Referable question of law arises when Tribunal decides whether an assessment is erroneous and prejudicial to Revenue's interests.

Where the Tribunal decides the legality of a revision order under section 263 of the Income-tax Act on whether an assessment is erroneous and prejudicial to the interests of the Revenue, the resulting issue constitutes a referable question of law under section 256(2). The High Court therefore treated the Revenue's proposed question as fit for reference and directed the Tribunal to state the case and refer the framed question.

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Issues: Whether a question of law arose for reference on the Tribunal's finding that the assessments for the relevant assessment years were not erroneous or prejudicial to the interests of the Revenue.

Analysis: The petition under section 256(2) of the Income-tax Act, 1961 sought reference of the Tribunal's decision arising from proceedings under section 263 of the Act. The Court found that the Tribunal had gone into the merits and recorded a conclusion on the core legal issue whether the assessments could be said to be erroneous and prejudicial to the interests of the Revenue. In these circumstances, the question proposed by the Revenue was a proper question of law fit for reference.

Conclusion: The question of law was directed to be referred to the Court in favour of the Revenue.

Final Conclusion: The petition succeeded and the Tribunal was required to state the case and refer the question framed by the Court.

Ratio Decidendi: Where the Tribunal decides the legality of an order under section 263 of the Income-tax Act, 1961 on the question whether the assessment is erroneous and prejudicial to the interests of the Revenue, the resulting question of law is referable under section 256(2) of the Act.

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