Smallness of profits under dividend-distribution rules covers total distributable profits, not just business income.

The expression "smallness of the profit made" in section 23A(1) of the Income-tax Act, 1922 refers to the company's overall distributable profits available for dividend, not merely trading or business profits assessable under section 10. The relevant enquiry is whether the omission to distribute at least sixty per cent of the assessable income was justified by the limited profits actually at the company's disposal for lawful distribution. On that construction, profits from all sources, including interest on securities, property income and dividend income, are within the scope of the test, and the contention that only business profits count was rejected.

---

---

Issues: Whether the expression "smallness of the profit made" in section 23A(1) of the Income-tax Act, 1922 means only trading or business profit assessable under section 10, or includes the company's profits from all sources such as interest on securities, property income and dividend income.

Analysis: The relevant test under section 23A(1) is whether the company had sufficient profits available for lawful distribution as dividend and whether the omission to distribute at least sixty per cent of its assessable income was justified by the smallness of the profit made. The expression is not confined to business profits. It refers to the whole fund of profits available to the company for distribution as dividend, because the section is concerned with the reasonableness of withholding dividend in light of the distributable profits actually at the company's disposal.

Conclusion: The expression "smallness of the profit made" includes profits from all sources distributable as dividend and is not limited to business profits; the answer is against the assessee and in favour of the Revenue.

Final Conclusion: The reference was answered by holding that section 23A(1) looks to the company's total distributable profits, not merely its business profits, and the assessee's contention was rejected.

Ratio Decidendi: For the purpose of section 23A(1), "smallness of the profit made" means the smallness of the company's overall distributable profits available for dividend, not merely profits from business.

---