Commercial profits under section 23A exclude refundable tax deposits retained with the revenue

For section 23A of the Indian Income-tax Act, 1922, only the commercial profits of the relevant accounting year could be taken into account when determining distributable surplus. Refundable excess profits tax deposits retained with the revenue were treated as refundable deposits made over several years, not as part of the year's commercial profits, and therefore were excluded from the profit computation. A proposed set-off against later tax liability was also rejected because it had not been raised before the Tribunal and, in any event, the deposit was not distributable commercial profit. The order under section 23A was thus upheld.

---

---

Issues: Whether the amount refundable as excess profits tax deposit could be excluded while determining the smallness of profits under section 23A of the Indian Income-tax Act, 1922.

Analysis: The amount standing to the credit of the assessee as excess profits tax deposits was held to be in the nature of refundable deposits made over a period of years and not part of the commercial profits of the accounting year. In proceedings under section 23A, only commercial profits of the year of account could be considered for determining the distributable surplus. The proposed set-off against later tax liability was also rejected because that contention had not been raised before the Tribunal and in any event the refundable deposit was not an item of commercial profit available for distribution.

Conclusion: The refundable excess profits tax deposit was rightly excluded from commercial profits, and the answer to the referred question was in the affirmative, in favour of the Revenue.

Final Conclusion: The order under section 23A was upheld and the assessee's refundable deposits were not to be treated as distributable profits for the accounting year.

Ratio Decidendi: For the purpose of section 23A of the Indian Income-tax Act, 1922, only commercial profits of the relevant accounting year can be considered, and refundable tax deposits retained with the revenue do not form part of those profits.

---