Notional dividend cannot count as distributable profit under section 23A; only actual profits in hand are relevant.

For the purpose of section 23A of the Indian Income-tax Act, 1922, only profits actually available for distribution can be treated as distributable profits. A notional dividend is merely a legal fiction and not an actual receipt in the assessee's hands; although it may be included in total income for assessment, it does not constitute profit capable of actual distribution under section 23A. That position is distinct from best judgment assessment, where income determined is treated as actual income. The provision therefore could not be validly applied on the basis of notional dividend, and only actual profits in the assessee's hands were relevant.

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Issues: Whether notional dividend forms part of distributable profits for the purpose of applying section 23A of the Indian Income-tax Act, 1922.

Analysis: Section 23A operates on the basis that the company had profits actually available for distribution but failed to distribute them. A notional dividend is only a fiction and not an actual receipt in the assessee's hands. Though such income may be brought into the total income for assessment, it does not represent profit capable of actual distribution for the purposes of section 23A. The position is distinct from best judgment assessment, where the income determined is treated as actual income.

Conclusion: Notional dividend is not includible in distributable profits for section 23A, and the provision could not be validly applied on that basis. The answer is in favour of the assessee.

Final Conclusion: The reference was answered by holding that only actual profits available in the assessee's hands can be considered for section 23A, and a notional dividend cannot be treated as distributable profit.

Ratio Decidendi: For the purpose of section 23A, only income or profit actually available for distribution can be taken into account, and a notional dividend, being a fiction and not an actual receipt, cannot form part of distributable profits.

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