Erroneous factual premise in appellate order justified remand; reference on surtax adjustment could not be answered on flawed facts.

An appellate order based on a demonstrable factual mistake cannot support an answered reference where the Tribunal proceeded on the assumption that the issue had already been decided in the assessee's favour in earlier years, when that earlier decision actually related to another company in the same group. Because the factual foundation of the Tribunal's order was erroneous, the reference court declined to answer the surtax question on adjustment of secured loans and provision for taxation against investments. The matter was remitted to the Tribunal for fresh disposal on the correct facts and in accordance with law, without any determination of the substantive surtax issue.

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Issues: Whether the reference question on adjustment of secured loans and provision for taxation against investments under rule 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 could be answered when the Tribunal had proceeded on a factual mistake and whether the appeals should be sent back for fresh disposal.

Analysis: The Tribunal's appellate order proceeded on the mistaken assumption that the issue had already been decided in favour of the assessee in earlier years of the same assessee. The statement of the case showed that the earlier decision actually related to another company in the same group and not to the assessee before the court. A statement of the case cannot improve upon or alter the factual basis of the appellate order. Since the Tribunal had disposed of the appeal on an erroneous factual premise, the reference could not be answered on the basis of that flawed order.

Conclusion: The court declined to answer the reference and directed the Income-tax Appellate Tribunal to restore the appeals and decide them afresh in accordance with law.

Final Conclusion: The matter was sent back to the Tribunal for reconsideration on the correct factual basis, and no decision on the substantive surtax question was rendered.

Ratio Decidendi: Where an appellate order rests on a demonstrable factual mistake, the reference court may decline to answer the referred question and remit the matter for fresh adjudication on the correct facts.

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