{"id":93612,"date":"1960-09-02T00:00:00","date_gmt":"1960-09-01T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/sardar-baldev-singh-vs-commissioner-of-income-tax-on-2-september-1960"},"modified":"2019-01-07T06:39:14","modified_gmt":"2019-01-07T01:09:14","slug":"sardar-baldev-singh-vs-commissioner-of-income-tax-on-2-september-1960","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/sardar-baldev-singh-vs-commissioner-of-income-tax-on-2-september-1960","title":{"rendered":"Sardar Baldev Singh vs Commissioner Of Income-Tax, … on 2 September, 1960"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Sardar Baldev Singh vs Commissioner Of Income-Tax, … on 2 September, 1960<\/div>\n
Equivalent citations: 1961 AIR 736, \t\t 1961 SCR (1) 482<\/div>\n
Author: A Sarkar<\/div>\n
Bench: Sinha, Bhuvneshwar P.(Cj), Imam, Syed Jaffer, Sarkar, A.K., Subbarao, K., Shah, J.C.<\/div>\n
           PETITIONER:\nSARDAR BALDEV SINGH\n\n\tVs.\n\nRESPONDENT:\nCOMMISSIONER OF INCOME-TAX, DELHI & AJMER.\n\nDATE OF JUDGMENT:\n02\/09\/1960\n\nBENCH:\nSARKAR, A.K.\nBENCH:\nSARKAR, A.K.\nSINHA, BHUVNESHWAR P.(CJ)\nIMAM, SYED JAFFER\nSUBBARAO, K.\nSHAH, J.C.\n\nCITATION:\n 1961 AIR  736\t\t  1961 SCR  (1) 482\n CITATOR INFO :\n R\t    1961 SC 743\t (12)\n D\t    1961 SC1708\t (14,17)\n F\t    1961 SC1717\t (8)\n R\t    1962 SC 123\t (5,6)\n R\t    1962 SC1323\t (2,6)\n E\t    1963 SC 491\t (2)\n RF\t    1963 SC 835\t (2,4)\n R\t    1964 SC 925\t (24)\n R\t    1965 SC1375\t (11,12,35 ETC.)\n R\t    1965 SC1862\t (10)\n MV\t    1966 SC1089\t (55)\n R\t    1968 SC 150\t (7)\n E\t    1968 SC1286\t (6)\n RF\t    1972 SC 425\t (26)\n RF\t    1986 SC1099\t (9)\n\n\nACT:\nIncome-tax Assessment-Undistributed dividend deemed to have\nbeen distributed-Reassessment as income escaping assessment-\nVenue-Constitutional  validity of enactment Indian  Income-\ntax  Act, 1922 (11 of 1922), SS. 23A, 34, 22, 64- Government\nof India  Act, 1935, Seventh Sch., List I,Entry 54.\n\n\n\nHEADNOTE:\nThe appellant, at the time a resident of Lahore, was  asses-\nsed  to\t income-tax  on\t an income of  Rs.  49,047  for\t the\nassessment  year 1944-45 by the Income-tax Officer,  Lahore.\nAfter the partition in 1947 he shifted to Delhi and  resided\nthere.\t He was one of the three share-holders of a  company\ncalled Indra Singh and Sons Ltd. of Calcutta, the shares  of\nall  the three shareholders being equal.  The company  at  a\nmeeting held oil April 17, 1943, passed its accounts for the\nyear  ending  March  31, 1942,\tbut  declared  no  dividends\nalthough the accounts disclosed large profits.\tOn June\t 11,\n1947,  the  Income-tax Officer, Calcutta,  passed  an  order\nunder  s.  23A\tof the Income-tax Act that the\tsum  of\t Rs.\n4,74,370,  being the appellant's share of the  undistributed\nassessable income of the company, be included in his  income\nfor  the assessment year 1944-45.  Thereupon the  Income-tax\nOfficer,  Delhi, on April 10, 1948, issued a notice  to\t the\nappellant,  who was then working as the Defence Minister  of\nIndia and residing in Delhi, under s. 34 of the Act to\tfile\na  revised return, which he did under protest, reopened\t the\nearlier\t assessment and by a fresh order made on  March\t 25,\n1949,  assessed the appellant on an income of  Rs.  5,23,417\nfor the year in question.  It was contended on behalf of the\nappellant that the proceeding under S. 34 could be held only\nin  Lahore  and\t not  in India at  all.\t  The  question\t for\ndetermination  was  whether the Income-tax  Officer,  Delhi,\ncould validly reassess the appellant under s. 34 of the Act.\nHeld, that the issue of a notice under S. 34 of the  Income-\ntax  Act, 1922, under the provision of the  section  itself,\nattracted  such\t provisions of the Act as might apply  to  a\nnotice\tissued under s. 22(2) of the Act and since s. 64  of\nthe  Act  was the only provision under which  the  place  of\nassessment upon a notice under s. 22(2) could be determined,\nin  absence  of anything to the contrary in the Act,  s.  64\napplied\t to  an\t assessment under s. 34\t of  the  Act.\t The\nappellant was, therefore, rightly assessed by the Income-tax\nOfficer, Delhi, under s. 64(2) of the Act.\n483\nC.   V.Govindarajulu v. Commissioner of Income-tax,  Madras,\nI.L.R.<\/a>\t  (1949)  Mad.\t624  and  Lakshminarain\t Bhadani  v.\nCommissioner of\t    Income-tax, Bihar and Orissa,<\/a> (1951)  20\nI.T.R. 594, held inapplicable.\nThe time specified by the proviso to s. 64(3) could have  no\napplication  since  the contention in the present  case\t was\nthat the assessment under s. 34 could be made only in Lahore\nand not in India at all.\nSection\t 23A of the Act, as it then stood, raised  only\t one\nfiction, and not two, and that was of an income arising on a\nspecific date in the past with the purpose that such  income\nmight  be  included  in the income  of\ta  share-holder\t for\nassessment.  That income must, therefore, be deemed to\thave\nexisted\t on the date for the purpose of assessment  and,  if\nnot  included in the assessment for the relevant year,\tmust\nbe  taken  to  have actually escaped  assessment  so  as  to\nattract s. 34 of the Act.\nDodworth  v. Dale, 20 T. C. 285, D. & G. R. Rankine v.\tCom-\nmissioners   of Inland Revenue, 32 T. C. 520  and  Chatturam\nHorliram  Ltd.\tv.  Commissioner of  Income-tax,  Bihar\t and\nOrissa,<\/a> [1955] 2 S.C.R. 290, held inapplicable.\nThere  is no warrant for the proposition that S. 23A of\t the\nAct  was  meant\t to  apply  only  to  cases  where   pending\nassessment for any year, an order is made under that section\ncreating a fictional income that year.\tSuch an order could,\ntherefore,  be made even after the assessment of the  income\nof the share-holder for the year concerned had already\tbeen\ncompleted.   But  S.  23A does not itself  provide  for\t any\nassessment  being made and that has to be made\tunder  other\nprovisions  of the Act authorising assessment  including  s.\n34.\nIt  is not correct to say that s. 23A(1), as it then  stood,\nwas beyond the competence of the Legislature and was as such\nunconstitutional.   Under Entry 54 of List I of the  Seventh\nSchedule   to  the  Government\tof  India  Act,\t 1935,\t the\nLegislature  could pass not only a law imposing a, tax on  a\nperson on his own income but also a law preventing him\tfrom\nevading\t the tax payable on his income and there can  be  no\ndoubt that s. 23A, properly construed, was meant to  prevent\nsuch evasion.\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 317 of 1955.
\nAppeal\tby special leave from the judgment and\torder  dated
\nOctober\t 18,  1952, of the  Income-tax\tAppellate  Tribunal,
\nCalcutta Bench, in Income-tax Appeal No. 807\/1950-51.
\nA.   V.\t Viswanatha  Sastri  and S.  C.\t Mazumdar,  for\t the
\nappellant.\n<\/p>\n
62<\/span>
\n484<\/span><\/p>\n
C.   K.\t  Daphtary,  Solicitor-General\tof  India,   K.\t  N.
\nRajagopal  Sastri,  R. Ganapathy Iyer, R. H. Dhebar  and  D.
\nGupta, for the respondent.\n<\/p>\n
1960.  September 2. The Judgment of the Court was  delivered
\nby
\nSARKAR\tJ.-In 1944, the appellant was a resident of  Lahore.
\nOn  October 14, 1944, he was assessed to income-tax  by\t the
\nIncome-tax Officer, Lahore, for the assessment year  1944-45
\non  an income of Rs. 49,047.  As is well-known,\t in  August,
\n1947,  India was partitioned and Lahore came to be  included
\nin  the newly created Dominion of Pakistan and went  out  of
\nIndia.\tAfter the partition, the appellant shifted to  Delhi
\nand was residing there at all material times.
\nThe  appellant held shares in a company called\tIndra  Singh
\nand  Sons Ltd. which had its office at Calcutta.  The  other
\nshares\tin that company were held by Indra Singh  and  Ajaib
\nSingh.\tThe holdings of all the shareholders were equal.  An
\nannual general meeting of this company was held on April 17,
\n1943,  in which the accounts for the year ending  March\t 31,
\n1942,  were  placed for consideration.\t The  accounts\twere
\npassed\tat the meeting but no dividend. was declared  though
\nthe accounts disclosed large profits.\n<\/p>\n
On  June 11, 1947, an Income-tax Officer of Calcutta  passed
\nan  order  under  s.  23A of the  Income-tax  Act  that\t Rs.
\n14,23,110 being the undistributed portion of the  assessable
\nincome\tof the company for the year ending March  31,  1942,
\nafter  the deductions provided in the section, be deemed  to
\nhave   been   distributed  as  dividend\t among\t the   three
\nshareholders  on the date of the general meeting,  that\t is,
\nApril  17,  1943.  As a result of this order a\tsum  of\t Rs.
\n4,74,370.  being  his  share of the amount  directed  to  be
\ndistributed,  had under the section, to be included  in\t the
\nincome\tof  the appellant for the assessment  year  1944-45.
\nThe validity of this order was never challenged.
\nThe  Income-tax Officer, Calcutta, informed  the  Income-tax
\nOfficer,  Delhi,  of  the order made by him  under  a.\t23A.
\nThereupon the Income-tax Officer, Delhi, on April 10,  1948,
\nissued a notice under a. 34
\n\t\t\t    485<\/span>
\nof  the\t Act  to  the  appellant  then\tresiding  in  Delhi,
\nrequiring  him\tto file within thirty-five days,  a  revised
\nreturn for the year 1944-45 as a part of his income for that
\nyear  had escaped assessment.  Obviously the notice  was  on
\nthe  basis  that the said sum of Rs.  4,74,370\thad  escaped
\nassessment for the year 1944-45.  On February 10, 1949,\t the
\nappellant  submitted  a\t revised return\t under\tprotest\t and
\nincluded in it the said sum of Rs. 4,74,370.  The Income-tax
\nOfficer, Delhi, then reopened the earlier assessment and  on
\nMarch  25, 1949, made a fresh assessment order\tfor  1944-45
\nassessing  the appellant on an income of Rs. 5,23,417.\t The
\nappellant  appealed  against  this order  to  the  Appellate
\nAssistant  Commissioner\t but his appeal was  dismissed.\t  He
\nthen  appealed to the Income-tax Appellate Tribunal but\t was
\nagain  unsuccessful.  He has filed the present\tappeal\twith
\nspecial\t leave of this Court against the judgment and  order
\nof the Income-tax Appellate Tribunal.\n<\/p>\n
A preliminary point as to the maintainability of this appeal
\nwas  taken  by the learned  Solicitor-General  appearing  on
\nbehalf\tof the respondent Commissioner of  Income-tax,\tthat
\nthe  appellant having been unsuccessful in availing  himself
\nof  the\t other\tremedy provided in the\tAct  should  not  be
\nallowed\t the extraordinary remedy of approaching this  Court
\nwith  special  leave.  Now, under the  Income-tax  Act,\t the
\nappellant  could  apply to the Tribunal to refer to  a\tHigh
\nCourt  any  question of law that arose out of  the  former’s
\ndecision.   The\t Act itself gave no right of appeal  at\t all
\nfrom  that decision, nor any other remedy against  it.\t The
\nappellant had applied to the Tribunal for an order referring
\ncertain\t questions arising out of its decision to the’\tHigh
\nCourt  at Calcutta but was unsuccessful in getting an  order
\nfor  reasons  to be presently stated.  The Tribunal  was  in
\nCalcutta.  The appellant, who was in Delhi, asked a firm  of
\nincome-tax  practitioners named S. K. Sawday & Co.  in\tCal-
\ncutta,\tto  move  the Tribunal for an  order  of  reference.
\nSawday & Co. had the necessary petition and papers prepared.
\nThey sent these to the appellant at Delhi by post on January
\n5,1953, for his signature and the
\n486<\/span>
\npapers reached Delhi on January 7, 1953.  The appellant\t who
\nwas  then the Defence Minister of the Government  of  India,
\nwas  at\t the  time,  away  from\t Delhi\ton  official   tour.
\nImmediately on his return from tour he signed the papers and
\non  January  21\/22, 1953, sent them from Delhi\tby  post  to
\nSawday\t& Co. in Calcutta.  The papers reached\tCalcutta  on
\nJanuary\t 24,  1953, but were not delivered to Sawday  &\t Co.
\nbefore\tJanuary 28, 1953, due to a postman’s default as\t was
\nadmitted  by the postal authority concerned.  Sawday  &\t Co.
\nfiled the petition in the Tribunal on the same date but that
\nwas one day too late as it should have been filed on January
\n27, 1953.  The Tribunal thereupon dismissed the\t application
\nas  having  been made out of time.  The\t appellant  appealed
\nagainst this dismissal to the High Court at Calcutta but the
\nHigh  Court dismissed the appeal.  In  these  circumstances,
\nthe  appellant moved this Court for special leave to  appeal
\nand  asked  for condonation of delay in moving\tthis  Court,
\nplacing\t before\t it  all the facts  which  we  have  earlier
\nmentioned.   This  Court on a consideration of\tthese  facts
\ncondoned the delay and granted special leave.  There was  no
\nattempt\t by the appellant to overreach or mislead the  Court
\nand  the Court in its discretion gave the leave.   In  these
\ncircumstances,\twe are unable to agree with  the  contention
\nthat  the  appellant is not entitled to\t proceed  with\tthis
\nappeal, because he could have availed himself of the  remedy
\nprovided by the Act and was by his own conduct, unable to do
\nso.   This  Court had inspite of this thought fit  to  grant
\nleave  to the appellant to appeal from the decision  of\t the
\nTribunal.   Further  the learned counsel for  the  appellant
\nintends to confine himself to questions of law arising\tfrom
\nthe Judgment of the Tribunal.  We, therefore, see no  reason
\nwhy the appeal should not be heard.\n<\/p>\n
The main question in this appeal is whether the\t proceedings
\ntaken  against\tthe appellant under s. 34 of  the  Act\twere
\nvalid.\t That section has been amended but we are  concerned
\nwith it as it stood on April 10, 1948, when the notice under
\nit was issued.\n<\/p>\n
The first point is that the proceedings under s. 34
\n\t\t\t    487<\/span>
\ncould not be taken by the Income-tax Officer, Delhi.  It  is
\nsaid  that  the proceedings under that section\tare  only  a
\ncontinuation  of  the original assessment  proceedings,\t and
\ntherefore,   it\t is  the  Officer  who\tmade  the   original
\nassessment order or his successor in office, who alone could
\nstart the fresh proceedings.  It is hence contended that  it
\nis the Income-tax Officer, Lahore, who could proceed against
\nthe appellant under s. 34 and the Income-tax Officer, Delhi,
\nhad no jurisdiction to do so.  The contention then comes  to
\nthis that in the circumstances of this case,’ no proceedings
\nunder s. 34 could be taken against the appellant in India at
\nall.\n<\/p>\n
The   learned  Solicitor-General  said\tthat  this  was\t  an
\nobjection  as to the place of assessment under s. 64 of\t the
\nAct,  and could not be entertained as it had not been  taken
\nwithin\tthe time provided under the second proviso  to\tsub-
\nsec.  (3) of that section.  If that proviso applied  to\t the
\npresent case, the appellant had to raise the objection\tthat
\nproceedings  under s. 34 could not be taken at Delhi  within
\nthe  thirty-five  days\tMentioned in the  notice  under\t the
\nsection.  It is said that this had not been done.  It  seems
\nto  us\thowever\t that the proviso would\t apply\tonly  if  an
\nobjection  to a place of assessment had been taken under  s.
\n64  and the objection that the appellant has taken  in\tthis
\ncase  is not one under that section.  That  section  applies
\nwhere the assessment can be made in one place or another  in
\nIndia and an objection is taken to one of such places.\tHere
\nthe  contention\t is that the assessment under s. 34  can  be
\nmade  only in Lahore and therefore cannot be made. in  India
\nat all.\t To such a contention s. 64 has no application.\t The
\nSolicitor General’s point must therefore fail.
\nWe  are\t however of the opinion that the contention  of\t the
\nappellant  is without foundation.  Section 34 provides\tthat
\nin the cases mentioned in it, the income may be assessed  or
\nreassessed  and the provisions of the Act shall, so  far  as
\nmay be, apply accordingly as if the notice issued under\t the
\nsection had been issued under s. 22(2) of the Act.  Now\t the
\nplace where an assessment is to be made pursuant to a notice
\nunder
\n488<\/span>
\ns.22(2)\t has to be determined under s. 64.  Indeed  that  is
\nthe only provision in the Act for deciding the proper  place
\nfor  any  assessment.  There is nothing which  makes  s.  64
\ninapplicable to an assessment made under s. 34.\t  Therefore,
\nit  seems  to us clear, that the place where  an  assessment
\nunder s. 34 can be made has to be decided under s. 64.\t Now
\nthe  appellant was not carrying on any business,  profession
\nor vocation.  He was working as the Defence Minister of\t the
\nGovernment  of\tIndia and residing in Delhi.   He  could  be
\nproperly assessed by the Income-tax Officer, Delhi, under s.
\n64(2)  if the assessment was the original assessment.\tThis
\nis  not\t in  dispute.\tIt follows  that  no  objection\t can
\nlegitimately  be  taken by the appellant to  his  assessment
\nunder s. 34 by the Income-tax Officer, Delhi.
\nWe  find  nothing in the two cases cited by  Mr.Sastri,\t who
\nappeared  for the appellant, to support the contention\tthat
\nin this case the assessment under s. 34 could not have\tbeen
\nmade in\t India\tat all.\t In neither  of\t these\tcases  any
\nquestion  as to the place of assessment tinder s. 34 or\t any
\nother  section arose.  In the first, C. V. Govindarajulu  v.
\nCommissioner  of Income-tax,, Madras<\/a> (1), it was  held\tthat
\nthe  proceedings  under s. 34 and  the\toriginal  assessment
\nproceedings were not separate and therefore in the former, a
\npenalty could be levied under s. 28 for failure to submit  a
\nreturn pursuant to a general notice under s. 22(1) on  which
\nthe  latter  were  deemed to have commenced.   It  does\t not
\nfollow that because the two assessments are not separate for
\ncertain purposes, the latter must take place only where\t the
\nfirst  had been made.  In the second, Lakshminarain  Bhadani
\nV.  Commissioner  of Income-tax, Bihar &  Orissa<\/a>  (2),\tthis
\nCourt  held  that  a proceeding under s.  34  may  be  taken
\nagainst\t a  karta of a Hindu undivided family to  reopen  an
\noriginal  assessment on the family, though in the  meantime,
\nthere  had been a disruption of the family and an  order  in
\nrespect\t of it had been passed under s. 25A(1) of  the\tAct.
\nIt  was\t said  that the position was as\t if  the  Income-tax
\nOfficer was proceeding to assess the
\n(1) I.L.R. (1949) Mad. 624
\n(2) (1951) 20 I.T.R. 594.\n<\/p>\n
489<\/span><\/p>\n
income\tof  the Hindu undivided family as in  the  year\t (if
\nassessment.    This  of\t course\t does  not  mean  that\t the
\nassessment  under s. 34 must take place at the\tplace  where
\nthe original assessment was made or not at all.
\nThen  it is said that the Income-tax Officer reassessed\t the
\nappellant’s income under s. 34 on the basis that part of it,
\nnamely,\t the dividend that became liable to be\tincluded  in
\nthe appellant’s income under s. 23A, had escaped assessment.
\nIt is contended that on a proper reading of s. 34 this would
\nnot  be\t a case of income escaping assessment  because\tthat
\nsection\t applies to income actually escaping assessment\t and
\nnot to income deemed to have escaped assessment which is all
\nthat  has happened in the present case.\t It is said that  in
\norder  that income may escape assessment there must in\tfact
\nhave been an income.  It is also said that in order to apply
\ns.  34\tto this case two fictions have to  be  resorted\t to,
\nnamely,\t (a)  bringing an income into existence\t where\tnone
\nexisted and (b) holding that   income has escaped  assessment
\nwhere  no  income actually did so.  It is  argued  that\t the
\nlanguage  of  s.  34  does not\tpermit\ttwo  fictions  being
\ncreated,   and\tthat  as  the  section\treopens\t  a   closed
\ntransaction, it must be strictly construed.
\nReliance was placed on certain decisions in support of\tthis
\ncontention.   First, we were referred to two English  cases,
\nnamely,\t Dodworth  v.  Dale (1) and D. & G.  R.\t Rankine  v.
\nCommissioners Inland Revenue (2).  These cases do not assist
\nthe  appellant for they were not concerned with a  statutory
\nprovision  like s. 23A on which the present case  turns\t and
\nwhich  requires\t that an assessee would be deemed to  have
\nreceived  a certain income on a specified date in  the\tpast
\nand  also requires that income to be included in  his  total
\nincome\tfor assessment to tax.\tThe other case to  which  we
\nwere  referred was the decision of this Court  in  Chatturam
\nHorliram  Ltd.\tV.  Commissioner of  Income-tax,  Bihar\t and
\nOrissa<\/a> (3) where it was said that the contention ” that\t the
\nescapement from assessment
\n(1) (1936) 20 T.C. 285.\t       (2) (1952) 32 T.C. 520.
\n(3) [1955] 2 S.C.R. 290, 300-301.\n<\/p>\n
490<\/span><\/p>\n
is  not to be equated to non-assessment simpliciter, is\t not
\nwithout\t force,”.   This  Court however\t in  the  very\tnext
\nsentence proceeded to state clearly that ” it is unnecessary
\nto  lay\t down  what  exactly  constitutes  `escapement\tfrom
\nassessment”‘.\tThe actual decision in this case affords  no
\nassistance  to the appellant and has not been relied  on  by
\nhim.   It is clear from what we have read from the  judgment
\nin  it\tthat it does not lay down a test to decide  when  an
\nincome may be said to have escaped assessment.
\nOn its own merits also we are unable to accept the  argument
\nof  the\t learned  counsel for the  appellant.\tSection\t 23A
\nrequires  that\ton  an\torder  being  made  under  it,\t the
\nundistributed  portion\tof  the\t assessable  income  of\t the
\ncompany\t for a year as computed for income-tax purposes\t and
\nafter  the  deductions\tprovided in the section,  is  to  be
\n‘,deemed  to have been distributed as dividends amongst\t the
\nshareholders as at the date of the general meeting “,  being
\nthe  meeting  at which the accounts for the  year  concerned
\nwere passed, and “thereupon, the proportionate share thereof
\nof each shareholder shall be included in the total income of
\nsuch  shareholder  for the purpose of  assessing  his  total
\nincome “. The section creates a fictional income arising  as
\non  a  specified  date in the past and it does\tso  for\t the
\npurpose\t of that income being included in the income of\t the
\nshareholders for assessment of their income-tax.  The income
\nmust  therefore be ‘deemed to have been in existence on\t the
\ndate mentioned for the purpose of assessment to tax.  It  is
\nas  if it actually existed then.  Now if the assessment\t for
\nthe  relevant  year  does not include that  income,  it\t has
\nescaped\t assessment.   That is what happened in\t this  case.
\nTherefore  the\tcase  is one to which a.  34  would  clearly
\napply.\n<\/p>\n
It  is\tsaid that s. 23A was meant to apply  only  to  cases
\nwhere  pending\tassessment for any year, an  order  is\tmade
\nunder that section creating a fictional income in that Year.
\nWe see no reason however so to restrict the operation of the
\nsection:  the words in’ it do not warrant such\trestriction.
\nThere is no limitation of time as to when an order under  B.
\n23A can be made.\n<\/p>\n
491<\/span><\/p>\n
Therefore  it can be made at a time when the  assessment  of
\nthe  income  of the shareholder for the year  concerned\t has
\nbeen  completed.  There is no reason why that order should
\nnot  be given effect to by proceedings duly taken  under  s.\n<\/p>\n
34.
\nWe  do not also agree that the rejection of the\t appellant’s
\npresent\t argument  will\t compel us to  raise  two  fictions.
\nThere  is only one fiction, namely, that raised by  s.\t23A.
\nThat fiction having been raised, the income that has thereby
\nto be deemed to exist must be held to have actually  escaped
\nassessment.   We are unable to agree that in order to  apply
\ns.  34 to an income deemed to exist under s. 23A,  we  would
\nhave to read the former section to cover a case where income
\nhas to be deemed to have escaped assessment.  If the  income
\nhad  come  into\t existence, and not been  assessed,  it\t has
\nescaped assessment; it is not a case where the income has to
\nbe  deemed  to\thave  escaped  assessment.   In\t our   view,
\ntherefore, the present contention of the appellant must fail
\nand the income deemed to have been received by him by virtue
\nof  the order made tinder s. 23A on June 11, 1947,  must  be
\nheld to have escaped assessment for the year 1944-45 and his
\nincome must therefore be liable to reassessment under s. 34.
\nIt is now necessary to refer to one of the reasons on  which
\nthe  judgment of the Tribunal is based.\t It was\t there\tsaid
\nthat ” It was incumbent on the Income-tax Officer, Calcutta’
\npassing\t the order under s. 23A to have included the sum  of
\nRs. 4,74,370\/- in the other assessed income of the assessee
\nand  to\t have recomputed the assessable income and  the\t tax
\nthereon”.  It was held that ” the Income-tax Officer, Delhi,
\nwent wrong in having recourse to the provisions of s. 34 and
\nmaking an assessment thereunder ” but that this a mounted to
\na mere irregularity not vitiating the assessment made  under
\nthat section.  In the end the Tribunal observed,, ”  Anyhow,
\nthe  Tribunal is empowered to substitute its own  order\t for
\nthat  of the Income Tax Officer and acting under that  power
\nwe  assess the assessee under the provisions of See.  23A(1)
\nof the Indian Income-tax Act
\n63<\/span>
\n492<\/span>
\nIt seems to us that the Tribunal was wrong in the view\tthat
\nit  took.  The learned Solicitor-General conceded that\tthis
\nis  so.\t We are unable to agree that an assessment could  be
\nmade  under s. 23A.  That section does not provide  for\t any
\nassessment  being  made.   It only talks  of  the  fictional
\nincome\t being\t included  in  the  total  income   of\t the
\nshareholders  ”\t for  the purpose  of  assessing  his  total
\nincome”.  The assessment therefore has to be made under\t the
\nother  provisions  of the Act including s.  34,\t authorising
\nassessments.   In our view, the assessment in this case\t had
\nbeen  properly made by the Income-tax Officer, Delhi,  under
\nthe pro. visions of s. 34.\n<\/p>\n
Lastly, it is said that a. 23A is unconstitutional  inasmuch
\nas  it\twas beyond the competence of  the  legislature\tthat
\nenacted\t it.   This section has been redrafted\tand  amended
\nseveral\t times since it was first enacted in 1930.   We\t are
\nconcerned  with\t the section as it stood on June  11,  1947,
\nwhen the order under it was made in this case.\t Sub-section
\n(1)  of the section in the form that it stood then-and\tthat
\nis the material portion of the section for our\tpurposes-was
\nenacted\t by Act VII of 1939.  It is that  sub-section  which
\ngave  the  power  to make an order  that  the  undistributed
\nportion\t of  the assessable income of the company  shall  be
\ndeemed\tto have been distributed as dividends  and  provided
\nthat  thereupon\t the  proportionate share  thereof  of\teach
\nshareholder shall be’ included in his income for assessment.
\nThe  enactment\twas by the Central  legislature\t which\tthen
\nderived\t its competence to legislate from the Government  of
\nIndia  Act,  1935.   There is no doubt, and  neither  is  it
\ndisputed, that\tsub-section had been enacted under the power
\ncontained  in entry 54 of List I in the Seventh Schedule  to
\nthe Government of India Act, 1935.  The entry read, ”  Taxes
\non income other than agricultural income”.  The argument  of
\nMr.  Sastri is that this entry only  authorises\t legislation
\nfor taxing a person on his income; under it a law cannot  be
\nmade taxing one person on the income of another.
\nMr.  Sastri says that in law a company and its\tshareholders
\nare different persons–a proposition
\n493<\/span>
\nwhich is indisputable-and therefore s. 23A is incompetent as
\nit  purports  to tax the shareholders on the income  of\t the
\ncompany\t in which they hold shares, He points out, and\tthis
\nagain  is not in dispute, that the section does not  give  a
\nright  to a shareholder on an order being made under it,  to
\nrealise from the company the dividend, which by the order is
\nto  be deemed to have been paid to him.\t He says,  and\tthis
\nalso seems right, that the income remains the income of\t the
\ncompany\t and  a\t shareholder is taxed on  a  portion  of  it
\nrepresenting the dividend deemed to have been paid to him.
\nIn spite of all this it seems to us that the legislation was
\nnot  incompetent.  Under entry 54 a law could of  course  be
\npassed imposing a tax on a person on his own income.  It  is
\nnot  disputed  that  under that entry a law  could  also  be
\npassed\tto prevent a person from evading the tax payable  on
\nhis  own income.  As is well-known the\tlegislative  entries
\nhave  to be read in a very wide manner and so as to  include
\nall subsidiary and ancillary matters.  So Entry 54 should be
\nread  not  only as authorising the imposition of a  tax\t but
\nalso  as  authorizing an enactment which  prevents  the\t tax
\nimposed\t being evaded.\tIf it were not to be so\t read,\tthen
\nthe  admitted power to tax a person on his own income  might
\noften\tbe  made  infructuous  by  ingenious   contrivances.
\nExperience  has\t shown that attempts to evade  the  tax\t are
\noften made.\n<\/p>\n
Now  it seems to us that s. 23A was enacted  for  preventing
\nsuch  evasion of tax.  The conditions of  its  applicability
\nclearly\t lead  to that conclusion.  The first  condition  is
\nthat the company must have distributed as dividend less than
\nsixty  per cent of its assessable income after deduction  of
\nincome-tax and supertax payable by it.\tThe taxing authority
\nmust then be satisfied Chat the payment of a dividend or  of
\na  larger  dividend than that declared, would,\tin  view  of
\nlosses\tincurred  in earlier years or the smallness  of\t the
\nprofit made, be unreasonable.  Lastly, the section does\t not
\napply  to  a company in which the public  are  substantially
\ninterested or a subsidiary company of a public company whose
\nshares are held by the parent
\n494<\/span>
\ncompany\t or by the nominees thereof The section provides  by
\nan explanation as follows:\n<\/p>\n
For  the  purpose of this sub-section, a  company  shall  be
\ndeemed to be a company in which the public are substantially
\ninterested  if\tshares\tof the\tcompany\t (not  being  shares
\nentitled  to  a\t fixed rate of\tdividend,  whether  with  or
\nwithout a further right to participate in profits)  carrying
\nnot less than twenty-five per cent of the voting power\thave
\nbeen\tallotted    unconditionally    to,    or    acquired
\nunconditionally by, and are at the end of the previous\tyear
\nbeneficially held by the public (not including a company  to
\nwhich the provisions of this sub-section apply), and if\t any
\nsuch  shares have in the course of such previous  year\tbeen
\nthe subject of dealings in any stock exchange in the taxable
\nterritories or in fact freely transferable by the holders to
\nother members of the public.\n<\/p>\n
The  section thus applies to a company in which at least  75
\nper  cent of the voting power lies in the hands\t of  persons
\nother  than  the  public, which can only mean,\ta  group  of
\npersons\t allied together in the same interest.\tThe  company
\nwould  thus have to be one which is controlled by  a  group.
\nThe  group  can\t do what it likes with the  affairs  of\t the
\ncompany, of course, within the bounds of the Companies\tAct.
\nIt  lies  solely in its hands to decide whether\t a  dividend
\nshall be declared or not.  When therefore in spite of  there
\nbeing money reasonably available for the purpose, it decides
\nnot  to\t declare  a dividend it is clear  that\tit  does  so
\nbecause\t it does not want to take the dividend.\t Now it\t may
\nnot  want to take the dividend if it wants to evade  payment
\nof  tax\t thereon.  Thus by not declaring  the  dividend\t the
\npersons\t constituting  the  group in  control,\tcould  evade
\npayment of super-tax, which, of course, is a form of income-
\ntax.   They  would be able to evade  the  super-tax  because
\nsuper-tax  is  payable on the dividend in the hands  of\t the
\nshareholders  even  though  it may have\t been  paid  by\t the
\ncompany\t on the profits out of which the dividend  is  paid,
\nand  because  the rate at which super-tax is  payable  by  a
\ncompany\t may  be lower than the rate at which  that  tax  is
\npayable by other
\n495<\/span>
\nassessees.  By providing that in the circumstances mentioned
\nin it, the available assessable income of a company would be
\ndeemed\tto have been distributed as dividend and be  taxable
\nin the hands of the shareholders as income received by them,
\nthe  section would prevent the members of such a group\tfrom
\nevading by the exercise of their controlling power over\t the
\ncompany,  payment of tax on income that would have  come  to
\nthem.  That being so, the section would be within entry 54.
\nIn  conceivable circumstances the section may work  hardship
\non  members of the public who hold shares in such a  company
\nbut  that would not take the section outside the  competence
\nof  the\t legislature.\tIt  would  still  be  an   enactment
\npreventing  evasion of tax.  Considerations of hardship\t are
\nirrelevant for deciding questions of legislative competence.
\nIt is further quite clear that in the absence of a provision
\nlike s. 23A it is possible so to manipulate the affairs of a
\ncompany of this kind as to prevent the undistributed profits
\nfrom  ever  being taxed and experience seems to\t have  shown
\nthat  this has often happened.\tThe following  passage\tfrom
\nSimon’s\t Income\t Tax,  2nd  Edn.,  Vol.\t 3,  p.\t 341,  fully
\nillustrates the situation :\n<\/p>\n
\t      ”\t Generally speaking, surtax is charged\tonly
\n\t      on  individuals,\tnot on\tcompanies  or  other
\n\t      bodies  corporate.  Various devices have\tbeen
\n\t      adopted  from  time  to  time  to\t enable\t the
\n\t      individual  to avoid surtax on his real  total
\n\t      income  or on a portion of it, and one  method
\n\t      involved\tthe formation of what  is  popularly
\n\t      called  a\t ‘one-man company’.  The  individual
\n\t      transferred   his\t assets,  in  exchange\t for
\n\t      shares,\tto  a  limited\tcompany,   specially
\n\t      registered  for the purpose, which  thereafter
\n\t      received the income from the assets concerned.
\n\t      The individual’s total income for tax purposes
\n\t      was   then  limited  to  the  amount  of\t the
\n\t      dividends\t distributed to him  as\t practically
\n\t      the  only shareholder, which distribution\t was
\n\t      in  his  own  control.   The  balance  of\t the
\n\t      income, which was not so distributed, remained
\n\t      with the company to form, in effect, a fund of
\n\t      savings accumulated from income which had\t not
\n\t      immediately
\n\t      64<\/span>
\n\t      496<\/span>
\n\t      attracted surtax.\t Should the individual\twish
\n\t      to  avail\t himself of the use of any  part  of
\n\t      these   savings  he  could  effect   this\t  by
\n\t      borrowing\t from  the  company,  any   interest
\n\t      payable  by  him going to\t swell\tthe  savings
\n\t      fund;  and  at any time the  individual  could
\n\t      acquire  the whole balance of the fund in\t the
\n\t      character\t of capital by putting\tthe  company
\n\t      into liquidation.”\n<\/p><\/blockquote>\n
The  section prevents the evasion of tax by,  among  others,
\nthe means mentioned by Simon.\n<\/p>\n
The   learned  Solicitor-General  sought  to   support\t the
\ncompetence  of the legislature to enact the section also  on
\nanother\t ground.   He said that entry 54  permitted  tax  on
\nincome and contended that it. authorised taxing of A on\t the
\nincome of B. He said that, where a shareholder was taxed  on
\nthe income of the company, the two being considered separate
\nlegal  entities, the tax was none the less on income  though
\nthe burden of the tax was put on one to whom the income\t had
\nnot  accrued or by whom it had not been received and so\t was
\nwithin the scope of entry 54.  In support of this contention
\nhe  referred  to  B. M. Amina Umma v.  Income  Tax  Officer.
\nKozhikode  (1), Janab Jameelamma v. The\t Income-tax’Officer,
\nNagapattnam (2) and C.\tW. Spencer v. Income Tax Officer<\/a>(3).
\nAs  earlier stated, Mr. Sastri disputes the  correctness  of
\nthis  contention.   We\tdo  not\t consider  it  necessary  to
\npronounce  on this question or as to the correctness of\t the
\ndecisions cited so far as they support it.  In our view, the
\nlegislative  competence to enact the section can be  clearly
\nupheld on the ground that it was to- prevent evasion of\t in-
\ncome-tax and that would be enough to dispose of the argument
\nadvanced  by Mr. Sastri that the section was an\t incompetent
\npiece of legislation.\n<\/p>\n
This appeal therefore fails and it is dismissed with Costs.
\nAppeal dismissed.\n<\/p>\n
(1) (1954) 26 I.T.R. 137.\n<\/p>\n
(2) (1955) 29 I.T.R. 246.\n<\/p>\n
(3) (1956) 31 I.T.R. 107.\n<\/p>\n
497<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Sardar Baldev Singh vs Commissioner Of Income-Tax, … on 2 September, 1960 Equivalent citations: 1961 AIR 736, 1961 SCR (1) 482 Author: A Sarkar Bench: Sinha, Bhuvneshwar P.(Cj), Imam, Syed Jaffer, Sarkar, A.K., Subbarao, K., Shah, J.C. PETITIONER: SARDAR BALDEV SINGH Vs. RESPONDENT: COMMISSIONER OF INCOME-TAX, DELHI & AJMER. DATE OF […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-93612","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nSardar Baldev Singh vs Commissioner Of Income-Tax, ... on 2 September, 1960 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/sardar-baldev-singh-vs-commissioner-of-income-tax-on-2-september-1960\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Sardar Baldev Singh vs Commissioner Of Income-Tax, ... on 2 September, 1960 - 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