Commercial profits and dividend distribution determine validity of statutory order where larger dividend would be unreasonable.

Section 23A depended on whether commercial profits were actually available for lawful dividend distribution. For assessment year 1947-48, tax liabilities and outstanding demands substantially reduced distributable profits, so a larger dividend would have been unreasonable and the order was invalid in favour of the assessee. For assessment year 1949-50, profits remained sufficient after taxes, prior payments, and necessary provisions, so the smallness-of-profits condition was not met for the assessee and the order was valid against it. The decision treats "smallness of profits" as commercial profits available for distribution, not notional income, and requires the officer to assess whether a larger dividend would be unreasonable on that basis.

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Issues: (i) Whether an order under section 23A was valid for the assessment year 1947-48; (ii) Whether an order under section 23A was valid for the assessment year 1949-50.

Issue (i): Whether an order under section 23A was valid for the assessment year 1947-48.

Analysis: Section 23A could be invoked only if, after taking account of the profits actually available for dividend distribution on commercial principles, the Income Tax Officer was satisfied that payment of a larger dividend would not be unreasonable having regard to the smallness of profits. In computing the profits available for this year, the company's tax liabilities and outstanding demands substantially reduced the amount that could legitimately be treated as distributable. The larger dividend contemplated by section 23A could not have been paid without going beyond the funds available for lawful distribution.

Conclusion: The order under section 23A was not valid for the assessment year 1947-48 and the answer was in favour of the assessee.

Issue (ii): Whether an order under section 23A was valid for the assessment year 1949-50.

Analysis: For this year, the company had substantial available profits even after deducting taxes, prior payments, and necessary provisions. On a commercial view, the amount left for distribution was sufficient to justify a larger dividend than the one declared. The statutory condition relating to the smallness of profits was therefore not satisfied in the assessee's favour, and the Income Tax Officer's satisfaction for invoking section 23A was supportable.

Conclusion: The order under section 23A was valid for the assessment year 1949-50 and the answer was against the assessee.

Final Conclusion: The decision turns on the commercial availability of profits for dividend distribution under section 23A, and the validity of the statutory order depends on whether a larger dividend would be unreasonable in light of actual distributable profits.

Ratio Decidendi: For section 23A, the expression "smallness of profits" refers to commercial profits actually available for distribution, not assessable or notional income, and the officer must determine whether a larger dividend would be unreasonable on that basis.

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