Commercial profits test under section 23A determined that unsupported adjustments could not justify treating dividends as unreasonable.

Section 23A of the Indian Income-tax Act, 1922 was held inapplicable where, on the material proved before the Tribunal, the declared dividends could not be said to be unreasonable having regard to the commercial profits available for distribution. The Tribunal accepted the relevant profit figures and found that the revenue's proposed adjustments, including alleged additional reserve and excess depreciation, were not established as necessary deductions or additions for computing commercial surplus. The governing test was the commercial profit available for distribution on the evidence before the Tribunal, not unsupported additions to book figures. On that basis, the assessee succeeded and the Tribunal's view was sustained.

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Issues: Whether the provisions of section 23A of the Indian Income-tax Act, 1922 applied to the assessee for the assessment years 1960-61 and 1961-62 on the facts found.

Analysis: The decisive question was whether the dividend declared was unreasonable having regard to the commercial profits available for distribution. The Tribunal had accepted the relevant profit figures on the record and found that the amounts claimed by the revenue, such as the alleged additional reserve and excess depreciation, were not established before it as necessary adjustments to the profits for determining the commercial surplus. On the material before the Tribunal, the declared dividends could not be treated as falling below the standard required to attract section 23A.

Conclusion: Section 23A was held inapplicable for both assessment years, and the assessee succeeded.

Final Conclusion: The reference was answered against the revenue and the Tribunal's view that section 23A did not apply was sustained.

Ratio Decidendi: For applying section 23A, the relevant test is the commercial profit available for distribution on the basis of the material proved before the Tribunal, and not unsupported additions to book figures.

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