Reference on debatable tax deduction issue allowed where retrospective amendment required consideration of cash compensatory support treatment.

A reference under section 256(2) was held unwarranted on the scrap and waste accounting issue because the department had long accepted the valuation method and the Tribunal had accepted it in earlier years, leaving no arguable question of law. On cash compensatory support, however, the treatment of the amount deposited with IDBI for deductions under sections 32A and 32B, in light of the retrospective amendment to section 28, was treated as a debatable legal question. The unconsidered statutory amendment required adjudication, so reference was directed on that issue.

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Issues: (i) Whether the system of accounting adopted for scrap and waste generated in the manufacturing process raised any arguable question of law for reference under section 256(2). (ii) Whether the question relating to cash compensatory support and its treatment for the purposes of deductions under sections 32A and 32B, in the light of the retrospective amendment to section 28, constituted a referable question of law.

Issue (i): Whether the system of accounting adopted for scrap and waste generated in the manufacturing process raised any arguable question of law for reference under section 256(2).

Analysis: The accounting method for scrap had been accepted by the department for several years, and the Tribunal had also accepted the valuation of closing stock of scrap in earlier years. On that footing, no arguable legal controversy was found on this question.

Conclusion: No question of law arose on the first issue.

Issue (ii): Whether the question relating to cash compensatory support and its treatment for the purposes of deductions under sections 32A and 32B, in the light of the retrospective amendment to section 28, constituted a referable question of law.

Analysis: The controversy as to whether the amount deposited with the IDBI was deductible under sections 32A and 32B was treated as a debatable question. The effect of the retrospective amendment to section 28 had not been considered by the Tribunal, and its impact on the deductions in question required adjudication.

Conclusion: A question of law arose on the second issue, and reference was directed.

Final Conclusion: The application succeeded only to the extent that the second question was directed to be referred, while the first question was declined.

Ratio Decidendi: A reference under section 256(2) is warranted where the issue presents a debatable question of law requiring consideration of an unaddressed statutory amendment, but not where the matter is settled by consistent factual acceptance and no arguable legal point arises.

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