Commercial profits and dividend distributability under Section 23A failed where books showed losses and no real surplus.

Section 23A could not be applied merely on assessed profits where the company's books showed accumulated losses, no reserves, and an unprovided tax liability leaving no real surplus for dividend distribution. The past additions were based on estimates, disallowances for lack of proof, and short collections, with no positive evidence of concealed profits or deliberate inflation of expenses. On that balance-sheet position, the assessed profits did not establish distributable commercial profits. Section 23A was therefore not attracted on the facts, and the assessee succeeded.

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Issues: Whether section 23A could be applied on the basis of assessed profits when the company's books disclosed accumulated losses, unprovided tax liability, and no real commercial profits available for dividend distribution.

Analysis: The additions made in the past assessments were found to rest on estimates, disallowances for want of proof, and short collections not supported by positive evidence of suppression or diversion of income. There was no finding of concealed profits or deliberate inflation of expenses. On the balance sheet position, the accumulated book losses, the absence of reserves, and the omission to provide for tax left no real surplus available for declaration of dividend. The assessed profits alone could not justify treating the company as having distributable commercial profits.

Conclusion: Section 23A was not attracted on the facts, and the assessee was entitled to succeed.

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