D. FALSHAW C.J. - This reference under section 66(1) of the Income-tax Act made at the instance of the Commissioner of the Income-tax relates to the assessment years 1947-48 and 1948-49 of the assessee, Sardar Baldev Singh.
The relevant facts are that the assessee held some shares in a company named Messrs. Indra Singh & Sons (Private) Ltd., Calcutta, and on the 12th of December, 1951, the Income-tax Officer, Calcutta, who had jurisdiction to make assessment on the company, passed an order under section 23A of the Income-tax Act as the result of which dividends of Rs. 3,92,097 and Rs. 4,98,829 were deemed to have been distributed to the assessee for the assessment years in question. Thereafter notices were served on the assessee on the 30th of March, 1955, by the Income-tax Officer making the assessment on the assessee under section 34 read with section 22(2) of the Act calling on him to submit his returns of total income for each of the assessment years 1947-48 and 1948-49.
The question arose in the subsequent proceedings whether the notices under section 34 had been issued within time and the Appellate Tribunal following the decision of the Bombay High Court in Commissioner of Income-tax v. Robert J. Sas held that the notices had been issued beyond the period of limitation and therefore annulled the assessments. The question referred by the Tribunal at the instance of the Commissioner reads :
'Whether the notices issued by the Income-tax Officer under section 22(2) read with section 34(1)(b) of the Indian Income-tax Act calling upon the assessee to submit returns of his income for the two years under consideration were legal and valid ?'
The relevant provisions of section 34 of the Income-tax Act are contained in sub-section (3) as follows :
'34. (3) No order of assessment under section 23 to which clause (c) of of sub-section (1) of section 28 applies or of assessment or reassessment in cases falling within clause (a) of sub-section (1) of this section shall be made after the expiry of eight years, and no order of assessment or reassessment in any other case shall be made after the expiry of four years, from the end of the year in which the income, profits or gains were first assessable.'
The question is what is meant by the words 'income, profits or gains were first assessable', and prima facie the natural meaning of these words would be the assessment years. It is, however, contended by the learned counsel on behalf of the Commissioner that where section 23A is applied and the undistributed profits of a company are declared under this section to be deemed to have been distributed to the share-holders as dividends such notional income only becomes first assessable on the date of the order under that section.
There is no doubt that some support for this contention is to be derived from the decision of Chagla C.J. and Tendolkar J. in Navinchandra Mafatlal v. Commissioner of Income-tax in which the following passage occurs in the judgment of Chagla C.J. on page 259 :
'The only legal fiction under section 23A is that certain income is deemed to be the income of the assessee for a particular year. Section 23A does not create any legal fiction with regard to the assessment of that income or when it was assessable. In fact section 23A does not deal with that topic at all. I accept the legal fiction with all its implications that the dividend income referred to in section 23A accrued to the shareholder or was received by the shareholder in the particular year of assessment, but accepting that fiction, we have still to ask the question saying when was the income first assessable and when we answer that question by saying that that income was first assessable when the order under section 23A was made, we do not in construe an entirely different concept contained in section 34(3) with regard to which concept no fiction is created by section 23A.'
It appears, however, that the learned Chief Justice revised his opinion in the case relied on by the Appellate Tribunal in the present case, Commissioner of Income-tax v. Robert J. Sas. His conclusion there, sitting with S. T. Desai J., is summed up in the headnote as follows :
'Although there is no period of limitation prescribed for making an order under section 23A of the Income-tax Act declaring that the undistributed profits of a company shall be deemed to be distributed to its shareholders, if the original assessment of the shareholder for the year in which the income so deemed to be distributed falls has already been completed, the notional income so deemed to be distributed can be added to the total income of the assessee for that assessment year only by initiating proceedings of reassessment under section 34 by the issue of valid notice. In such a case the assessment of the shareholder can be reopened only under section 34(1)(b) of the Act, and the period of limitation for serving a notice under that section is four years from the end of the year of assessment. If the notice is served on the shareholder beyond the period of limitation, the reassessment proceedings would be invalid.'
This matter has also come up before the Madras High Court in S. Seethai Achi v. Income-tax Officer, Coimbatore. In that case Rajagopalan and Ramachandra Iyer JJ. have taken the view that in order to give effect to an order under section 23A the department can only take action under section 34(1)(b) and that the notice under this section must be served within four years from the end of the relevant assessment year and not from the date of the order under section 23A. The learned judges have discussed the two Bombay cases and have agreed with the view expressed by Chagla C.J. in the case of Robert J. Sas. With respect I am of the opinion that the correct view has been taken by the learned judges in this case and I am, therefore, of the opinion that the notices issued by the Income-tax Officer under section 34 on the 30th of March, 1955, were barred by time as being issued more than four years after the end of the second assessment year under consideration and I would accordingly answer the question propounded to us in the negative. The assessee would be entitled to receive his costs from the Commissioner. Counsels fee Rs. 250.
MEHAR SINGH J. - I agree.
Question answered in the negative.