SINHA J. - This is a reference under section 66(1) of the Indian Income-tax Act. The short facts are as follows : The assessee is a shareholder in Pure Jambad Collieries (Private) Ltd. (hereinafter referred to as the 'said company'). For the assessment year 1949-50, the Income-tax Officer made an order under section 23A of the Indian Income-tax Act upon the company on March 17, 1954, declaring that Rs. 2,03,933 should be deemed to have been distributed as dividend amongst the shareholders, as on August 31, 1948, relevant for the assessment year 1949-50. On March 24, 1954, the Income-tax Office issued a notice under section 34 upon the assessee and it is admitted that it was received by the assessee after the end of March, 1954, that is to say, after March 31, 1954. It was stated that the assessees income for the year 1949-50 had escaped assessment and the assessee was directed to file a fresh return in compliance with the said notice. The assessee did not file any return but contended that the notice was invalid, and he took other objections. On November 18, 1954, an order was passed by the Income-tax Officer under section 23(4) read with section 34 that the sum of Rs. 59,327 was included as income from dividends of the said company. The assessee appealed against the assessment to the Appellate Assistant Commissioner and contended, inter alia, that section 34 only contemplated the assessment of a case in which income, profits or gains chargeable to income-tax had escaped assessment for the year, but it could not include income which was 'deemed' to have been received as dividend by the assessee by virtue of section 23A(1). It was also contended that the assessment under section 34 was barred by limitation. Both the contentions were replete and the appeal was dismissed on 10th December, 1956. It was, inter alia, held that the notice was validly issued under the proviso to section 34(3). Against this order, the assessee appealed to the Appellate Tribunal, Calcutta. The Appellate Tribunal held that the period of four years should be counted from the date of the notice and not from the date of the issue of the notice. In this view, the Tribunal was of the opinion that the Appellate Assistant Commissioner was not correct in saying that the notice was validly issued within the meaning of the proviso to section 34(3). It however held that, in the present case, the limitation was with respect to a case under section 23A read with section 34. It purported to follow the case of Navinchandra Mafatlal v. Commissioner of Income-tax and alleged that, according to that decision, the notice was perfectly in order and the assessment had been validly made, because time began to run at the end of the year in which the order under section 23A was made. Thereafter, an application was made under section 66(1) for a reference and the following questions have been referred :
'Whether, on the facts and in the circumstances of the case, section 34 of the Indian Income-tax Act was applicable to include the proportionate share of the undistributed portion of the assessable income of pure Jambad Collieries (Private) Ltd. which was to be included in the total income of the assessee by virtue of the order of the Income-tax Officer passed under section 23A of the Indian Income-tax Act in respect of the said company ?
(2) Whether, on the facts and in the circumstances of the case, the proceedings, under section 34 of the Indian Income-tax Act were barred by limitation ?'
With regard to the first question, learned counsel for the assessee concedes that the question has been decided by the Supreme Court in the case of Sardar Baldev Singh v. Commissioner of Income-tax, and must be answered in the affirmative. Learned counsel for the revenue agreed.
As regards the second questions, the first can to be considered is the Bombay decision of Chagla, C.J. in Navinchandra Mafatlal v. Commissioner of Income-tax. It was there held that section 23A of the Income-tax Act is not at all a section under which there can be an assessment or reassessment. It is only a procedural section, under which, a certain class or income is allocated fictional to the year under assessment. This principle has been explained in the Supreme Court case cited above, where it has been stated that the income is to be 'deemed' to have been in existence at the time mentioned, for the purpose of assessment to tax. In other words, after an order under section 23A is made, it will relate back to the relevant period when the assessment should have been made. There are certain observations in the Bombay decision of Navinchandra Mafatlal which have created some difficulty with regard to limitation. It almost seems as if, at that stage, Chagla C.J. was of the opinion that limitation was to be determined upon the footing of the date when the order was made and not the relevant assessment year. This, however, was soon explained by him in a later case, Commissioner of Income-tax. There he has pointed out that the relevant date for computing the period of limitation under section 34 is not the date on which the order under section 23A was made, but the assessment year. In other words, the period of four years is to be computed from the end of the year of assessment. Now coming to section 34, the reassessment was made under section 34(1) (b) and in Navinchandra Mafatlals case it has been held that the limitation will run from the date of the service of notice and the limitation is 'four years from the end of that year'. The question is as to what this refers to. It has been explained in the later judgment of Chagla C.J. that it refers to the end of the assessment year. This has also been explained in a Madras case, S. Seethai Achi v. is how Rajagopalan, J. puts it :
'In Navinchandras case the Bombay High Court expressed the view that the period of limitation would have to be computed only after an order under section 23A was passed. That question, however, was reconsidered by the Bombay High Court in Commissioner of Income-tax v. Robert J. Sas. Chagla C.J. explained the scope of his earlier decision in Navinchandras case, and he said that the period of limitation to be computed under section 34(1) was to be computed only with reference to the assessment year of the assessee or shareholder, and that the date on which an order under section 23A was passed as against the company would not be relevant in computing the period of limitation, either for the assessment or for reassessment of the assessee, that is, the shareholder.'
This is a view with which we respectfully agree. Out attention has been drawn to the fact that the case of Navinchandra Mafatlal 2 went up on appeal to the Supreme Court, and is reported as Commissioner of Income-tax v. Navinchandra Mafatlal. There, it has been expressly pointed out that the appeal was confined to certain points which did not include this point of limitation. In the present case, it is admitted that if the end of the assessment year is the starting point of limitation, the notice was served beyond the period of four years. Therefore, on the facts and circumstances of this case, we find that the second question before us should also be answered in the affirmative, that is to say, we must hold that the proceedings under section 34 read with section 23A are barred by limitation.
There will be no order as to costs.
G. K. MITTER J. - I agree.
Questions answered in the affirmative.