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Issues Involved:
1. Legislative competence to enact Section 23A of the Income-tax Act. 2. Constitutionality of Section 23A under Article 13 of the Constitution. 3. Applicability of Section 34 of the Income-tax Act. 4. Limitation period for issuing notices under Section 34. Detailed Analysis: 1. Legislative Competence to Enact Section 23A of the Income-tax Act: The petitioners challenged the legislative competence of enacting Section 23A, arguing it was beyond the legislative competence of the Legislature. The court examined the legislative history and practices in America, England, and India, noting that controlled companies' undisbursed profits were treated as the income of individual shareholders for tax purposes. The court concluded that the legislative power to enact Section 23A was founded on entry 54 in List I of the 7th Schedule of the Government of India Act, 1935, which covers "Taxes on income other than agricultural income." The court held that Section 23A was intra vires the Legislature, as it was essentially taxing income, even though the incidence of the tax was on the shareholders. 2. Constitutionality of Section 23A Under Article 13 of the Constitution: The petitioners argued that Section 23A became void under Article 13 of the Constitution as it infringed upon fundamental rights guaranteed by Articles 14 and 19. The court noted that Section 23A is a procedural section and not a charging section, and it does not itself constitute an order of assessment. The court held that the classification of controlled companies and their shareholders was reasonable and had a just relation to the object sought to be achieved by preventing tax evasion. The court concluded that Section 23A did not offend Article 14 and did not infringe any fundamental rights under Article 19(1)(f) or Article 31. 3. Applicability of Section 34 of the Income-tax Act: The petitioners contended that Section 34 was not applicable as there was no escape of assessment within the meaning of Section 34. The court examined the facts and determined that the share of undisbursed profits accrued to the petitioners on 23rd December 1949, but was not assessed in the relevant assessment year 1950-51. The court held that this constituted an escape of assessment under Section 34(1)(b). The court also noted that the legal fiction created by Section 23A should be treated as a factual accrual of income, making the case fall within the purview of Section 34(1)(b). 4. Limitation Period for Issuing Notices Under Section 34: The petitioners argued that the notices issued on 23rd March 1955 were barred by limitation. The court clarified that the period of limitation should be computed from the end of the assessment year, not the accounting year. The court held that the expression "any year" in Section 34 refers to the assessment year. Since the assessment year ended on 31st March 1951, the notices issued on 23rd March 1955 were within the four-year limitation period prescribed by Section 34(1)(b). Conclusion: The court dismissed the petitions, holding that Section 23A was within the legislative competence and did not violate constitutional provisions. The court also held that the notices issued under Section 34 were valid and within the limitation period. The rule in each of the petitions was discharged, and the petitions were dismissed with costs.
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