TMI Blog1960 (8) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... , for the assessment year 1944-45 on an income of Rs. 49,047. As is well-known, in August, 1947, India was partitioned and Lahore came to be included in the newly created Dominion of Pakistan and went out of India. After the partition, the appellant shifted to Delhi and was residing there at all material times. The appellant held shares in a company called Indra Singh and Sons Ltd. which had its office at Calcutta. The other shares in that company were held by Indra Singh and Ajaib Singh. The holdings of all the shareholders were equal. An annual general meeting of this company was held on April 17, 1943, in which the accounts for the year ending March 31, 1942, were placed for consideration. The accounts were passed at the meeting but no dividend was declared though the accounts disclosed large profits. On June 11, 1947, an Income-tax Officer of Calcutta passed an order under section 23A of the Income-tax Act that Rs. 14,23,110 being the undistributed portion of the assessable income of the company for the year ending March 31, 1942, after the deductions provided in the section, be deemed to have been distributed as dividend among the three shareholders on the date of the gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractitioners named S. K. Sawday Co. in Calcutta, to move the Tribunal for an order of reference. Sawday Co. had the necessary petition and papers prepared. They sent these to the appellant at Delhi by post on January 5, 1953, for his signature and the papers reached Delhi on January 7, 1953. The appellant who was then the Defence Minister of the Government of India, was at the time away from Delhi on official tour. Immediately on his return from tour he signed the papers and on January 21/22, 1953, sent them from Delhi by post to Sawday Co. in Calcutta. The papers reached Calcutta on January 24, 1953, but were not delivered to Sawday Co. before January 28, 1953, due to a postman's default as was admitted by the postal authority concerned. Sawday Co. filed the petition in the Tribunal on the same date but that was one day too late as it should have been filed on January 27, 1953. The Tribunal thereupon dismissed the application as having been made out of time. The appellant appealed against this dismissal to the High Court at Calcutta but the High Court dismissed the appeal. In these circumstances, the appellant moved this court for special leave to appeal and asked for co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, however, that the proviso would apply only if an objection to a place of assessment had been taken under section 64 and the objection that the appellant has taken in this case is not one under that section. That section applies where the assessment can be made in one place or another in India and an objection is taken to one of such places. Here the contention is that the assessment under section 34 can be made only in Lahore and, therefore, cannot be made in India at all. To such a contention section 64 has no application. The Solicitor-General's point must, therefore, fail. We are, however, of the opinion that the contention of the appellant is without foundation. Section 34 provides that in the cases mentioned in it, the income may be assessed or reassessed and the provisions of the Act shall, so far as may be, apply accordingly as if the notice issued, under the section had been issued under section 22(2) of the Act. Now the place where an assessment is to be made pursuant to a notice under section 22(2) has to be determined under section 64. Indeed that is the only provision in the Act for deciding the proper place for any assessment. There is nothing which makes section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had escaped assessment. It is contended that on a proper reading of section 34 this would not be a case of income escaping assessment because that section applies to income actually escaping assessment and not to income deemed to have escaped assessment which is all that has happened in the present case. It is said that in order that income may escape assessment there must in fact have been an income. It is also said that in order to apply section 34 to this case two fictions have to be resorted to, namely, (a) bringing an income into existence where none existed and (b) holding that that income has escaped assessment where no income actually did so. It is argued that the language of section 34 does not permit two fictions being created, and that as the section reopens a closed transaction, it must be strictly construed. Reliance was placed on certain decisions in support of this contention. First, we were referred to two English cases, namely, Dodworth v. Dale and Rankine v. Commissioners of Inland Revenue. These cases do not assist the appellant for they were not concerned with a statutory provision like section 23A on which the present case turns and which requires that an as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the section ; the words in it do not warrant such restriction. There is no limitation of time as to when an order under section 23A can be made. Therefore, it can be made at a time when the assessment of the income of the shareholder for the year concerned has been completed. There is no reason why that order should not be given effect to by proceedings duly taken under section 34. We do not also agree that the rejection of the appellant's present argument will compel us to raise two fictions. There is only one fiction, namely, that raised by section 23A. That fiction having been raised, the income that has thereby to be deemed to exist must be held to have actually escaped assessment. We are unable to agree that in order to apply section 34 to an income deemed to exist under section 23A, we would have to read the former section to cover a case where income has to be deemed to have escaped assessment. If the income had come into existence, and not been assessed, it has escaped assessment ; it is not a case where the income has to be deemed, to have escaped assessment. In our view, therefore, the present contention of the appellant must fail and the income deemed to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny shall be deemed to have been distributed as dividends and provided that thereupon the proportionate share thereof of each shareholder shall be included in his income for assessment. The enactment was by the Central Legislature which then derived its competence to legislate from the Government of India Act, 1935. There is no doubt, and neither is it disputed, that that sub-section had been enacted under the power contained in entry 54 of List I in the Seventh Schedule to the Government of India Act, 1935. The entry read : " Taxes on income other than agricultural income. " The argument of Mr. Sastri is that this entry only authorises legislation for taxing a person on his income ; under it a law cannot be made taxing one person on the income of another. Mr. Sastri says that in law a company and its shareholders are, different persons---a proposition which is indisputable---and, therefore, section 23A is incompetent as it purports to tax the shareholders on the income of the company in which they hold shares. He points out, and this again is not in dispute, that the section does not give a right to a shareholder on an order being made under it, to realise from the company the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (not including a company to which the provisions of this sub-section apply), and if any such shares have in the course of such previous year been the subject of dealings in any stock exchange in the taxable territories or are in fact freely transferable by the holders to other members of the public." The section thus applies to a company in which at least 75 per cent. of the voting power lies in the hands of persons other than the public, which can only mean, a group of persons allied together in the same interest. The company would thus have to be one which is controlled by a group. The group can do what it likes with the affairs of the company, of course, within the bounds of the Companies Act. It lies solely in its hands to decide whether a dividend shall be declared or not. When, therefore, in spite of there being money reasonably available for the purpose, it decides not to declare a dividend it is clear that it does so because it does not want to take the dividend. Now it may not want to take the dividend if it wants to evade payment of tax thereon. Thus by not declaring the dividend the persons constituting the group in control could evade payment of super-tax, which, of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny to form, in effect, a fund of savings accumulated from income which had not immediately attracted surtax. Should the individual wish to avail himself of the use of any part of these savings he could effect this by borrowing from the company, any interest payable by him going to swell the savings fund ; and at any time the individual could acquire the whole balance of the fund in the character of capital by putting the company into liquidation." The section prevents the evasion of tax by, among others, the means mentioned by Simon. The learned Solicitor-General sought to support the competence of the legislature to enact the section also on another ground. He said that entry 54 permitted tax on income and contended that it authorised taxing of A on the income of B. He said that, where a shareholder was taxed on the income of the company, the two being considered separate legal entities, the tax was none the less on income though the burden of the tax was put on one to whom the income had not accrued or by whom it had not been received and so was within the scope, of entry 54. In support of this contention he referred to Amina Umma v. Income-tax Officer, Kozhikode, Janab Jamee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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