1. VEERASWAM1, J.-The short point in this reference is whether distributable profit for purposes of section 23-A of the Indian Income-tax Act, 1922, would include notional dividend. We are concerned with the assessm ent 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 was 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 assessm ent was reopened and in view of this notional dividend section 23-A was invoked and applied.
2. The Appellate Tribunal, disagreeing with the departmental view, held that section 23-A 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 23-A could not be applied.
3. We are of the view that section 23-A, 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 assessm ent, but we do not think that, for purposes of section 23-A, it can be so regarded, for what it contemplates is distribution of profit, which implies 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.
4. We tray add that the Tribunal's 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.
5. The result is that the reference is answered in favour of the assessee with costs. Counsel's fee Rs.
6. 250.