BANERJEE, J. - (1.) THIS is a reference under s. 66(1) of the Indian IT Act.
(2.) THE assessment year involved is the year 1949-50, the relevant accounting year being the year ended on December 31, 1948. THE question referred to this Court is : "Whether, on the facts and in the circumstances of the case, the amount deemed to have been distributed to the assessee by virtue of an order under s. 23A of the Indian IT Act. 1922, against M/s M. M. Ispahani Ltd. had been validly assessed under the Indian IT Act, 1922 in his hands during the relevant assessment year ?" The question arises in the following circumstances. The assessee is an individual and a shareholder of a company known as M. M. Ispahani Ltd. It is admitted that : (a) M. M. Ispahani Ltd. was originally incorporated in British India as a private company and used to have its registered office in the town of Calcutta. (b) On the eve of the partition of India, M. M. Ispahani Ltd. shifted its registered office to Chittagong, now in East Pakistan, on June 26, 1947. (c) Thereafter, on July 10, 1947, M. M. Ispahani Ltd., converted itself into a public limited company. (d) On August 5, 1948, the annual general meeting of the shareholders of M. M. Ispahani Ltd. was held at Chittagong and a dividend was declared for the year ended December 31, 1946. (e) In the asst. yr. 1947-48, the ITO found that the dividend declared by M. M. Ispahani Ltd. was less than the statutory percentage, contemplated under s. 23A of the Indian IT Act, as it stood prior to the amendment in 1955. He, therefore, took action against M. M. Ispahani Ltd., under s. 23A and made an order, on February 27, 1954, deeming that a sum of Rs. 5,72,491 was distributed as dividend, on August 5, 1948, amongst six named shareholders of M. M. Ispahani Ltd. including the assessee. We have proceeded on the above-stated admitted facts because the statement of case is much too cryptic. We do not, however, think it necessary to call for a supplementary statement on the above facts of historical importance, in the context of the instant reference, firstly, because they were admitted facts, and, secondly, because we noticed the above facts in our judgment in IT Ref. No. 41 of 1963 (M. M. Ispahani Ltd. vs. CIT (1968) 69 ITR 714) only a few days ago, on June 22, 1967. and decided to take note of that judgment.
(3.) NOW, the date of the annual general meeting of M. M. Ispahani Ltd., being August 5, 1948, the undistributed portion of the assessable income of M. M. Ispahani Ltd. (reduced under the provisions of s. 23A) which was deemed to have been distributed as dividend became assessable if at all, in the hands of the shareholders, including the assessee, in the asst. yr. 1949-50. Since the assessment of the assessee for that year had already been completed, a notice under s. 34(1)(b) of the Indian IT Act was issued to the assessee, on March 18, 1954, shortly after the making of the order under s. 23A. The assessee did not pay any heed to the notice. The ITO, therefore, completed the assessment, in s. 34 proceeding by recourse to s. 23(4) of the Indian IT Act and added back a sum of Rs. 3,39,937 to the income of the assessee. The assessee appealed against the order of the ITO before the AAC and objected to the add- back on the following grounds : (i) The order under s. 23A was bad in law inasmuch as M. M. Ispahani Ltd. was a non-resident company on the deemed date of the declaration of the dividend. (ii) The dividend was declared outside the taxable territory because Chittagong, where the annual general meeting was held and the dividend was declared was a part of Pakistan on August 5, 1948. Therefore, the dividend was not liable to be taxed in the hands of the assessee who again was a non-resident. (iii) The amount of dividend cannot be brought within the four corners of the charging s. 4 or of the definition of dividend as in s. 2(6A) or of the definition of income as in s. 2(6C) of the Indian IT Act and as such cannot be dealt with under s. 23A. ;