Scope of reference under the Income-tax Act cannot be exceeded; High Court must answer only the referred question.

On a reference under the Income-tax Act, the High Court was required to answer only whether the Government of Orissa's penalty deduction was admissible in computing business income under section 10(1). Instead, it examined section 10(2)(xv) and decided the matter on the footing that the amount was not allowable business expenditure. That was beyond the scope of the referred question and a clear misdirection. The proper approach was to confine the answer strictly to the question referred. The judgment was set aside and the reference remitted for decision on the correct basis.

---

---

Issues: Whether the High Court, on a reference under the Income-tax Act, could travel beyond the question referred to it and decide the deductibility of the penalty under a different provision.

Analysis: The reference made by the Tribunal required the High Court to answer only whether the amount deducted by the Government of Orissa as penalty was an admissible deduction in the computation of business income under section 10(1). Instead, the High Court examined section 10(2)(xv) and decided the case on the footing that the amount was not an allowable business expenditure. That approach was beyond the scope of the referred question and amounted to a clear misdirection. The proper course was to confine the answer to the question actually referred and not to deal with an issue that had not been placed before it.

Conclusion: The High Court's judgment was set aside and the matter was sent back for answering the reference on the correct basis.

---