Commercial profits under section 23A require actual accrual, not mere tax assessment of income.

For section 23A purposes, commercial profits must be determined on actual accounting principles, not by equating them with assessable income. Income included in tax assessment does not automatically form part of commercial profits if it had not accrued or become due during the accounting period. Under the managing agency agreement, the commission was payable only after the audited accounts were adopted at the general meeting, so it did not accrue in the relevant year and could not be added to profits merely because it was assessed as income.

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Issues: Whether, in proceedings under section 23A, commission which had not become due during the accounting period under the managing agency agreement could be included in the company's commercial profits for determining the smallness of profits.

Analysis: Proceedings under section 23A are separate from assessment proceedings. The concept of assessable income is distinct from accounting or commercial profits, and an item included in assessable income does not automatically become part of commercial profits. The relevant enquiry is whether the income had in fact accrued as a matter of commercial accounting during the accounting period. Under the managing agency agreement, the commission was not due until the audited accounts were passed at the general meeting, and therefore it did not form part of the profits earned in the relevant accounting period merely because it had been brought into assessment.

Conclusion: The commission could not be included in the assessee's commercial profits for section 23A purposes merely because it was assessed as income for the year.

Ratio Decidendi: For section 23A, the income-tax authority must determine actual accounting profits on commercial principles, and an amount not accrued or due in the accounting period cannot be treated as part of those profits simply because it was included in assessable income.

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