Binding precedent in tax references: prior rulings governed interest allowance and loss on sale of development loan claims.

The commentary explains that, in a reference under section 256(2), the High Court follows binding precedent on identical or closely similar questions. On the assessee-company's claim for allowance of interest in the assessment year 1966-67, the earlier decision on the same issue was followed and the question was answered against the assessee. On the separate issue of loss on sale of U.P. State Development Loan, the Court applied its earlier ruling, which had followed the Supreme Court on the same point, and accepted the assessee's claim. The reference was thus disposed of by applying settled law to each question in accordance with existing precedent.

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Issues: (i) Whether the assessee-company was entitled to allowance of interest in the assessment year 1966-67. (ii) Whether the Tribunal was justified in allowing the loss on sale of U. P. State Development Loan.

Issue (i): Whether the assessee-company was entitled to allowance of interest in the assessment year 1966-67.

Analysis: The issue was covered by an earlier decision concerning the same assessee, which had answered the identical question against the assessee and in favour of the Department. The Court followed that binding precedent.

Conclusion: The question was answered in the negative, in favour of the Revenue and against the assessee.

Issue (ii): Whether the Tribunal was justified in allowing the loss on sale of U. P. State Development Loan.

Analysis: The issue was governed by an earlier decision of the Court in a similar matter, which followed the Supreme Court decision on the same legal point. The Court applied that precedent and accepted the assessee's claim.

Conclusion: The question was answered in the affirmative, in favour of the assessee and against the Department.

Final Conclusion: The reference was disposed of by answering one question for the Revenue and the other for the assessee.

Ratio Decidendi: A reference under section 256(2) must be answered by following binding precedent on identical or closely similar questions, and the Court will adopt the earlier settled view on the same legal issue.

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