COMMISSIONER OF INCOME TAX Vs. P REID

JUDGEMENT

(1.) AN order under section 23A was passed on March 24, 1956, in respect of Simpson and Company Ltd. As a result of this order, the share of dividend deemed to have been distributed to a shareholder of the company, the assessee in the present case, was computed at Rs. 48, 223. The date of the general meeting relevant to this deemed distribution being December, 1950, the proportionate share of the dividend became assessable by inclusion in the total income of the assessee for the assessment year 1951-52. The initial assessment inclusive of this dividend had been completed on July 8, 1953. The Income-tax Officer issued a notice under section 34. The notice purports to have been issued on March 28, I956, but it was actually served on the assessee only on April 3, 1956. Objection was, therefore, taken to the assessment on the ground that the assessee had not been served before the end of four years following the close of the assessment year. But this objection was overruled by the Income-tax Officer. On appeal, the Appellate Assistant Commissioner accepted this contention as sound and set aside the assessment. The department appealed to the Tribunal and the Tribunal confirmed the order of the Appellate Assistant Commissioner. On the application of the department, the Tribunal has referred the following question for our determination " Whether, having regard to the provisions of sections 23A and 34, the Income-tax Officer, had jurisdiction to revise the assessment of the assessee which became final " "

(2.) IN our opinion, the reference has to be answered against the department. It is well settled that section 23A is only a machinery provision and that any assessment of the shareholder of a company to whom a dividend is deemed to have been distributed has to be assessed or reassessed in relation to that amount only by resort to sections 23 and 34 as the case may be. This has been laid down in Commissioner of INcome-tax v. Navinchandra Mafatlal following an earlier decision in Sirdar Baldev Singh v. Commissioner of INcome-tax. It accordingly follows that, after an order had been made under section 23A, in cases where the original assessment of the shareholder has already been made under section 23, there has to be a reassessment only after the service of notice under section 34. The question that has however been canvassed by the learned counsel for the department is that a valid assessment is possible upon the assessee notwithstanding that by the date of the assessment the period of four years has elapsed from the end of the relevant assessment year so long as a notice has been issued to the assessee. Under section 34(1)(b), which applies to the present case, the INcome-tax Officer has to serve on the assessee at any time within four years of the end of the relevant assessment year a notice containing the necessary requirements. Section 34(3) contains a proviso, which is to this effect

(3.) A like argument is advanced in the present case. This was repelled following the decision in Commissioner of Income-tax v. Robert J. Sas. It was further emphasised that the service of a valid notice is a condition precedent to the assumption of jurisdiction under section 34 of the ActThese decisions do not directly touch upon the question whether the proviso to section 34(3) marks any departure from the condition relating to service laid down in section 34(1). This point was however specifically dealt with by a Bench of the Allahabad High Court in Sri Niwas v. Income-tax Officer, Sitapur. The argument advanced in the present case was also advanced therein, the department seeking to claim that the issue of notice was sufficient to confer jurisdiction upon the Income-tax Officer to make a reassessment. The learned judges point out that though the use of the word " issue " in the proviso created some difficulty, sub-section (1) and sub-section (3) of section 34 dealt with different matters. They observed " Sub-section (1) states the circumstances in which an Income-tax Officer may assess income which has escaped assessment wholly or in part and the giving of notice is a condition precedent to the assumption of jurisdiction. Sub-section (3) deals with another matter altogether, namely, the period within which an assessment may be made the sub-section in other words makes provision for a situation which only arises after there has been a valid assumption of jurisdiction by the Income-tax Officer under sub-section (1)