on the timeliness of the notice served under section 34(1)(b) of the Income-tax Act, emphasizing the importance of adhering to statutory time limits for assessments. The judgment clarified the jurisdiction of the Income-tax Officer under section 34 and the deemed distribution of dividends under section 23A(1), ultimately dismissing the appeals brought by the Commissioner of Income-tax.

← Previous Next →