Reasonableness of dividend under section 23A depends on available surplus, liabilities and business needs; larger dividend not commercially required.

For section 23A of the Indian Income-tax Act, 1922, the reasonableness of dividend distribution must be judged from the company's standpoint by considering available surplus, profits, tax liabilities, outstanding demands and business requirements. On the accepted figures, the company's available surplus was less than the dividend already declared, so a larger dividend could not be treated as commercially reasonable. The statutory condition of inadequacy of dividend was therefore not satisfied, and section 23A did not apply on the facts.

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Issues: Whether the company could reasonably have paid a larger dividend than the dividend actually declared for the purposes of section 23A of the Indian Income-tax Act, 1922.

Analysis: The available surplus for dividend distribution had to be judged from the company's financial position and business considerations, including profits, tax liabilities, and other outstanding demands. On the accepted figures, the company's available surplus was less than the dividend already declared, so any further dividend would not have been commercially reasonable. In that situation, the statutory conditions for applying section 23A were not satisfied on the question of inadequacy of dividend.

Conclusion: The question was answered in the affirmative in favour of the assessee, and section 23A was held not to be attracted on the facts.

Final Conclusion: The reference was resolved by holding that the dividend declared was not unreasonable in relation to the funds available to the company, and the remaining question was left unanswered as unnecessary.

Ratio Decidendi: For section 23A, the reasonableness of dividend distribution must be assessed from the company's standpoint on an overall consideration of available surplus, liabilities, and business requirements, and if the declared dividend exceeds the funds actually available, no larger dividend can be treated as reasonably payable.

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