Commercial profits and disputed liability: book entries alone cannot exclude a credited sum from distributable surplus under section 23A(1).

A sum credited in the assessee's books as a 50% share of alleged joint-venture profits could not be excluded from commercial profits under section 23A(1) of the Indian Income-tax Act, 1922, because there was no reliable evidence of any real joint venture or enforceable disputed liability. Mere book entries, without proof of the underlying transaction or a genuine claim by the supposed co-venturer, were insufficient to treat the amount as unavailable for dividend distribution. The amount therefore remained part of the assessee's distributable surplus and was properly includible for section 23A purposes.

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Issues: Whether the sum shown in the assessee's accounts as a 50 per cent share of alleged joint-venture profits could be excluded from commercial profits for the purpose of section 23A(1) of the Indian Income-tax Act, 1922, on the footing that it was a disputed liability and that the statutory provisions were therefore not attracted.

Analysis: The assessee sought to rely on book entries and on connected litigation to contend that the amount was not available for dividend distribution. The Court held that the alleged suit materials had no real connection with the disputed sum and did not establish any joint venture between the assessee and the alleged co-venturer. It further held that mere entries in the books, without proof of the underlying transactions or of any genuine dispute raised by the alleged claimant, could not by themselves establish that the amount was not part of the assessee's commercial profits. Since there was no evidence of an actual joint venture or of any enforceable disputed liability, the amount remained available in the assessee's hands and could properly be taken into account for section 23A purposes.

Conclusion: Section 23A(1) was attracted and the amount could not be excluded from commercial profits; the finding that it was not attracted was unsustainable and the answer was against the assessee.

Ratio Decidendi: For the purpose of section 23A(1), a sum shown in the books as payable to another person cannot be excluded from commercial profits unless there is reliable evidence of the underlying transaction or liability; book entries alone do not establish a genuine disputed liability or take the amount outside distributable surplus.

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