Law: Income Tax Act, 1922

Section: 16(2), 23-A(1), (4).

(Appeal from the judgment and decree of the Allahabad High Court, dated September 28, 1952, in Misc. I. T. Reference No. 250 of 1953). Income-tax-----Company - Undistributed profits-Distribution order-Assessee's share not included in his individual assessment Subsequent credit by company-Assessee whether can be taxed during year of credit - Income-tax - General principles -Rule against double taxation-Indian Income-tax Act, 1922, Ss. 16(2) & 23-A(1), (4). In relation to a company which had failed to declare the requisite extent of its assessable income as dividend at the relevant annual general meeting held on April 22, 1939, the Income-tax Officer applied section 23-A of the Indian Income tax Act, 1922, and passed an order on November 18, 1940, that a sum of Rs. 3,32,691 shall be deemed to be distributed amongst the shareholders as on the date of the general meeting. On December 12, 1941, the Income-tax Officer determined the shares of the different shareholders (including the appellant) to whom the income was deemed to be distributed, but did not give effect thereto by including the proportionate share in the individual assessments of the shareholders. On April 24, 1942, the company in a general meeting resolved to make available out of its reserves Rs. 2,98,000 as dividend to its shareholders and to credit the account of each shareholder his proportionate share therein. Pursuant to that resolution a sum of Rs. 23,328 was credited to the account of the appellant who held 1333 shares in the company. In proceedings for assessment of the income of the appellant for the assessment year 1943-44 the Income-tax Officer brought the sum of Rs. 23,328 credited in the account of the appellant to tax: Held, that the sum of Rs. 23,328 could not be assessed to tax in the hands of the appellant for the assessment year 1943-44. By virtue of section 16(2) read with section 4(1)(b) of the Income-tax Act, the deemed dividend income is liable to be included, under section 23-A, in the total income of the share holders on the date of the general meeting of the company. The Act leaves no option to the Income-tax Officer; he is enjoined to include the amount in the total…