Royalty reference questions became academic after refund and non-payment, so the court declined to answer them on merits.

Where royalty amounts had not been paid or had been refunded, the High Court treated the reference questions on their capital or revenue character as purely academic. It noted that expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922 requires actual irrevocable spending or payment, and that subsequent events had removed any real controversy affecting the parties' rights. In those circumstances, the court may decline to answer a reference that no longer resolves an existing dispute. The questions were therefore returned unanswered, leaving the merits of the royalty payments' allowability and character undecided.

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Issues: Whether the reference questions, which had become academic because the royalty amounts had either not been paid or had been refunded, should still be answered on the merits or be returned unanswered.

Analysis: The amounts in dispute were no longer outgoings in the real sense, because expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922 requires an actual irrevocable spending or payment. In the changed factual situation brought about by subsequent events, the controversy over whether the royalty was capital or revenue expenditure no longer affected the parties' rights. A court may decline to answer a referred question that has become purely academic or unnecessary for resolving the real dispute.

Conclusion: The reference questions were declined as academic and were returned unanswered at the assessee's request.

Final Conclusion: The matter was disposed of without any adjudication on the merits of the allowability or character of the royalty payments.

Ratio Decidendi: A court may refuse to answer a reference question under the Income-tax Act where subsequent events render the question purely academic and no actual expenditure remains in issue.

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