Section 68 cash-credit additions are not automatically distributable commercial profits for dividend-tax purposes.

An addition made under section 68 for failure to prove the genuineness and source of hundi loans is not, by that reason alone, commercial profit available for dividend distribution under section 104. Where there is no finding of deliberate inflation of expenditure or proof that the credited amount represents real business surplus, the sum remains artificial, notional, or fictional income rather than distributable profit. On those facts, section 104 did not apply, and the reference was answered in favour of the assessee.

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Issues: Whether an addition treated as income under section 68 of the Income-tax Act, 1961, for failure to prove the genuineness of hundi loans could be regarded as commercial profits available for distribution so as to attract section 104 of the Income-tax Act, 1961.

Analysis: The addition to the assessed income arose only because the assessee failed to establish the nature and source of the loan credits. There was no finding of deliberate inflation of expenditure or evidence that the amounts represented real business profits. An amount added merely on rejection of the explanation for a cash credit is not automatically available as commercial profit for dividend distribution. On that basis, the addition was treated as artificial, notional, or fictional income and not as surplus capable of supporting an order under section 104.

Conclusion: Section 104 of the Income-tax Act, 1961 was not applicable on the facts, and the answer to the reference was in favour of the assessee.

Ratio Decidendi: A sum brought to tax only because the assessee failed to prove a loan transaction is not, without more, commercial profit available for dividend distribution under section 104.

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