Dipak Kumar Sen, J. - (1.) In this reference under Section 66(1) of the Indian Income-tax Act, 1922, the following questions have been referred : Assessment year 1955-56 "1. Whether, on the facts and in the circumstances of the case, the goodwill of the assessee-company constituted a 'fixed asset' within the meaning of proviso (b) to Section 23A(1) of the Indian Income-tax Act, 1922, as the section stood at the relevant time ? 2. Whether, on the facts and in the circumstances of the case, the amounts written off from goodwill account by debiting capital reserve account and profit and loss account constituted 'reserves representing accumulations of past profits' within the meaning of proviso (b) to Section 23A(1) of the Indian Income-tax Act, 1922 ? " Assessment years 1958-59, 1959-60 and 1960-61 "1. Whether, on the facts and in the circumstances of the case, the goodwill of the assessee-company constituted a 'fixed asset' within the meaning of Explanation 2(iv)(a) to Section 23A of the Indian Income-tax Act, 1922? 2. Whether, on the facts and in the circumstances of the case, the amounts written off from goodwill account by debiting capital reserve account and profit and loss account constituted 'accumulated profits and reserves ' within the meaning of Explanation 2(iv)(a) of Section 23A of the Indian Income-tax Act, 1922 ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in determining the commercial profits the write off of goodwill made in each of the relevant accounting periods was not a legitimate business expenditure ? 4. If the answer to question No. 3 is in the affirmative, whether the Tribunal was right in holding that having regard to the commercial profits a larger dividend than that declared by the company could reasonably have been distributed ?"
(2.) The facts found as appearing in the statement of the case and the annexures thereto can be shortly stated as follows ; The relevant assessment years are 1955-56, 1958-59, 1959-60 and 1960-61, the corresponding previous years being the preceding calendar years. Bird & Co. (Private) Ltd., the assessee, is a private limited company and had been the managing agents of several companies.
(3.) In each of the assessment years in question the assessee had declared dividends. Such dividend was not less than sixty per cent. of its distributable surplus for the assessment years 1955-56, 1958-59 and 1959-60 and not less than sixty-five per cent. thereof for the assessment year 1960-61 as normally required under Section 23A of the Indian Income-tax Act, 1922. But such declared dividend fell short of the enhanced statutory percentage also laid down by the said Section 23A. Under the said section the enhanced statutory percentage being 100% for the assessment year 1955-56 and 95% for the other assessment years was applicable where the accumulated profits and reserves (including the amounts capitalised from the earlier reserves) representing accumulation of past profits which had not been the subject of an order under Section 23A(1) exceeded either the aggregate of the paid up capital and loan capital or the actual cost of the fixed assets, whichever was the greater.;