Deemed dividend reassessment requires a section 23A order first; without it, escaped income cannot be said to exist.

A reassessment notice under section 34(1)(b) could not be founded on deemed dividend income until an order under section 23A(1) was actually made against the company, because the statutory fiction bringing such income into existence arose only on that order. Before then, no income existed in the shareholder's hands in law or fact, so the Income-tax Officer could not validly form the belief that income had escaped assessment. Strict compliance with section 34(1)(b) was therefore required, and mere initiation of section 23A(1) proceedings was insufficient.

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Issues: Whether proceedings under section 34(1)(b) of the Indian Income-tax Act, 1922 could validly be initiated against a shareholder before an order under section 23A(1) of that Act was made against the company.

Analysis: Liability of the shareholder arose only when an order under section 23A(1) was passed, because the statutory fiction deeming undistributed profits to be dividend income came into existence only on that order. Before such order, there was no existing income in law or fact in the hands of the shareholder, and therefore no basis for the Income-tax Officer to form the belief required by section 34(1)(b) that income had escaped assessment. Section 34(1)(b) was held to require strict compliance with its conditions, and mere initiation of proceedings under section 23A(1) against the company could not, by itself, constitute the necessary information.

Conclusion: No, action under section 34(1)(b) could not be initiated against the shareholder before an order under section 23A(1) was made. The question was answered in the negative, in favour of the assessee.

Ratio Decidendi: A reassessment notice under section 34(1)(b) cannot validly be issued on the basis of a dividend deemed under section 23A(1) until the section 23A(1) order is actually made, because the deemed income comes into existence only on that order.

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