Pure question of law on provident fund deduction held fit for reference despite no prior challenge before the tax authority.

The controversy concerned the correct legal effect of section 36(1)(iv) of the Income-tax Act, 1961, in relation to a deduction claimed for employees' contributory provident fund. The Court held that the fact that the point had not been specifically raised before the Commissioner of Income-tax did not bar reference where determination of the issue was necessary to decide the assessee's claim. It treated the Revenue's proposed question as a pure question of law under section 256(2) and found it fit for reference, directing the Tribunal to refer the question to the High Court.

---

---

Issues: Whether the question proposed by the Revenue under section 256(2) of the Income-tax Act, 1961, was a question of law requiring reference to the High Court.

Analysis: The Court found that the controversy turned on the correct legal effect of section 36(1)(iv) of the Income-tax Act, 1961, in relation to the deduction claimed in respect of the employees' contributory provident fund. The reference was declined below mainly on the ground that the point had not been raised before the Commissioner of Income-tax, but the Court held that the absence of a specific challenge at that stage did not prevent the legal issue from being referred where its determination was necessary for deciding the assessee's claim. The Court concluded that the proposed question was a pure question of law fit for reference.

Conclusion: The petition for reference was allowed and the Tribunal was directed to refer the question of law to the High Court.

---