Substantial questions of law on works contract and surtax perquisite treatment required reference to the High Court.

Whether an assessee's activities amounted to a works contract outside the section 24AA notification, and whether ONGC's surtax payment could be taxed as a perquisite or benefit under section 28(iv), were treated as substantial questions of law requiring reference. The High Court found that both issues called for judicial consideration and could not be refused at the threshold. On that basis, the Tribunal's rejection of the reference application was erroneous, and it was directed to state the case and refer both questions to the High Court for opinion.

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Issues: (i) Whether the assessee's activities were in the nature of a works contract and outside the scope of the notification issued under section 24AA of the Companies (Profits) Surtax Act, 1964; (ii) Whether the payment of surtax by ONGC was rightly added as a perquisite or benefit under section 28(iv) of the Income-tax Act, 1961; (iii) Whether the Tribunal was justified in refusing to draw up a statement of case and refer the questions of law to the High Court.

Issue (i): Whether the assessee's activities were in the nature of a works contract and outside the scope of the notification issued under section 24AA of the Companies (Profits) Surtax Act, 1964

Analysis: The dispute turned on the nature of the assessee's engagement with ONGC and whether the exemption notification applied. The court treated this as a question requiring judicial determination rather than a matter suitable for rejection at the threshold.

Conclusion: The issue raised a substantial question of law and could not be rejected without reference.

Issue (ii): Whether the payment of surtax by ONGC was rightly added as a perquisite or benefit under section 28(iv) of the Income-tax Act, 1961

Analysis: The taxability of ONGC's payment of surtax as a perquisite or benefit involved the legal character of the payment and its treatment under the Income-tax Act. The court held that this question also warranted consideration on reference.

Conclusion: The issue raised a substantial question of law and required reference to the High Court.

Issue (iii): Whether the Tribunal was justified in refusing to draw up a statement of case and refer the questions of law to the High Court

Analysis: Since both proposed questions were held to be substantial questions of law, the Tribunal's refusal to state the case was found to be erroneous under the reference procedure.

Conclusion: The Tribunal was not justified in rejecting the departmental application for reference.

Final Conclusion: The reference application succeeded and the Tribunal was directed to state the case and refer both questions of law to the High Court for opinion.

Ratio Decidendi: Where the questions proposed are substantial questions of law, the Tribunal must draw up a statement of case and refer them under the statutory reference procedure.

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