Reference jurisdiction under income-tax law turns on questions arising from the Tribunal's order, while security deposit income remained referable.
In a reference application under Section 66 of the Indian Income-tax Act, 1922, only questions arising from the Tribunal's order could be referred, so additional questions not set out before the Tribunal could not be introduced for the first time in the High Court. The second question was rejected because the Tribunal had not decided it and no referable issue can be framed on a matter absent from the order under challenge. By contrast, the question whether a security deposit received to secure return of empty bottles constituted assessable income under Section 10 was treated as a pure question of law and was directed to be stated.
Issues: (i) Whether additional questions not permitted before the Tribunal could be urged in an application under Section 66(2) of the Indian Income-tax Act, 1922. (ii) Whether the second question and the security deposit issue arose from the Tribunal's order so as to warrant a reference. (iii) Whether the question whether the security deposit received for ensuring return of empty bottles was assessable income under Section 10 of the Income-tax Act, 1922, raised a referable question of law.
Issue (i): Whether additional questions not permitted before the Tribunal could be urged in an application under Section 66(2) of the Indian Income-tax Act, 1922.
Analysis: Rule 12 of the Appellate Tribunal Rules, 1946, was held not to apply to applications under Section 66(1) of the Act through Rule 36. The Tribunal was therefore right in declining to permit the assessee to urge questions not set out in the original reference application. Questions raised for the first time in the High Court, though connected with the same factual background, could not be entertained.
Conclusion: The additional questions could not be urged in the reference application and were not liable to be referred.
Issue (ii): Whether the second question and the security deposit issue arose from the Tribunal's order so as to warrant a reference.
Analysis: On examining the Tribunal's orders, the Court found that the second question had nowhere been decided by the Tribunal. A question of law must arise from the order sought to be challenged, and if the Tribunal has not dealt with it, no reference can be directed on that point.
Conclusion: The second question did not arise from the Tribunal's orders and was rejected as a referable question.
Issue (iii): Whether the question whether the security deposit received for ensuring return of empty bottles was assessable income under Section 10 of the Income-tax Act, 1922, raised a referable question of law.
Analysis: The Court held that the first question plainly raised a question of law. It concerned the legal character of the receipt and whether such security deposit constituted income assessable under Section 10. Applying the principle that a question is referable when the facts found are tested against the legal character of the receipt, the Court held that the question deserved reference.
Conclusion: The first question was a valid question of law and the Tribunal was directed to state the case on that question.
Final Conclusion: The reference application succeeded only in respect of the first question, while the additional questions were excluded or held not to arise.
Ratio Decidendi: In a reference application under Section 66 of the Indian Income-tax Act, 1922, only questions arising from the Tribunal's order can be referred, and additional questions not permitted before the Tribunal cannot be introduced for the first time in the High Court.