Commercial profits govern deemed dividend calculations where concealed receipts may be added to assess reasonable distribution.

For section 23A of the Income-tax Act, 1922, the relevant basis for deeming dividend distribution is the real commercial profit, not merely the figures in the books. Concealed receipts and deliberately omitted items may be added to book profits to determine the true amount reasonably distributable as dividend. A contention based on earlier losses and business considerations was not entertained because it had not been raised before the income-tax authorities and the necessary facts were not on record. On the facts, the statutory threshold was not met and a larger dividend could reasonably have been declared, so section 23A applied.

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Issues: Whether section 23A of the Income-tax Act, 1922 was properly applied to deem distribution of dividend, and whether concealed receipts and disallowed items could be added to book profits for determining the adequacy and reasonableness of dividend declared.

Analysis: The Court held that the profits relevant for section 23A are the real commercial or accounting profits and not merely the figures shown in the books. Where items are deliberately omitted from the accounts, they may be added to book profits to ascertain the true commercial profits. The Court further held that the assessee could not, at the final stage, rely on earlier losses and other business considerations because that contention had not been raised before the lower income-tax authorities, and the relevant facts were therefore not on record. On the facts found, the Income-tax Officer had material to conclude that the dividend declared was less than the statutory threshold and that a larger dividend would not have been unreasonable.

Conclusion: Section 23A was validly applied, and the question referred was answered in the affirmative against the assessee.

Ratio Decidendi: For the purpose of section 23A, the relevant profits are the true commercial profits as disclosed on a realistic appraisal of the accounts, and omitted or concealed items may be added to determine whether the dividend declared was less than the amount reasonably distributable.

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