Appeal No 317 of 1955
Appeal by special leave from the judgment and order dated October 18 1952 of the Income tax Appellate Tribunal Calcutta Bench in Income tax Appeal No 8071950 51
A V Viswanatha Sastri and section C Mazumdar for the appellant
62 484 C K Daphtary Solicitor General of India K N Rajagopal Sastri R Ganapathy Iyer R H Dhebar and D Gupta for the respondent
September 2
The Judgment of the Court was delivered by SARKAR J
In 1944 the appellant was a resident of Lahore
On October 14 1944 he was assessed to income tax by the Income tax Officer Lahore for the assessment year 1944 45 on an income of Rs 49047
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 1423110 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 general meeting that is April 17 1943
As a result of this order a sum of Rs 474370
being his share of the amount directed to be distributed had under the section to be included in the income of the appellant for the assessment year 1944 45
The validity of this order was never challenged
The Income tax Officer Calcutta informed the Income tax Officer Delhi of the order made by him under a 23A
Thereupon the Income tax Officer Delhi on April 10 1948 issued a notice under a 34 485 of the Act to the appellant then residing in Delhi requiring him to file within thirty five days a revised return for the year 1944 45 as a part of his income for that year had escaped assessment
Obviously the notice was on the basis that the said sum of Rs 474370 had escaped assessment for the year 1944 45
On February 10 1949 the appellant submitted a revised return under protest and included in it the said sum of Rs 474370
The Income tax Officer Delhi then reopened the earlier assessment and on March 25 1949 made a fresh assessment order for 1944 45 assessing the appellant on an income of Rs 523417
The appellant appealed against this order to the Appellate Assistant Commissioner but his appeal was dismissed
He then appealed to the Income tax Appellate Tribunal but was again unsuccessful
He has filed the present appeal with special leave of this Court against the judgment and order of the Income tax Appellate Tribunal
A preliminary point as to the maintainability of this appeal was taken by the learned Solicitor General appearing on behalf of the respondent Commissioner of Income tax that the appellant having been unsuccessful in availing himself of the other remedy provided in the Act should not be allowed the extraordinary remedy of approaching this Court with special leave
Now under the Income tax Act the appellant could apply to the Tribunal to refer to a High Court any question of law that arose out of the former s decision
The Act itself gave no right of appeal at all from that decision nor any other remedy against it
The appellant had applied to the Tribunal for an order referring certain questions arising out of its decision to the  High Court at Calcutta but was unsuccessful in getting an order for reasons to be presently stated
The Tribunal was in Calcutta
The appellant who was in Delhi asked a firm of income tax practitioners named section K Sawday  Co in Cal cutta 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 51953 for his signature and the 486 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 2122 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 condonation of delay in moving this Court placing before it all the facts which we have earlier mentioned
This Court on a consideration of these facts condoned the delay and granted special leave
There was no attempt by the appellant to overreach or mislead the Court and the Court in its discretion gave the leave
In these circumstances we are unable to agree with the contention that the appellant is not entitled to proceed with this appeal because he could have availed himself of the remedy provided by the Act and was by his own conduct unable to do so
This Court had inspite of this thought fit to grant leave to the appellant to appeal from the decision of the Tribunal
Further the learned counsel for the appellant intends to confine himself to questions of law arising from the Judgment of the Tribunal
We therefore see no reason why the appeal should not be heard
The main question in this appeal is whether the proceedings taken against the appellant under section 34 of the Act were valid
That section has been amended but we are concerned with it as it stood on April 10 1948 when the notice under it was issued
The first point is that the proceedings under section 34 487 could not be taken by the Income tax Officer Delhi
It is said that the proceedings under that section are only a continuation of the original assessment proceedings and therefore it is the Officer who made the original assessment order or his successor in office who alone could start the fresh proceedings
It is hence contended that it is the Income tax Officer Lahore who could proceed against the appellant under section 34 and the Income tax Officer Delhi had no jurisdiction to do so
The contention then comes to this that in the circumstances of this case  no proceedings under section 34 could be taken against the appellant in India at all
The learned Solicitor General said that this was an objection as to the place of assessment under section 64 of the Act and could not be entertained as it had not been taken within the time provided under the second proviso to sub sec
3 of that section
If that proviso applied to the present case the appellant had to raise the objection that proceedings under section 34 could not be taken at Delhi within the thirty five days Mentioned in the notice under the section
It is said that this had not been done
It seems to us 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 222 of the Act
Now the place where an assessment is to be made pursuant to a notice under 488 s222 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 64 inapplicable to an assessment made under section 34
Therefore it seems to us clear that the place where an assessment under section 34 can be made has to be decided under section 64
Now the appellant was not carrying on any business profession or vocation
He was working as the Defence Minister of the Government of India and residing in Delhi
He could be properly assessed by the Income tax Officer Delhi under section 642 if the assessment was the original assessment
This is not in dispute
It follows that no objection can legitimately be taken by the appellant to his assessment under section 34 by the Income tax Officer Delhi
We find nothing in the two cases cited by MrSastri who appeared for the appellant to support the contention that in this case the assessment under section 34 could not have been made in India at all
In neither of these cases any question as to the place of assessment tinder section 34 or any other section arose
In the first C V Govindarajulu vs Commissioner of Income tax Madras 1 it was held that the proceedings under section 34 and the original assessment proceedings were not separate and therefore in the former a penalty could be levied under section 28 for failure to submit a return pursuant to a general notice under section 221 on which the latter were deemed to have commenced
It does not follow that because the two assessments are not separate for certain purposes the latter must take place only where the first had been made
In the second Lakshminarain Bhadani V Commissioner of Income tax Bihar  Orissa 2 this Court held that a proceeding under section 34 may be taken against a karta of a Hindu undivided family to reopen an original assessment on the family though in the meantime there had been a disruption of the family and an order in respect of it had been passed under section 25A1 of the Act
It was said that the position was as if the Income tax Officer was proceeding to assess the 1 ILR 2 489 income of the Hindu undivided family as in the year if assessment
This of course does not mean that the assessment under section 34 must take place at the place where the original assessment was made or not at all
Then it is said that the Income tax Officer reassessed the appellant s income under section 34 on the basis that part of it namely the dividend that became liable to be included in the appellant s income under section 23A 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 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 vs Dale 1 and D  G R Rankine vs Commissioners Inland Revenue 2
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 assessee would be deemed to have received a certain income on a specified date in the past and also requires that income to be included in his total income for assessment to tax
The other case to which we were referred was the decision of this Court in Chatturam Horliram Ltd V Commissioner of Income tax Bihar and Orissa 3 where it was said that the contention  that the escapement from assessment 1 2 3   300 301
490 is not to be equated to non assessment simpliciter is not without force
This Court however in the very next sentence proceeded to state clearly that  it is unnecessary to lay down what exactly constitutes escapement from assessment 
The actual decision in this case affords no assistance to the appellant and has not been relied on by him
It is clear from what we have read from the judgment in it that it does not lay down a test to decide when an income may be said to have escaped assessment
On its own merits also we are unable to accept the argument of the learned counsel for the appellant
Section 23A requires that on an order being made under it the undistributed portion of the assessable income of the company for a year as computed for income tax purposes and after the deductions provided in the section is to be deemed to have been distributed as dividends amongst the shareholders as at the date of the general meeting  being the meeting at which the accounts for the year concerned were passed and thereupon the proportionate share thereof of each shareholder shall be included in the total income of such shareholder for the purpose of assessing his total income 
The section creates a fictional income arising as on a specified date in the past and it does so for the purpose of that income being included in the income of the shareholders for assessment of their income tax
The income must therefore be deemed to have been in existence on the date mentioned for the purpose of assessment to tax
It is as if it actually existed then
Now if the assessment for the relevant year does not include that income it has escaped assessment
That is what happened in this case
Therefore the case is one to which a 34 would clearly apply
It is said that section 23A was meant to apply only to cases where pending assessment for any year an order is made under that section creating a fictional income in that Year
We see no reason however so to restrict the operation of the section the words in  it do not warrant such restriction
There is no limitation of time as to when an order under B 23A can be made
491 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 been received by him by virtue of the order made tinder section 23A on June 11 1947 must be held to have escaped assessment for the year 1944 45 and his income must therefore be liable to reassessment under section 34
It is now necessary to refer to one of the reasons on which the judgment of the Tribunal is based
It was there said that  It was incumbent on the Income tax Officer Calcutta  passing the order under section 23A to have included the sum of Rs 474370 in the other assessed income of the assessee and to have recomputed the assessable income and the tax thereon
It was held that  the Income tax Officer Delhi went wrong in having recourse to the provisions of section 34 and making an assessment thereunder  but that this a mounted to a mere irregularity not vitiating the assessment made under that section
In the end the Tribunal observed  Anyhow the Tribunal is empowered to substitute its own order for that of the Income Tax Officer and acting under that power we assess the assessee under the provisions of See
23A1 of the Indian Income tax Act 63 492 It seems to us that the Tribunal was wrong in the view that it took
The learned Solicitor General conceded that this is so
We are unable to agree that an assessment could be made under section 23A
That section does not provide for any assessment being made
It only talks of the fictional income being included in the total income of the shareholders  for the purpose of assessing his total income
The assessment therefore has to be made under the other provisions of the Act including section 34 authorising assessments
In our view the assessment in this case had been properly made by the Income tax Officer Delhi under the pro
visions of section 34
Lastly it is said that a 23A is unconstitutional inasmuch as it was beyond the competence of the legislature that enacted it
This section has been redrafted and amended several times since it was first enacted in 1930
We are concerned with the section as it stood on June 11 1947 when the order under it was made in this case
Sub section 1 of the section in the form that it stood then and that is the material portion of the section for our purposes was enacted by Act VII of 1939
It is that sub section which gave the power to make an order that the undistributed portion of the assessable income of the company 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 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 493 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 dividend which by the order is to be deemed to have been paid to him
He says and this also seems right that the income remains the income of the company and a shareholder is taxed on a portion of it representing the dividend deemed to have been paid to him
In spite of all this it seems to us that the legislation was not incompetent
Under entry 54 a law could of course be passed imposing a tax on a person on his own income
It is not disputed that under that entry a law could also be passed to prevent a person from evading the tax payable on his own income
As is well known the legislative entries have to be read in a very wide manner and so as to include all subsidiary and ancillary matters
So Entry 54 should be read not only as authorising the imposition of a tax but also as authorizing an enactment which prevents the tax imposed being evaded
If it were not to be so read then the admitted power to tax a person on his own income might often be made infructuous by ingenious contrivances
Experience has shown that attempts to evade the tax are often made
Now it seems to us that section 23A was enacted for preventing such evasion of tax
The conditions of its applicability clearly lead to that conclusion
The first condition is that the company must have distributed as dividend less than sixty per cent of its assessable income after deduction of income tax and supertax payable by it
The taxing authority must then be satisfied Chat the payment of a dividend or of a larger dividend than that declared would in view of losses incurred in earlier years or the smallness of the profit made be unreasonable
Lastly the section does not apply to a company in which the public are substantially interested or a subsidiary company of a public company whose shares are held by the parent 494 company or by the nominees thereof The section provides by an explanation as follows For the purpose of this sub section a company shall be deemed to be a company in which the public are substantially interested if shares of the company not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits carrying not less than twenty five per cent of the voting power have been allotted unconditionally to or acquired unconditionally by and are at the end of the previous year beneficially held by the public 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 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 course is a form of income tax
They would be able to evade the super tax because super tax is payable on the dividend in the hands of the shareholders even though it may have been paid by the company on the profits out of which the dividend is paid and because the rate at which super tax is payable by a company may be lower than the rate at which that tax is payable by other 495 assessees
By providing that in the circumstances mentioned in it the available assessable income of a company would be deemed to have been distributed as dividend and be taxable in the hands of the shareholders as income received by them the section would prevent the members of such a group from evading by the exercise of their controlling power over the company payment of tax on income that would have come to them
That being so the section would be within entry 54
In conceivable circumstances the section may work hardship on members of the public who hold shares in such a company but that would not take the section outside the competence of the legislature
It would still be an enactment preventing evasion of tax
Considerations of hardship are irrelevant for deciding questions of legislative competence
It is further quite clear that in the absence of a provision like section 23A it is possible so to manipulate the affairs of a company of this kind as to prevent the undistributed profits from ever being taxed and experience seems to have shown that this has often happened
The following passage from Simon s Income Tax 2nd Edn Vol 3 p 341 fully illustrates the situation   Generally speaking surtax is charged only on individuals not on companies or other bodies corporate
Various devices have been adopted from time to time to enable the individual to avoid surtax on his real total income or on a portion of it and one method involved the formation of what is popularly called a one man company 
The individual transferred his assets in exchange for shares to a limited company specially registered for the purpose which thereafter received the income from the assets concerned
The individual s total income for tax purposes was then limited to the amount of the dividends distributed to him as practically the only shareholder which distribution was in his own control
The balance of the income which was not so distributed remained with the company to form in effect a fund of savings accumulated from income which had not immediately 64 496 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 B M Amina Umma vs Income Tax Officer
Kozhikode 1 Janab Jameelamma vs The Income tax Officer Nagapattnam 2 and C W Spencer vs Income Tax Officer3
As earlier stated Mr Sastri disputes the correctness of this contention
We do not consider it necessary to pronounce on this question or as to the correctness of the decisions cited so far as they support it
In our view the legislative competence to enact the section can be clearly upheld on the ground that it was to prevent evasion of in come tax and that would be enough to dispose of the argument advanced by Mr Sastri that the section was an incompetent piece of legislation
This appeal therefore fails and it is dismissed with Costs
Appeal dismissed


Summary:
Three separate suits for eviction by the appellant were brought against the three respondents within the framework of the Delhi  Ajmer Rent Control Act and were based on the provisions of section 13g for the bona fide requirements of rebuilding
Terms of compromise which were substantially in accordance with the provisions of section 15 of the Act were put in by the parties and decrees were passed in the suits under which the premises had to be vacated by the respondents on a specified day which condition the respondents failed to observe and actually handed over the possession of the premises in suit at a later date
On completion of the building the respondents filed an application under section 15 of the Act for their being put into possession
The High Court inter alia held that though section 15 of the Act was not applicable to the proceedings yet the respondents could impose the terms of the decree and the proceedings could be treated as execution proceedings for enforcing the said terms
The appellants challenged the judgments of the High Court and contended that on the facts of the case and the circumstances the decrees in suit under section 131 proviso d shows that the order was passed and a decree made in accordance with the terms of section 15 of the Act and further it was significant that the respondents them selves had made the application to the Court under section 15 of the Act
The respondents submitted that the decree was not one under section 15 of the Act because the decree was based on a compromise and the time for giving possession was not
of the essence of the contract  Held that as the tenant respondents did not deliver posses sion of the premises to the landlord appellant on or before the dates specified in the decree the provisions of section 15 3 of the Delhi and Ajmer Rent Control Act 38 of 1952 were not available to them and they were not entitled to be put in possession