Reference under tax law turns on whether a question truly arises as law; factual and consequential issues are not referable.

In a reference application under section 256(2), a question on disallowance of entertainment expenditure under section 37(2B) was treated as a question of law because the statutory effect of the non obstante provision directly arose from the Tribunal's order, so it was directed to be referred. The question on extra profit and the proviso to section 145(1) was treated as a finding of fact and therefore not referable. A third, consequential question was held unnecessary because it was either covered by the first question or shared the same defect as the second. Partial relief was thus confined to the first question.

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Issues: (i) whether the question relating to disallowance of entertainment expenditure under section 37(2B) of the Income-tax Act, 1961 arose as a question of law for reference under section 256(2); (ii) whether the question relating to extra profit and the applicability of the proviso to section 145(1) was a referable question of law or a finding of fact; (iii) whether the third question, being consequential in nature, required separate reference.

Issue (i): whether the question relating to disallowance of entertainment expenditure under section 37(2B) of the Income-tax Act, 1961 arose as a question of law for reference under section 256(2).

Analysis: The plain language of section 37(2B), introduced with a non obstante clause, made the legal effect of that provision directly relevant to the Tribunal's order. The proposed question was, therefore, not merely factual but involved a legal issue arising from the appellate order.

Conclusion: The question was held to be a question of law and was directed to be referred; the result is in favour of the Revenue.

Issue (ii): whether the question relating to extra profit and the applicability of the proviso to section 145(1) was a referable question of law or a finding of fact.

Analysis: The Tribunal's conclusions on this aspect were treated as findings of fact. Since the issue turned on appreciation of those findings, it did not satisfy the requirement of a question of law arising from the order.

Conclusion: The question was held not to be referable under section 256(2); the result is against the Revenue.

Issue (iii): whether the third question, being consequential in nature, required separate reference.

Analysis: To the extent the third question duplicated the first, it was already covered by the first question. To the extent it was consequential upon the second, it shared the same defect as the second question and did not independently arise from the Tribunal's order.

Conclusion: The third question was held not to require separate reference; the result is against the Revenue.

Final Conclusion: The application was allowed only to the extent that the first question was directed to be referred, while the remaining questions were refused. The applicant obtained only partial relief.

Ratio Decidendi: In a reference application, only a question that truly arises as a question of law from the Tribunal's order is referable; findings of fact and merely consequential questions that do not independently arise are not.

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