Shrimal, J. - (1.) THE Income-tax Appellate Tribunal, Jaipur Bench, at the instance of the assessee has referred the following two questions, for the opinion of this court, arising out of its consolidated order, dated October 7, 1972, in Income-tax Appeals Nos. 248, 1546 and 989 of 1969-70 and cross-objection No. 42 of 1969-70 : " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amounts transferred from the general reserves of the two companies for writing off a part of their respective goodwills, continued to be accumulated profits in the hands of those companies ?
(2.) WHETHER, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amounts of Rs. 1,75,810 and Rs. 19,675, being loans advanced to the assessee by M/s. Jaipur Mineral Development Syndicate Pvt. Ltd. and M/s. Udaipur Mineral Development Syndicate Pvt. Ltd., were liable to be assessed in the hands of the assessee as dividends under Section 2(6A)(e) of the Indian Income-tax Act, 1922 ? " 2. The facts in a nutshell necessary for the decision of this reference Shri Harish Chandra Golecha is a shareholder and director of M/s. Jaipur Mineral Development Syndicate Pvt. Ltd. and of M/s. Udaipur Mineral Development Syndicate Pvt. Ltd., hereinafter referred to as "JMDS" and " UMDS ", respectively. Harish Chandra Golecha is also the karta of the joint Hindu family-assessee. The assessment years are 1960-61 and 1963-64. The assessee owed under the following accounts to the above-noted corporations for the assessment year 1960-61. 1. JMDS Pvt. Ltd. Rs. 1.75,810. 2. UMDS Pvt. Ltd. Rs. 19.675. The authority assessing the petitioner was of the opinion that the companies possessed sufficient amounts by way of accumulated profits for the assessment year 1960-61, though they were not shown in their respective balance-sheets and both the companies created secret reserves by writing off a part of their goodwill by transferring amounts from their general reserve account, that apart from the accumulated profits, they also made provision for taxation as well as for reserves and surpluses, and, thus, the loans advanced by the companies to the HUF represented dividends within the meaning of s, 2(6A)(e) of the Indian I.T. Act, 1922, and proceeded to include these amounts in the total income of the assessee. He assessed the HUF on the total income of Rs. 3 63 591. On an appeal having been filed, the AAC accepted The plea of the assessee and held that the companies were justified in reducing the value of their respective goodwill by transferring the amounts from their reserves and surpluses and the surpluses were no longer available as arcumulated profits for distribution. He also held that the provision for taxation were made on proper basis, considering the approximate tax liability of the company and as such the amount was not available for distribution and, therefore, the provisions of Section 2(6A)(e) were not applicable. He accepted the appeal and directed the deletion of the amounts of Rs. 1,75,810 and Rs. 19,675 from the total incomes of the assessee. Aggrieved by the above-noted order the ITO filed an appeal before the Income-tax Appellate Tribunal and the assessee also filed cross-objection No. 42 of 1969-70 as well as Appeal No. 1546 of 1969-70 against the same order. While accepting the appeal filed by the ITO, the Tribunal held that the two companies were possessed of accumulated profits far in excess of the amount of loans advanced by them to the assessee and the ITO had rightly treated this amount as income of the assessee by applying the provisions of Section 2(6A)(e) of the Indian I.T. Act, 1922. While dealing with the cross-objection, the Tribunal held that the ITO had no intention of changing the status of the assessee from an HUF to an individual. It was also held that the I.T. authority had valid jurisdiction in proceeding to assess the assessee for the assessment year 1960-61 under Section 23(3) of the Indian I.T. Act, 1922, and the mere misdescription in the assessment order as under Section 143(3) does not take away its legal validity. With these observations the cross-objection was dismissed and the appeal No. 1546 of 1969-70 was also dismissed as being barred by limitation.
(3.) FOR the assessment year 1963-64, the ITO, C.C. II, Jaipur, held that JMDS Pvt. Ltd. possessed accumulated profits and as such Rs. 1,63,140 received by the HUF could be deemed a dividend within the meaning of Section 2(6A)(e) of the Indian I.T. Act, 1922. He further held that the house situated at Bhagwandas Road, C-Scheme, Jaipur, standing in the name of Chandrakanta Devi also belonged to the HUF and assessed the assessee on a total income of Rs. 2,85,923. Vide order dated March 28, 1968, the appeal filed by the assessee before the AAC succeeded and, thereafter, the ITO filed Appeal No. 989/1969-70. As regards the house property, the Appellate Tribunal held that by a separate consolidated order I.T. Appeals Nos. 249 and 250 of 1969-70 dated September 20, 1971, the Tribunal had already held that the income from the house should be included in the, total income of the assessee. The Appellate Tribunal held that the company at the relevant time had written off Rs. 12 lakhs out of its reserves and surplus towards the reduction in the value of its goodwill from Rs. 13,25,000 and these amounts were secret reserves. Besides that, the provision for taxation and various other substantial provisions were also created by the company out of its proceeds and as such the company was possessed of sufficient accumulated profits so as to render the advance in question made by the company to the joint Hindu family as dividends under Section 2(6A)(e) of the Indian I.T. Act, 1922. While disposing of the appeal, the Tribunal also observed that the matter required further scrutiny and it would be open to the ITO to consider whether the entire amount or an appropriate amount out of it could be considered as dividends under Section 2(6A)(e) of the Indian I.T. Act, 1922. Aggrieved by the above-noted consolidated order, dated October 7, 1971 of the Income-tax Appellate Tribunal, Jaipur Bench, the assessee, Golecha (HUF), Jaipur, filed two applications before the Tribunal to draw up a statement of the case and refer the questions of law arising out of the joint order of the Tribunal. The Appellate Tribunal prepared the statement of the case and referred the above-noted two questions. ;