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TMI Blog1967 (7) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... eve of the partition of India, M. M. Ispahani Ltd. shifted its registered office to Chittagon, now in East Pakistan, on June 26, 1947. (c) Thereafter, on July 10, 1947, M. M. Ispahani Ltd., converted itself into a public limited company. (d) On August 5, 1948, the annual general meeting of the shareholders of M. M. Ispahani Ltd. was held at Chittagong and a dividend was declared for the year ended December 31, 1946. (e) In the assessment year 1947-48, the Income-tax Officer found that the dividend declared by M. M. Ispahani Ltd. was less than the statutory percentage, contemplated under section 23A of the Indian Income-tax Act, as it stood prior to the amendment in 1955. He, therefore, took action against M. M. Ispahani Ltd., under section 23A and made an order, on February 27, 1954, deeming that a sum of Rs. 5,12,491 was distributed as dividend, on August 5, 1948, amongst six named shareholders of M. M. Ispahani Ltd. including the assessee. We have proceeded on the above-stated admitted facts because the statement of case is much too cryptic. We do not, however, think it necessary to call for a supplementary statement ion the above facts of historical importance, in the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting year was the calendar year 1946, the company, Messrs. M. M. Ispahani Ltd., was an Indian company and, therefore, the provisions of section 23A are attracted. " He overruled the second ground with the following observation : " In view of the Explanation 3 to section 4(1) the dividend paid by an Indian company without the taxable territories shall be deemed to be income accruing and arising in the taxable territories to the extent to which it has been paid out of the profits subjected to income-tax in the taxable territories and, therefore, the dividend to the extent to which it is paid out of the profit subjected to tax in India is taxable in the hands of the appellant who is a non resident, because it is deemed to accrue or arise in the taxable territories." Although overruling the second ground he reminded himself of item 3 of the agreement for Avoidance of Double Taxation between India and Pakistan and showed this concession to the assessee that he directed the Income-tax Officer to tax under section 23A, proportionate dividends pertaining to the profits that ultimately would bear tax in India in connection with the assessment for 1947-48, after considering the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the question of law, quoted at the beginning of this judgment to this court. It was argued on behalf of the assessee that, in order to fall within the mischief of section 23A as it stood before the amendment of 1955, there must be : (1) distribution of dividend by a company in which the public were not substantially interested, (2) dividend must fall below the statutory percentage without reasonable cause, and (3) an order must be made that the undistributed portion of the assessable income shall be deemed to have been distributed as dividend amongst the shareholders on the date of the annual general meeting. It was submitted that a company, according to the definition thereof in section 2(5A), either meant an Indian company or an association, whether incorporated or not and whether Indian or non-Indian which is or was assessable or was assessed as a company for the assessment for the year ending March 31, 1948, or which is declared by a general or special order of the Central Board of Revenue to be a company for the purposes of the Act. An Indian company again, according to the definition in section 2(7A), means a company as defined in the Companies Act, 1913, or a company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meeting . . ." The section deals with an imaginary state of affairs. What has to be done in such state of affairs, has been well-stated by Lord Asquith of Bishopstone in East End Dwellings Company Limited v. Finsbury Borough Council in the following language : " If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it .... The statute says that you must imagine a certain state of affairs ; it does not say that having done so you must cause or permit your imagination to boggle. . . . " Approving of the above observations the Supreme Court further observed in the case of Commissioner of Income-tax v. Godavari Sugar Mills Ltd. : It is, indeed, true that as a result of the order of the Income-tax Officer there is no factual distribution of dividend but it is only a fictional or notional distribution of dividend which was not, in fact, received by the shareholders. The section merely enacts that notional dividend is deemed to have been distributed as at the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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