Commercial profits govern dividend distribution under section 23A; accounting deductions can eliminate any distributable surplus.

For section 23A, the relevant enquiry is the commercial or accounting profit available for distribution, not assessable income. Legitimate outgoings, expenses, sales tax liability and tax payable had to be deducted in computing the distributable surplus, and the Court accepted the Tribunal's finding that no amount remained available for dividend in either assessment year. The principle applied was that "smallness of profits" refers to actual accounting profits judged on commercial principles. Section 23A was therefore not attracted, and the Tribunal's cancellation of the section 23A orders was upheld.

---

---

Issues: Whether, for the relevant assessment years, the provisions of section 23A of the Income-tax Act, 1961 were applicable after determining commercial profits by deducting outgoings, expenses, sales tax liability, and assessed tax, and whether the Tribunal was justified in holding that there was no shortfall or no amount available for distribution as dividend.

Analysis: The operative question was not the assessable income but the commercial or accounting profits available for distribution. The Court accepted the Tribunal's approach that outgoings, expenses, sales tax liability, and tax payable had to be deducted in arriving at the distributable surplus. On the findings recorded, the commercial profits left no amount available for distribution in either assessment year, even though dividends had been declared. The Court also relied on the settled principle that the words "smallness of profits" refer to actual accounting profits and not assessable profits, and that dividend reasonableness must be judged on commercial principles.

Conclusion: Section 23A was not attracted for either assessment year, and the Tribunal's view was upheld.

Final Conclusion: The reference was answered against the Revenue and the Tribunal's cancellation of the section 23A orders was sustained.

Ratio Decidendi: For the purpose of section 23A, the relevant enquiry is the commercial or accounting profit available for distribution, not the assessable income, and the distributable surplus must be computed after allowing deductions for legitimate outgoings and tax liabilities.

---