VEERASWAMI J. - The short point in this reference is whether distributable profit for purposes of section 23A of the Indian Income-tax Act, 1922, would include notional dividend. We are concerned with the assessment year 1955-56. The assessee is a private limited company which was regularly assessed for that year in February, 1956, on a total income of Rs. 67,680. Later, finding that a sum of Rs. 1,666 as declared to be notional dividend in favour of the assessee by another company by name the Madras Motor Insurance Company Limited in which the assessee held shares, the assessment was reopened and in view of this notional dividend section 23A was invoked and applied. The Appellate Tribunal, disagreeing with the departmental view, held that section 23A proceeded on the assumption that the assessee had a balance of profit which it could distribute but failed to do so. Since the sum of Rs. 1,666, in fact, never came into the accounts of the assessee, the Tribunal was of the view that section 23A could not be applied. We are of the view that section 23A, having regard to its scheme and purpose, will not comprehend notional dividend as part of the total income available for actual distribution. A notional dividend is not an actual receipt. It may be that it may form part of the total income for purposes of assessment, but we do not think that, for purposes of section 23A, it can be so regarded, for what it contemplates is distribution of profit, which implied that the assessee actually has in its hands the income or profit. In this sense notional dividend may differ from income determined by best judgment. When income is determined by best judgment, it has to be presumed that the income so determined is actual income. But that is not the case in respect of notional dividend which is but a fiction. We are, therefore, of the view that the Tribunal was right in the view it took.
We may add that the Tribunals view can be supported also on the ground that, if the assessee did not distribute the sum of Rs. 1,666, it cannot be considered to be unreasonable, because actually the assessee did not have that fund in its hands.
The result is that the reference is answered in favour of the assessee with costs. Counsels fee Rs. 250.