Substantial question of law test bars certification where precedent settles the issue and the relevant provision has ceased to operate.

Debentures were held not to raise a substantial question of law for certification, in part because the Revenue's relied-on precedent concerned bonus shares and the relevant statutory provision had been omitted from 1 April 1977; the issue was treated as against the Revenue and in favour of the assessee. The amount credited to the dividend reserve account was also treated as covered by existing Supreme Court authority and the assessee's earlier reference, so no further substantial question of law survived. On that basis, the application for certificate was rejected because neither issue warranted further consideration.

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Issues: (i) Whether debentures were includible in the computation of capital under clause (iv) of rule 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964; (ii) Whether the amount credited to the dividend reserve account constituted a reserve within clause (iii) of rule 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964.

Issue (i): Whether debentures were includible in the computation of capital under clause (iv) of rule 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964.

Analysis: The question was found not to raise a substantial question of law warranting further consideration by the Supreme Court. The earlier Bombay decision relied upon by the Revenue was held inapplicable because it concerned bonus shares and not debentures. The provision itself had also been omitted with effect from 1 April 1977, which further reduced the basis for treating the question as one requiring certification.

Conclusion: The issue was answered against the Revenue and in favour of the assessee.

Issue (ii): Whether the amount credited to the dividend reserve account constituted a reserve within clause (iii) of rule 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964.

Analysis: This question was treated as covered by the Supreme Court decision in Vazir Sultan Tobacco Co. Ltd. v. CIT and by the earlier reference involving the same assessee. On that basis, the court held that no further substantial question of law survived for certification.

Conclusion: The issue was answered against the Revenue and in favour of the assessee.

Final Conclusion: The application for certificate was rejected because neither question justified further consideration by the Supreme Court.

Ratio Decidendi: A question cannot be certified as a substantial question of law when the governing issue is already settled by precedent or when the relevant statutory provision has ceased to operate.

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