Deductibility of interest on promissory notes followed binding precedent, while incompetent reference questions were left unanswered.

Interest on 3% Sterling Promissory Notes and 3% Indian Rupee Promissory Notes was held deductible for the relevant assessment years because both questions were governed by the High Court's earlier binding decision on the same point, which the Tribunal had followed; the reference was answered in the assessee's favour on those issues. The Court also noted that it could not answer questions purportedly referred at the assessee's instance when no reference application had been made by it, treating the defect as one of competence and jurisdiction and leaving those questions unanswered.

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Issues: (i) Whether the assessee was entitled to deduction of interest on 3% Sterling Promissory Note for the relevant assessment years. (ii) Whether the assessee was entitled to deduction of interest on 3% Indian Rupee Promissory Note for the relevant assessment years. (iii) Whether the High Court could answer questions referred at the instance of the assessee when no reference application had been made by it.

Issue (i): Whether the assessee was entitled to deduction of interest on 3% Sterling Promissory Note for the relevant assessment years.

Analysis: The question was covered by the High Court's earlier decision on the same issue for different assessment years, which had been followed by the Tribunal. The parties accepted that the earlier decision governed the reference.

Conclusion: The question was answered in the affirmative, in favour of the assessee.

Issue (ii): Whether the assessee was entitled to deduction of interest on 3% Indian Rupee Promissory Note for the relevant assessment years.

Analysis: This issue was also governed by the earlier decision of the High Court and the Tribunal had applied that precedent. The same reasoning controlled the reference.

Conclusion: The question was answered in the affirmative, in favour of the assessee.

Issue (iii): Whether the High Court could answer questions referred at the instance of the assessee when no reference application had been made by it.

Analysis: The Court followed the Supreme Court's ruling that such a question goes to the competence of the reference and, therefore, to the jurisdiction of the High Court to answer it. Applying that authority, the Court declined to express any opinion on the questions improperly referred at the assessee's instance.

Conclusion: The Court did not answer the questions on this issue.

Final Conclusion: The reference was answered in favour of the assessee on the two deductible-interest questions, while the remaining questions were left unanswered for want of jurisdiction.

Ratio Decidendi: A High Court cannot answer a reference question that is incompetent because it was not validly sought by the party at whose instance it is purportedly raised, and an earlier binding decision on the same point must be followed on identical issues.

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