- (1.)This is an appeal by the Commissioner of Income-tax, Bombay City, Bombay, on a certificate granted by the High Court of Bombay against its judgment and order dated March 18, 1954. By that judgment, the High Court answered three questions referred by the Income-tax Appellate Tribunal in favour of the assessee. The assessee in this case was Mafatlal Gagalbhai, whose legal representative, Navinchandra Mafatlal had also since died, and the present respondents are the legal representative of Navinchandra Mafatlal.
(2.)We are concerned in this case with the assessment of the income of Mafatlal Gagalbhai for the accounting years, 1941 and 1942 corresponding to the assessment years, 1942-43 and 1943-44. In these two years, Mafatlal Gagalbhai was assessed under S. 23 (3) of the Income-tax Act on a total income respectively of Rs. 3,76,539 and Rs. 4,42,693. In the first year, no appeal was preferred, and in the second, the appeals to the Appellate Assistant Commissioner and the Tribunal were unsuccessful.
(3.)In the accounting year 1941, Mafatlal Gagalbhai held 12,485 ordinary shares and 2,500 preference shares in a Company called Gagalbhai Jute Mills, Ltd., Calcutta. In the accounting year 1942, he held ordinary shares which were less by 300 and the same number of preference shares. At the general meeting of the Company, for the years ending March 31, 1941, and March 31, 1942, no dividend was declared either on the ordinary or on the preference shares. In respect of the Company the Income-tax Officer passed orders on February 20, 1947, applying S. 23A to the Company and holding that Rs. 5,71,072 for the assessment year 1941-42 and Rs. 10,00,411 for the assessment year 1942-43 must be deemed to have been distributed as dividend to the share-holders of the Company. As a result of these orders, the Income-tax Officer reopened the assessment for the two years, of Mafatlal Gagalbhai, and added Rs. 4,48,502 and Rs. 7,96,082 as amounts deemed to have been distributed to him on the ordinary shares. This action appears to have been taken under S. 34 of the Income-tax Act.