Jagannatha Shetty, J. - (1.)THESE are references under s. 256(2) of the I.T. Act, 1961 ("the Act"). The questions referred by the Income-tax Appellate Tribunal are :
"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the provisions of section 104 are attracted for the assessment year 1965-66 ?

(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the provisions of section 104 are attracted for the assessment year 1966-67 ?"

(2.)THE assessee is a private limited company. It is a company to which the provisions of s. 104 of the Act are applicable. THE assessment years involved are 1965-66 and 1966-67, the relevant previous years being the years ending on April 18, 1965 and April 18, 1966, respectively. It appears, the assessee had earned large income on the sale of import entitlements which had not been accounted for in the books of account. In regard to this income, assessee entered into a settlement with the Commissioner under s. 271(4A) of the Act admitting the income as under : JUDGEMENT_664_ITR152_1985Html1.htm
Subsequently, the Commissioner of Income-tax passed orders under s. 264 or s. 263, as the case may be, determining the income fort the assessment years 1962-63 to 1964-65 according to the terms of the settlement. These orders were passed on March 4, 1969.

The income agreed to be taxed under the settlement became the basis for taking proceedings by the ITO under s. 104(1) of the Act. For the assessment year 1965-66, the ITO made an order under s. 104 determining the balance available for the distribution as dividend at Rs. 15,192. For the assessment year 1966-67, he determined the distributable income at Rs. 22,573. For both these years, he levied additional super-tax under s. 104

(3.)IN the appeals preferred by the assessee against the said levy, it was urged before the AAC that for the assessment year 1956-66, the assesseecompany should have distributed dividends by April 18, 1966, but it could not declare any dividend since by that time the company had been saddled with the tax liability of Rs. 3,26,841 as a result of the assessment made by the ITO, although that sum was reduced on March 17, 1969, to Rs. 1,28,944. It was also urged before the AAC that there was an anticipated loss of Rs. 1,12,826 which was subsequently written off as bad debt. It was thus claimed that the directors of the company had acted reasonably in not declaring any dividend. But the AAC did not accept these contentions. Relying upon the decision of the Supreme Court in Gobald Motor Services (P.) Ltd. v. CIT , the AAC held that the action taken by the ITO was justified. He observed :
"...I would have been prepared to accept the appellant's contention that it had come forward for a settlement only to have its tax liabilities settled if such concealed income had not been credited in its books of account. However, this is not the case here. As much as Rs. 3,56,000 (or more) appears to have been credited in the books during the assessment year 1966-67. The INcome-tax Officer has merely proceeded from the income admitted by the appellant for various year..."

The assessee next came in appeal before the Tribunal. The Tribunal also rejected the appeals in view of the assessee's own proposal for settlement and its subsequent act by which the income from undisclosed sources was brought into the books of account.