Finding of fact on diversion of borrowed funds defeated reference and left sections 80V and 182(4) inapplicable.

Borrowed bank funds were found, on examination of the partners' accounts, to have been diverted for personal use, and that conclusion was treated as a finding of fact rather than a debatable legal issue. On that basis, no question of law arose for reference under section 256(2) of the Income-tax Act. Section 80V was inapplicable because its benefit depended on borrowed money being used for payment of taxes, which was not established. Section 182(4) was also held not to be attracted. The application was dismissed.

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Issues: Whether a question of law arose for reference under section 256(2) of the Income-tax Act, 1961 on the Tribunal's finding that borrowed bank funds had been diverted by the partners for personal use, and whether sections 80V and 182(4) of the Income-tax Act, 1961 were applicable.

Analysis: The Tribunal had examined the partners' accounts, including the debit and credit balances, and found as a fact that the debit balance had increased and that the monies borrowed from the banks were used by the partners for their personal purposes. That finding was based on appreciation of accounts and was treated as a finding of fact. On that basis, no debatable question of law arose from the Tribunal's conclusion. Section 80V could apply only where the borrowed money was used for payment of taxes, but the factual finding was that the money was used for personal use, so the statutory condition was not satisfied. The Court also found that section 182(4) was not attracted.

Conclusion: No question of law arose for reference under section 256(2), and the application was dismissed.

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