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TMI Blog1958 (9) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... ccessfully challenged as far as the Tribunal was concerned. Now, in arriving at the assessable income of the assessee, the Income-tax Officer took into consideration a sum of ₹ 1,63,377, which were profits, according to the Department, earned by the asses-see under section 42(2) of the Income-tax Act and the contention of the assessee is that in deciding whether section 23A is applicable to this case and whether the Income-tax Officer has rightly exercised his power, this sum of ₹ 1,63,377 should be excluded in determining whether the profits of the Company were such so as to attract the application of section 23A. Now, let us first look at the scheme of section 23A. The first condition for the exercise of the power of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (2) the fiction introduced is very different. The fiction introduced there is with regard to the income itself. In fact there is no income, but sub-section (2) introduces a legal fiction and makes a non-existent income, income of the assessee for the purpose of tax if the circumstances laid down in that sub-section are satisfied. We are here concerned with section 42(2) and there can be no doubt that, although the assessee company was liable to pay tax on this income, this income is a notional income and not actual income. In other words, from a commercial point of view, it could never be said that the assessee earned this income or this income constituted the profits of the assessee from its business. The taxing authorities may look ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t actual profits from a commercial point of view. The language used by the Legislature in these two parts is significant. Whereas, the first part speaks of total income of an assessee, the second part of section 23A(1) refers to profits and, therefore the approach of the Income-tax Officer must be entirely different when he is considering the making of the order and considering whether the conditions are existent for the exercise of his power. Whereas, under the first part of section 23A he has to confine himself to the total income of an assessee, under the second part his approach must be from a commercial point of view. He must look at the actual income of the assessee and he must decide whatever the total income may be, whatever the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Now, that sub-section provided that when a company is a shareholder deemed under sub-section (1) to have received a dividend, the amount of the dividend thus deemed to have been paid to it shall be deemed to be part of its total income for the purpose also of the application of that sub-section to distributions of profits by that company. Therefore, here again the Legislature is referring to the total income for the purpose of the first part of section 23A(1) and it provides that the notional dividend which a shareholder is supposed to have received shall form part of the total income of the company, if the company happens to be a shareholder. But sub-section (5) does not make any reference to the question of the consideration of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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