RAJAGOPALAN, J.

Each of the petitioners held ten shares in Gannon Dunkerley & Co. Ltd., Bombay. Each of them obtained a further 80 shares when bonus shares were issued by the company in 1948. They disclosed in their returns for the assessment year 1950-51 the dividend income on those 90 shares. The books of the company showed that each of them had in addition 1, 260 shares registered in his name. The claim of the petitioners was that these shares were in their names as the nominees of one of the controlling shareholders of that company, viz., M. R. Morarka Proceedings were taken against Gannon Dunkerley & Co. (hereinafter referred to as the " company ") under section 23A of the Income-tax Act, which resulted in an order dated 11th March, 1955. On an apportionment of those undisbursed profits each of the petitioners was liable to treat as part of his income assessable in the year of assessment 1950-51 a sum of Rs. 16, 411 (the dividend on 1350 shares) and pay income-tax on that basis under section 23A. Notices were issued to the petitioners under section 34 of the Act on 23rd March, 1955, and they were asked to show cause against revised assessment for the assessment year 1950-51

Each of the petitioners applied under article 226 of the Constitution for the issue of a writ of prohibition, to restrain the Departmental Authorities from taking any further proceedings to assess the petitioners under section 34. Though an interim stay of further proceedings was first granted, those orders were modified to permit the Department to complete the assessment within the period of limitation prescribed by section 34 of the Act. The learned counsel for the respondents, the Departmental Authorities, then represented that completion of the assessment during the pendency of the proceedings in this Court under article 226 would not be pleaded in bar of the investigation of the alleged invalidity of the initiation of proceedings under section 34 of the Act with the notices dated 23rd March, 1955The contentions of the learned counsel for the petitioners were

(i) Section 23A was ultra vires and was beyond the legislative competence of the Legislature which enacted it

(ii) Even if section 23A had been validly enacted, it became void under article 13 of the Constitution, as enforcement of those statutory provisions would result in an infringement of the fundamental rights guaranteed by article 14 and article 19 of the Constitution

(iii) Even if the provisions of section 23A were enforceable against the petitioners, section 34 of the Income-tax Act would not be applicable, as there was no escape of assessment in the assessment year in question within the meaning of section 34

(iv) Even if section 34 was applicable, the bar of limitation imposed by it would invalidate the notices issued on 23rd March, 1955

Before we deal with the question of legislative competence of the Legislature to enact section 23A in the from in which it stood in the relevant assessment year---it was subsequently amended again---it may be useful to set out how the problem of evasion of liability to income-tax, particularly super-tax, with reference to undisbursed profits of a company, incorporated or otherwise, was tackled by the Legislatures in America, England and India

In Simon's Income-Tax, 2nd Edn. Vol. 3, page 341, the nature of the problem for the Legislatures was set out

" Generally speaking, surtax is charged only on individuals, not on companies or other bodies corporate. Various devices have been adopted from time to time to enable the individual to avoid surtax on his real total income or on a portion of it, and one method involved the formation of what is popularly called a ' one-man company '. The individual transferred his assets, in exchange for shares, to a limited company, specialty registered for the purpose, which thereafter received the income from the assets concerned. The individual's total income for tax purposes was then limited to the amount of the di