High Court directs Tax Tribunal to refer deduction question under s. 80J

The High Court allowed the application under s. 256(2) of the I.T. Act, 1961, directing the Income-tax Appellate Tribunal to refer a question of law regarding the computation of deduction u/s. 80J of the I.T. Act, 1961. The High Court held that the question posed was indeed a substantial question of law, emphasizing the need to address the validity of rule 19A(3) and the Tribunal's jurisdiction. Previous decisions on the vires of the rule and remand orders were considered but deemed not determinative in this case. Ultimately, the High Court instructed the Tribunal to refer the question to the court for resolution.

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Issues:
Application under s. 256(2) of the I.T. Act, 1961 to refer a question of law arising out of the order of the Appellate Tribunal regarding the computation of deduction u/s. 80J of the I.T. Act, 1961.

Analysis:
The High Court was approached with an application under s. 256(2) of the I.T. Act, 1961, to refer a question of law arising from the order of the Appellate Tribunal. The question pertained to the application of rule 19A(3) in computing the deduction allowable u/s. 80J of the I.T. Act, 1961. The Tribunal had directed the ITO to recompute the deduction without reference to rule 19A(3) of the Income-tax Rules, 1962. The High Court noted that the question posed was indeed a question of law arising from the order of the Tribunal.

The High Court considered two main reasons for not making the reference initially. Firstly, it was argued that the vires of rule 19A(3) had already been considered by the Calcutta High Court and the Madras High Court, both holding the rule to be ultra vires. However, the High Court held that until the validity of the sub-rule is finally determined by the High Court, the question remains a substantial question of law. Secondly, it was contended that under a previous decision, an order of remand could not be made the subject of a reference. The High Court expressed doubts about the applicability of this decision to the current case, as the matter had been remitted only for a routine arithmetical calculation without reference to the rule in question.

Ultimately, the High Court directed the Income-tax Appellate Tribunal to state the case and refer the question of law to the court. The court emphasized that the question posed contained substantial legal issues, including the validity of the rule in question and the Tribunal's jurisdiction to determine its vires. The High Court left the final determination of the applicability of previous decisions to the hearing of the reference. The application was allowed, and the Tribunal was instructed to refer the question to the High Court in accordance with the law.

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