Profit distributability under section 23A(1) includes all distributable profits and excludes notional non distributable income.

The article construes the phrase "smallness of the profit made" in section 23A(1) as referring to the company's profits actually distributable as dividend from all sources rather than being confined to trading or business profits. Applying a purposive construction, it holds that only funds genuinely available for distribution are relevant and notional or artificially computed income that cannot be paid out is excluded. Operatively, the guidance treats interest, property income and dividends that form distributable profits as part of the profit considered under section 23A(1), affecting the assessment of unreasonable withholding of dividends.

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Issues: Whether the expression "smallness of the profit made" in section 23A(1) of the Income-tax Act means only trading or business profit assessable under section 10 or whether it includes income from interest, property and dividends assessable under sections 8, 9 and 12 respectively.

Analysis: Section 23A(1) requires the Income-tax Officer to consider whether a company which has distributed less than sixty per cent of its assessable income has omitted to declare a dividend because of losses in earlier years or because of the smallness of the profit made. The Court construed the phrase by reference to the purpose of the section - to prevent unreasonable withholding of profits where distributable funds are available - and held that only funds actually available for distribution are relevant; notional or artificially computed income which cannot be distributed is excluded. Given that dividends are payable out of profits distributable as such, and that profits distributable may be derived from all sources, the correct construction is that the "profit made" for the purposes of section 23A(1) comprises the whole of the company's profits distributable as dividend from all sources rather than being limited to business or trading profits alone.

Conclusion: The phrase "smallness of the profit made" in section 23A(1) includes the whole of the profits distributable as dividend from all sources and not only trading or business profits; decision against the assessee (in favour of the revenue).

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