Statutory dividend fiction fails when a contemporaneous dividend ban exists on the general meeting date.

Section 23A of the Income-tax Act, 1922 deems the undistributed assessable income to have been distributed as dividends as on the date of the general meeting, so the fiction must be tested against the law then in force. Because the Public Companies (Limitation of Dividends) Ordinance, 1948 prohibited declaration of a larger dividend on the meeting date, the notional distribution could not be validly assumed. The later repeal of that Ordinance did not remove the effect of the contemporaneous bar, and the repeal clause in the subsequent Act did not override section 6 of the General Clauses Act. Accordingly, the section 23A order was treated as invalid.

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Issues: Whether an order under section 23A of the Income-tax Act, 1922 could validly be made where, on the date of the annual general meeting, a contemporaneous ordinance prohibited declaration of a larger dividend, though the prohibition ceased within the six-month period contemplated by section 23A.

Analysis: Section 23A creates a legal fiction by directing that the undistributed portion of the assessable income shall be deemed to have been distributed as dividends as at the date of the general meeting. That fiction has to be worked out with reference to the legal position existing on that date. The restriction on dividend distribution imposed by the Public Companies (Limitation of Dividends) Ordinance, 1948 was operative when the annual general meeting was held, and the subsequent repeal of the Ordinance did not nullify the effect of the bar for the purpose of testing the validity of the notional distribution. The repeal provision in the later Act did not evince a contrary intention sufficient to displace the operation of section 6 of the General Clauses Act.

Conclusion: The order under section 23A was not validly made.

Ratio Decidendi: A statutory fiction deeming dividend distribution as on the date of the general meeting must be tested by the law then in force, and a contemporaneous legal prohibition on dividend declaration prevents the fiction from being validly invoked.

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