Law:

Section:

Section 104 of Income-tax Act, 1961 [Corresponding to section 23A of the Indian Income-tax Act, 1922] - Additional income-tax on undistributed profits of certain companies - Assessment year 1954-55 - Whether by creation of fiction under section 23A of 1922 Act, inevitable consequence that flows is that deemed dividend becomes a dividend and it would therefore, fall under definition of term 'income' as given in section 2(6C) of 1922 Act - Held, yes FACTS The assessee-company owned certain shares in another company G Ltd. By an order passed under section 23A of 1922 Act in the assessment of company G, dividend deemed to have been distributed as on 31-3-1953 came to Rs. 1,07,708. Since this amount was not included in the original assessment of the assessee, action was taken by the ITO under section 34(1)(b) of 1922 Act and the said amount was assessed in the hands of the assessee. On appeal the AAC held that the notice was within time and that the assessee could not challenge the legality or validity of the order passed under section 23A of 1922 Act in the case of company G in view of the third proviso to sub-section (1) of section 30 of 1922 Act. On second appeal, the Tribunal upheld the view taken by the AAC. On reference : HELD The Finance Act of 1957 amended only sub-sections (1) and (2) of section 23A of 1922 Act as they stood immediately before the said amendment. So far as the shareholders are concerned their liability to pay additional tax had already come to an end from the date the amendment in section 23A of 1922 Act came into force by the Finance Act of 1955. By the 1957 amendment the legislature was only altering certain rights and obligations of the companies and were not concerned with any obligations of the shareholders. It was for this reason that sub-section (4) of section 11 provided that the provisions of section 23A of 1922 Act as in force immediately before the 1-4-1957, shall continue to apply to a company in respect of its profits and gains of a previous year relevant to any assessment year prior to the assessment year ending on the 31-3-1957. So far as the obligations of the shareholders are concerned they had already been settled by…

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