Notional income assessment requires separate proceedings and is barred if the statutory four year notice period has expired.

Notional income created by an order under Section 23A must be assessed by separate assessment proceedings under Section 34, and such assessment requires a valid notice issued under the applicable assessment provision; consequently the notional income cannot be taxed except through those proceedings. The statutory limitation for service of that notice is four years measured from the end of the assessment year in which the income escaped assessment, and a notice served after that period is invalid; applying that rule the notice dated 1 April 1954 for the 1949-50 year was time barred and ineffective.

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Issues: (i) Whether proceedings under Section 34 are necessary to tax the notional/deemed income arising by virtue of an order under Section 23A of the Indian Income Tax law; (ii) Whether the notice served on 1 April 1954 for assessment of the year 1949-50 was within the period of limitation.

Issue (i): Whether an assessment under Section 34 is required to tax the notional income resulting from an order under Section 23A.

Analysis: An order under Section 23A creates notional/deemed income which must be included in the total income of the shareholders by separate assessment proceedings. Proceedings to assess that notional income must be initiated by a notice under the assessment provision applicable to such cases.

Conclusion: Yes. Proceedings under Section 34 are necessary to assess and tax the notional income arising from an order under Section 23A.

Issue (ii): Whether the notice served on 1 April 1954, in respect of the assessment year 1949-50, complied with the statutory period of limitation for issuing a notice to initiate assessment proceedings.

Analysis: The statutory period for serving the notice applicable to assessment proceedings of the year in which the income escaped assessment is four years from the end of that assessment year; a notice served after that period is invalid and cannot confer jurisdiction to assess.

Conclusion: The notice served on 1 April 1954 was out of time for the assessment year 1949-50 and therefore invalid.

Final Conclusion: The notional income created by an order under Section 23A must be assessed by proceedings under Section 34, and such assessment is subject to the four-year limitation for service of notice measured from the end of the relevant assessment year; the notice in the present case was invalid as time-barred, and the assessee's contention that the assessment could not be validly made is upheld.

Ratio Decidendi: Where an order creates notional income under Section 23A, assessment of that income requires valid notice under the assessment provision, and the statutory four-year limitation for service of that notice (measured from the end of the assessment year in which tax escaped assessment) renders any notice served after that period invalid.

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