Assessable income under section 23A means assessed tax income, and compounding payments are not deductible business expenditure.

Section 23A was applied on the basis of the company's failure to distribute the required dividend, and the provision was held to be usable by the successor-in-office of the Income-tax Officer without any bar of limitation merely because the assessment under section 23(4) had already been completed. A payment made to compound criminal proceedings was held not to be expenditure laid out wholly and exclusively for business and therefore could not reduce the assessable income for section 23A purposes. The expression "assessable income" was construed to mean the income determined under the Act for tax purposes, not the figure shown in the company's books.

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Issues: (i) Whether proceedings under section 23A of the Indian Income-tax Act, 1922 could be initiated by the successor-in-office of the Income-tax Officer who made the assessment and whether such proceedings were barred by time after the assessment order under section 23(4); (ii) whether the amount paid for compounding the offence could be treated as an allowable deduction so as to reduce the assessable income for section 23A purposes; (iii) whether the assessable income for section 23A was the income shown in the books or the income determined in assessment.

Issue (i): Whether proceedings under section 23A of the Indian Income-tax Act, 1922 could be initiated by the successor-in-office of the Income-tax Officer who made the assessment and whether such proceedings were barred by time after the assessment order under section 23(4).

Analysis: Section 23A was held to operate on the basis of the company's failure to distribute the requisite dividend in a previous year that had already ended. The power under the provision was not confined to the particular officer who made the assessment, and nothing in the Act imposed a limitation period barring an order under section 23A merely because an assessment had already been completed. The statutory scheme also showed that the order could be made after the relevant accounting period and after the necessary considerations and approvals were obtained.

Conclusion: The answer was in the affirmative on initiation by the successor officer and in the negative on limitation. The issue was decided in favour of Revenue.

Issue (ii): Whether the amount paid for compounding the offence could be treated as an allowable deduction so as to reduce the assessable income for section 23A purposes.

Analysis: The payment was made to compound criminal proceedings and was not expenditure laid out wholly and exclusively for the purposes of the business within section 10(2)(xii). A composition payment made to avoid criminal consequences did not answer the statutory test for deduction, and therefore could not reduce the assessable income for the purpose of section 23A.

Conclusion: The amount was not an allowable deduction. The issue was decided against the assessee.

Issue (iii): Whether the assessable income for section 23A was the income shown in the books or the income determined in assessment.

Analysis: The expression "assessable income" was construed to mean income assessable to tax under the Act, and the phrase had the same meaning throughout section 23A. It did not refer to the figure shown by the company in its own accounts, but to the income determined according to the Act for income-tax purposes.

Conclusion: The assessable income was the assessed figure and not the book figure. The issue was decided in favour of Revenue.

Final Conclusion: The reference was answered substantially in favour of the Revenue, with the challenged section 23A action upheld and the claimed deduction disallowed.

Ratio Decidendi: Under section 23A of the Indian Income-tax Act, 1922, "assessable income" means income assessable under the Act as determined for tax purposes, and a payment made to compound criminal proceedings is not expenditure laid out wholly and exclusively for the purposes of business.

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