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TMI Blog1967 (4) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... case of a shareholder by serving on him a notice under the said section even before an order under section 23A(1) of the Act is passed in the assessment of the company ? " The assessees in these cases are shareholders in Messrs. Uttam Singh Dugal and Co. (Private) Limited, New Delhi. The assessment year, with which we are concerned in this case, is 1954-55, the account period being the year ending March 31, 1954. The Income-tax Officer initiated proceedings under section 23A of the Act against Messrs. Uttam Singh Dugal and Co. as per his notices dated March 8, 1957. But an order under that section was passed only on January 20, 1960. Even before that order was made, he initiated proceedings against the assessees by issuing notices under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f each shareholder shall be included in the total income of such shareholder for the purpose of assessing his total income. . . ." (The provisos are not relevant for our present purpose.) Section 23A(1) provides that as soon as an Income-tax Officer makes an order in writing that the undistributed portion of the assessable income of the company during the relevant previous year as computed for income-tax purposes and reduced in the manner provided in that section, shall be deemed to have been distributed as dividends amongst its shareholders as at the date of the general meeting of the company and thereupon the proportionate share thereof of each shareholder shall be included in his total income. On the basis of that provision, it was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so far as may be, apply accordingly as if the notice were a notice issued under that sub-section : . . ." There is no dispute that in view of the order made on January 20, 1960, the dividends in question must be deemed to have been distributed in the relevant account year, i.e., 1953-54. There was also no dispute that it is open to the Income-tax Officer to take proceedings under section 34 within the time fixed by law to bring to tax those dividends. That much is concluded by the decisions of the Supreme Court in Sardar Baldev Singh v. Commissioner of Income-tax and Commissioner of Income-tax v. Robert J. Sas. But these decisions do not conclude the controversy that is before us. In the instant cases, proceedings under section 34(1)(b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation he had was that he had taken proceedings under section 23A(1) against the company, which may result in an order under that section, in which case the fiction contemplated by that provision may come into existence. Such an information does not satisfy the requirements of section 34(1)(b). Dealing with the effect of an order under section 23A(1) of the Act, this is what Chagla C.J. observed in Navinchandra Mafatlal v. Commissioner of Income-tax : " This income came into existence for the first time by an order made by the Income-tax Officer under section 23A on 20th February, 1947, and having come into existence at that date, it could only have been first assessed at that date. Prior to 20th February, 1947, it was incapable of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in existence on the date mentioned for the purpose of assessment to tax. It is as if it actually existed then. Now if the assessment for the relevant year does not include that income, it has escaped assessment. From this passage it is clear that the fiction in question comes into existence only after an order under section 23A(1) is made. If the assessees had submitted their returns, in obedience to the notices received by them, immediately after the receipt of those notices, they need not have included the dividends with which we are concerned in these cases. Those dividends were not a part of their income at that time. Section 34(1)(b) has to be strictly construed. In a sense, it is a penal provision. If the conditions mentioned in that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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