Commercial profits govern dividend reasonableness under section 23A, with prudent-director judgment controlling the inquiry.

Under section 23A of the Indian Income-tax Act, 1922, dividend availability must be judged on commercial profits and the company's real financial position, not by a narrow mechanical computation. The broader enquiry includes what a prudent director would have done in the circumstances, and the exclusion of super-tax payable under section 23A does not displace that standard. On the facts noted, the material was insufficient to determine conclusively whether the dividend declared was reasonable, so the issue required fresh determination by the Tribunal.

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Issues: Whether, in proceedings under section 23A of the Indian Income-tax Act, 1922, the company's available profits had to be assessed on the basis of commercial profits taking into account earlier liabilities under section 23A, and whether the dividend declared for the relevant year was reasonable.

Analysis: The applicable principle is that dividends, if any, are to be judged by reference to commercial profits and the financial position of the company as a whole, not by a narrow mechanical computation. The amount available for distribution must be considered in the light of the entire financial performance and what a prudent director would have done in the circumstances. The exclusion in section 23A of super-tax payable under that section cannot be used to ignore the broader enquiry mandated by judicial interpretation of the provision. On the facts found, the material was insufficient to determine conclusively whether the dividend declared was reasonable or unreasonable, and that question required fresh determination by the Tribunal.

Conclusion: The contention that section 23A could be applied without considering the broader commercial-profit enquiry was rejected, and the matter was sent back for fresh determination on the reasonableness of the dividend.

Ratio Decidendi: In proceedings under section 23A, the availability and reasonableness of dividend must be judged on commercial profits and the company's real financial position, applying the standard of what a prudent director would have done.

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