Factual findings on gift genuineness and interest deductibility did not raise a referable question of law

The genuineness of gifts credited through book entries and the allowability of interest expenditure were treated as factual questions. The lower authorities rejected the gifts as not genuine and disallowed the related interest, while the Tribunal accepted that the gifts were genuine and that the borrowed amounts were used in the firm's business, making the interest deductible. The High Court held that these determinations were pure findings of fact and did not give rise to any referable question of law for a reference under section 256 of the Income-tax Act, 1961. The refusal to state a case was therefore justified.

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Issues: Whether the Tribunal's refusal to state a case under section 256(1) of the Income-tax Act, 1961, was justified on the ground that no question of law arose from its order, and whether the findings regarding genuineness of the gifts and allowability of interest expenditure gave rise to any referable question of law.

Analysis: The dispute centred on interest claimed as a deduction on amounts standing in the names of minors, where the amounts had been credited through book entries as gifts made by partners. The lower authorities treated the gifts as not genuine and disallowed the interest, while the Tribunal accepted the gifts as genuine and held that the amounts were in fact used by the firm for its business, making the interest an allowable business expense. The Court held that these conclusions were all findings of fact. In such circumstances, no question of law arose from the Tribunal's order for reference under section 256(2) of the Income-tax Act, 1961.

Conclusion: The application under section 256(2) of the Income-tax Act, 1961, was rightly rejected, as the matter involved only factual findings and no referable question of law.

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