1954 (3) TMI 61 - HC - Income Tax

Summary

Issues Involved:
1. Appealability of Income-tax Officer's orders dated 23rd January, 1950.
2. Necessity of action under section 34 before revising assessments.
3. Applicability of limitation period under section 34 to deemed dividend distribution under section 23A(1).

Issue-wise Detailed Analysis:

1. Appealability of Income-tax Officer's Orders Dated 23rd January, 1950:
The court examined whether the orders of the Income-tax Officer dated 23rd January, 1950, were appealable. It was determined that the orders were indeed appealable. The court emphasized that an order under section 23A does not constitute an assessment order by itself and that a proper order of assessment, following the machinery laid down in the Act, is necessary. The court stated, "If the order was made under section 34, it is clearly appealable, because it is made appealable under section 30." This conclusion was reached after considering that the Income-tax Officer's order must be viewed as having been made under section 34, despite the Officer not explicitly stating so.

2. Necessity of Action Under Section 34 Before Revising Assessments:
The court affirmed that it was incumbent upon the Income-tax Officer to take action under section 34 before revising the assessments on 23rd January, 1950. The court highlighted the principle that no liability to pay tax arises without a proper order of assessment. The court stated, "An order under section 23A imposing a liability upon a shareholder to pay tax can only be made under section 34." This interpretation ensures that the assessee is given notice and an opportunity to be heard, adhering to principles of natural justice.

3. Applicability of Limitation Period Under Section 34 to Deemed Dividend Distribution Under Section 23A(1):
The court addressed whether the limitation period specified in section 34 applies to the inclusion of deemed dividends in the total income of a shareholder. The court held that the limitation period does apply, but it begins from the end of the year in which the order under section 23A is made, not from the year the income is deemed to have been distributed. The court explained, "The dividends deemed to be the income of the shareholder under section 23A could only have been first assessed when the order under section 23A was made." This interpretation aligns with the principle that an income must exist before it can be assessed.

Conclusion:
The court concluded that the orders of the Income-tax Officer dated 23rd January, 1950, were appealable, that action under section 34 was necessary before revising assessments, and that the limitation period under section 34 applies to deemed dividend distribution under section 23A(1), starting from the end of the year in which the order under section 23A is made. The Commissioner was ordered to pay the costs.