Suhas Chandra Sen, J. - (1.) The Tribunal has referred the following questions of law to this court under Section 256(2) of the Income-tax Act, 1961 ("the Act") : "For the assessment years 1964-65 and 1965-66 : 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the share capital of Rs. 4 lakhs (rupees four lakhs) only issued to James Mackie and Sons Ltd. cannot be said to have been brought into existence by creating or increasing (by revaluation or otherwise) any book asset of the assessee-company within the meaning of Explanation 1 of Rule 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964.
(2.) If the answer to question No. 1 is in the negative, then whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Income-tax Officer did not have jurisdiction to pass the rectification order for excluding the above sum of Rs. 4,00,000 (rupees four lakhs) in the computation of capital for the purpose of assessment under the Companies (Profits) Surtax Act ? For the assessment year 1967-68 : 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the share capital of Rs. 4,00,000 (rupees four lakhs) issued to James Mackie and Sons Ltd. cannot be said to have been brought into existence by creating or increasing (by revaluation or otherwise) any book asset of the assessee-company within the meaning of Explanation 1 to Rule 2 of the Second Schedule to the Companies (Profits) Surtax Act. 2. If the answer to question No. 1 is in the negative, then whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Income-tax Officer did not have jurisdiction to pass the rectification order for excluding the above sum of Rs. 4,00,000 (rupees four lakhs) in the computation of capital for the purpose of assessment under the Companies (Profits) Surtax Act.
(3.) Whether, on the facts and in the circumstances of the case, and on a correct interpretation of the provisions of Section 80E(1) of the Income-tax Act, 1961, and Rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, the Tribunal was justified in holding that there can be two interpretations of the said Rule 4 of the Second Schedule and in that view cancelling the rectification order of the Income-tax Officer in proportionately reducing the capital of the assessee as eight per cent. of the profit from priority industry carried by the assessee-company was not included in its total income." 2. So far as the first two questions for the assessment years 1964-65 and 1965-66 are concerned, the facts found by the Tribunal are that the asses-see-company had issued 4,000 shares of Rs. 100 each to James Mackie and Sons Ltd. The consideration for the issue of the shares found by the Tribunal was that the assessee, by an agreement with James Mackie and Sons Ltd., had been permitted to use Mackie's goodwill in the textile machinery market in India during the period of three years from the date of allotment of shares. The contention before the Tribunal was that the assessee took the benefit of Mackie's goodwill in the textile machinery market in India and had also obtained permission to use Mackie's machine designs, to describe machines of such designs as being of the Mackie type, and generally to identify itself with the reputation and products of Mackie. 3. The Tribunal held that these shares which were issued in consideration of the transfer of goodwill by James Mackie and Sons Ltd. apparently was not an increase of capital by revaluation of the assets.;