JUDGMENT

Sikri, J.-

1. These two appeals by special leave arise out of a reference made by the Income Tax Appellate Tribunal, Bambay Branch ‘A’ - hereinafter referred to as the Tribunal-referring to the High Court of Madhya Pradesh two questions of law, the questions being:

"(1) Whether in determining the 'smallness of profits' made by the applicant for the purpose of section 23-A, the Tribunal correctly included the commission of Rs. 41,842 and Rs. 11,690 in the applicant's profits of the accounting periods endeing 31st March 1952 and 31st March, 1953 respectively? and

(2) whether on the facts and in the circumstances of the case, the Tribunal was justified in upholding the orders under section 23-A" ?

2. The appellants, J. P. Srivastava and Sons (Bhopal) Private Limited hereinafter called the assessee company was at the relevant time the managing agents of New Bhopal Textile Ltd., hereinafter called the managed company. Both the assessee company and the managed company had the financial year as their accounting period. For the accounting period ending March 31, 1952 the assessee company was entitled to the managing agency commi3sion amounting to Rs. 41.842 under the agreement dated May 2, 1950 which is part of the case. Sub-clause (c) of clause 2 of the agreement prescribed that "such commission shall become due and payable to the Managing Agents every immediately on the passing of the audited accounts of the company by the share-holders at a general meeting at each and every year during the continuance of these presents." It appears that the managed company claimed this amount as expenses for its assessment year 1952-53, and the assessing authority allowed it as an expense for that year. The assessee company, however, claimed before the Income Tax Officer assessing its own income that the commission did not accrue to them during the accounting year 1951-52 as the requisite resolution was not passed during the accounting period but was passed on March 28, 1953. The Income Tax Officer, however, included this amount in the assessment for the previous year ending March 31, 1952. In the book~ of the company, the sum of Rs. 41,842 was credited only in the financial year 1952-53.

3. In respect of the commission for the accounting year ending March 31, 1953, similar events happened. The amount of Rs. 1,16,690 was credited in the books of the assessee company not in the year ending March, 31,1953 but in the financial year 1953-54. The Income-Tax Officer similarly inculded this amount in the assessment of the previous year ending March 31, 1953.

4. As far as the managed company was concerned, this amount was debited in its accounts and allowed as expenses by the Income-Tax Officer for the previous year ending March 31,1953,

5. The assessee company appears to have accepted this position and not filed any appeal against the inclusion of the said sum in its assessment.

6. The assessee company declared dividents of Rs. 9516 and Rs. 18, 3 0 in respect of the accounting period ending March 31, 1952 and March 31, 1953 respectively. The Income-Tax Officer, by order dated March 11, 1953, applied S. 23-A to the year of assessment 1952-53. He came to the conclusion that as the assessee company and the managed company both had the financial year as the accounting year and that as the assessee company maintained its accounts on mercantile basis, it should have taken into consideration the commission accrued to it as per the managing agency agreement. Having obtained concurrence of the Inspecting Assistant Commissioner, he held that S. 23-A of the Income Tax Act applied and passed an order that the remaining profits of Rs. 25,037 be deemed to have been declared as dividend among share-holders. He was not impressed with the plea that the profits were small. He arrived at the figure of Rs. 25,037 thus He took the assessable income at Rs. 58,503 and the income-tax and super tax payable at. Rs. 23,950. Deducting Rs. 9,516 as the dividend declared by the comp