Reference on question of law allowed where receipts from directors and shareholders were treated as non-deposits under tax law.

The High Court held that a question of law arose from the Tribunal's order for reference under section 256(2) of the Income-tax Act, 1961. The Tribunal had treated sums received from directors and shareholders as not constituting deposits within section 40A(8) and, on that basis, had declined disallowance of interest. On those facts, the Court found the matter fit for reference and directed the Tribunal to state the case and refer the question of law for opinion.

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Issues: Whether, on the facts and in the circumstances of the case, a question of law arose from the Tribunal's order so as to warrant a reference under section 256(2) of the Income-tax Act, 1961.

Analysis: The Tribunal had held that the sums received from the directors and shareholders did not amount to deposits within the meaning of section 40A(8) of the Income-tax Act, 1961 and that no disallowance of interest was called for. On that basis, the Court found that the proposed question of law did arise out of the Tribunal's order and that the matter was fit to be referred for opinion.

Conclusion: The application under section 256(2) was allowed and the Tribunal was directed to state the case and refer the question of law to the Court.

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