Deemed dividend under section 23A fails where dividend declaration was barred on the relevant meeting date.

Section 23A's deemed-distribution fiction could not operate where, on the annual general meeting date, the Public Companies (Limitation of Dividends) Ordinance, 1948 prohibited declaration of further dividend beyond the prescribed limit. The legal position had to be tested by the law in force on that date, so the Income-tax Officer could not deem a larger dividend to have been declared. The subsequent repeal of the Ordinance did not change that result, because the earlier prohibition continued to govern the validity of the notional distribution, with section 6 of the General Clauses Act, 1897 preserving prior operation and accrued liabilities. The order under section 23A was therefore invalid.

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Issues: Whether an order under section 23A of the Income-tax Act, 1922 could validly be made when the Public Companies (Limitation of Dividends) Ordinance, 1948 restricted declaration of further dividend on the date of the annual general meeting, and whether the subsequent repeal of the Ordinance by the Public Companies (Limitation of Dividends) Act, 1949 removed that bar.

Analysis: Section 23A created a legal fiction that the undistributed portion of the assessable income is deemed to have been distributed as dividend as at the date of the annual general meeting. The fiction must operate subject to the legal restrictions in force on that date. Since the Ordinance prohibited declaration of dividend beyond the prescribed limit and the company was bound by that restriction at the time of the meeting, the Income-tax Officer could not deem a larger dividend to have been declared. The subsequent repeal of the Ordinance did not alter the position, because the relevant law for testing the validity of the notional distribution was the law prevailing on the date of the annual general meeting, and the repeal provisions preserved prior operation and accrued liabilities under section 6 of the General Clauses Act, 1897.

Conclusion: The order under section 23A was invalid, and the answer to the reference remained in favour of the assessee.

Final Conclusion: The statutory restriction on dividend distribution defeated the deemed-distribution machinery under section 23A, and the repeal of the Ordinance did not revive the Revenue's power to make the impugned order.

Ratio Decidendi: A legal fiction deeming distribution of dividend cannot be invoked where, on the relevant date, an operative statute prohibits the actual declaration of such dividend, and a subsequent repeal does not displace that prohibition for the purpose of testing the validity of the fiction.

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