Taxability of refund interest, accrual year, and accounting basis held to raise referable questions of law.

Questions on the taxability of interest received on an estate duty refund, the year in which that interest accrued for taxation, and the assessee's accounting basis were held to raise referable questions of law. The High Court noted that the proposed issues included whether the receipt was capital or revenue in nature, whether it was taxable in one year or spread over the accrual period, and whether the accounts were maintained on cash or mercantile basis. The Tribunal's refusal to state the case on these matters was therefore erroneous, and the application for reference was allowed with directions to refer the identified questions.

---

---

Issues: Whether the Tribunal was justified in refusing to state the case on questions concerning the taxability of interest on estate duty refund, the year of taxation of that interest, and the assessee's method of accounting.

Analysis: The questions proposed raised arguable issues of law, including whether the interest constituted a capital receipt or revenue receipt, whether it was taxable in a single year or had to be spread over the period of accrual, and whether the assessee maintained its accounts on cash or mercantile basis. The Court found that the Tribunal's refusal to refer those questions was erroneous, as the issues were referable questions of law arising from the Tribunal's order.

Conclusion: The application for reference was allowed and the Tribunal was directed to state the case and refer the identified questions of law.

Ratio Decidendi: Where the proposed questions involve debatable issues on the legal character of a receipt, the time and manner of accrual, or the accounting basis adopted, and arise from the Tribunal's order, refusal to make a reference is unsustainable under section 256(2) of the Income-tax Act, 1961.

---