Genuine lease-back transaction and no referable question of law where findings turned on factual appreciation

A purchase and lease-back of a boiler was examined for genuineness and alleged colourable tax avoidance. The Tribunal treated the transaction as genuine on surrounding facts, including payment by account payee cheque, intimation of sale to the boiler authority, endorsement of ownership change in official records, and the assessee's existing leasing business, and held that the anti-avoidance principle in McDowell did not apply. The High Court held that the controversy was one of factual appreciation and did not give rise to any independent referable question of law under section 256(2), so the reference application was not maintainable.

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Issues: Whether the questions proposed by the Revenue under section 256(2) of the Income-tax Act, 1961, gave rise to any referable question of law, including the assessee's entitlement to depreciation on the boiler and the applicability of the principle against tax avoidance by colourable device.

Analysis: The transaction of purchase and lease-back of the boiler was examined on the basis of the surrounding facts, including payment by account payee cheque, intimation of sale to the boiler authority, endorsement of change of ownership in official records, and the assessee's existing leasing business. On these facts, the Tribunal held that the transaction was genuine and that the principle in McDowell did not apply. The High Court found that the controversy turned essentially on factual appreciation and that no independent question of law arose from the Tribunal's findings.

Conclusion: The reference application did not disclose any referable question of law and was liable to be dismissed.

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