Capitalisation of pre-operative expenses for depreciation was a referable question of law; Challapalli Sugars did not settle the issue.

Pre-operative expenses for depreciation purposes under section 32 of the Income-tax Act, 1961 raised a referable question of law because the Tribunal's direction to capitalise those expenses involved a legal issue fit for reference under section 256(2). The Rajasthan HC held that reliance on Challapalli Sugars Ltd. v. CIT was misplaced, as that decision was confined to the concept of actual cost and did not finally resolve the present controversy. On that basis, the Court concluded that the Tribunal was wrong to reject the request for reference and that the application was maintainable.

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Issues: Whether a referable question of law arose from the Tribunal's refusal to make a reference on the treatment of pre-operative expenses for depreciation purposes, and whether the controversy was concluded by the decision in Challapalli Sugars Ltd. v. CIT.

Analysis: The assessment year was 1977-78, and the dispute concerned capitalisation of pre-operative expenses and depreciation allowance under section 32 of the Income-tax Act, 1961. The Court held that the reliance on Challapalli Sugars Ltd. was misplaced because that decision proceeded on the concept of actual cost and did not conclude the present controversy. Since the question whether the Tribunal was right in directing capitalisation of the expenses for depreciation allowance raised a legal issue, the application under section 256(2) was maintainable.

Conclusion: A referable question of law arose, and the Tribunal was wrong in rejecting the request for reference.

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