Commercial grounds must justify non-distribution of dividend under section 23A; mere reserves and uncertainty are insufficient.

Section 23A of the Indian Income-tax Act, 1922 applied where the company failed to distribute the prescribed dividend from its distributable income, unless it could show on commercial grounds that a larger dividend would be unreasonable. The assessee did not declare the requisite dividend, so the statutory condition for invoking the provision was met. The reasons advanced, including donations, reserve allocations, and an asserted risk of nationalisation, were held insufficient. The burden remained on the assessee to produce convincing commercial material, and that burden was not discharged; the challenge accordingly failed.

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Issues: Whether the provisions of section 23A of the Indian Income-tax Act, 1922 were attracted on the facts of the case, and whether the non-distribution of the statutory percentage of dividends was justified on commercial grounds.

Analysis: Section 23A applied where the company failed to distribute the prescribed percentage of its distributable income unless the payment of a larger dividend was shown to be unreasonable having regard to commercial considerations. The assessee had not declared the requisite dividend, so the jurisdictional condition for invoking the provision was satisfied. The material relied on for justification, including donations, reserve allocations, and an alleged threat of nationalisation, was found insufficient. The burden remained on the assessee to place convincing facts showing that a larger dividend would be unreasonable, and that burden was not discharged.

Conclusion: The provision of section 23A was attracted and the assessee's challenge failed.

Ratio Decidendi: For section 23A to be excluded, the company must establish on relevant commercial material that payment of a larger dividend would be unreasonable; mere assertions about reserves, donations, or future business uncertainty are not enough.

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