Referable question of law under income tax reference procedure fails where assessment method under proviso to accounting rules is proper.

Section 66(3) of the Indian Income Tax Act, 1922 permitted a direction to state a case only where the Commissioner wrongly refused to refer a genuine question of law. The assessee had to formulate the question under Section 66(2), and the Court treated the finding that no regular method of accounting had been employed, and that the accounts did not permit proper deduction of income, as a binding finding of fact. On that footing, the only issue was whether the Income Tax Officer's assessment method was unlawful. As the officer assessed income by taking the book capital, allowing a deduction for alleged loss of part of that capital, and charging a fair rate of interest on the balance, the method was held proper and no referable question of law arose.

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Issues: Whether any referable question of law arose so as to justify a direction under Section 66(3) of the Indian Income Tax Act, 1922, where the Income Tax Officer assessed income under the proviso to Section 13 on the footing that no regular method of accounting had been employed and the accounts did not permit proper deduction of income.

Analysis: The statutory scheme required the assessee to formulate the question to be referred under Section 66(2), and an application under Section 66(3) lay only where the Commissioner wrongly refused to state a case on the ground that no question of law arose. The finding that no regular method of accounting had been employed, and that the accounts were such that income, profits and gains could not properly be deduced, was treated as a finding of fact binding on the Court. On that footing, the remaining inquiry was limited to whether the method adopted by the Income Tax Officer was unlawful. The assessment was made by taking the capital shown in the books, allowing a deduction for alleged loss of part of that capital, and charging a fair rate of interest on the balance. That was regarded as a proper method under the proviso to Section 13, and no question of law was shown to arise.

Conclusion: No direction to state a case was warranted, and the application failed.

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