Classification of shares as trading or capital: s.66(2) reference unnecessary where dispute rests on factual inferences, not law.

Section 66(2) reference was unnecessary because the Tribunal's determination that the shares were stock in trade rested on factual inferences from the materials before the taxing authorities - conduct of non sale, progressive increase in holdings, management interest, family holdings and timing of returns - and not on an unresolved question of law. Prior assessments treating the shares as trading were not conclusive for later years since each assessment year stands on its own. No omission to consider material facts or pure legal question was shown; refusal to call for a statement of case was upheld.

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Issues: Whether the High Court was obliged to call for a statement of case under section 66(2) of the Income-tax Act, 1961 so as to refer specified questions to the High Court from the Income-tax Appellate Tribunal in respect of the classification of shares as stock-in-trade or capital investment for the assessment year 1949-50.

Analysis: The Tribunal's conclusion as to the classification of the shares was founded on inferences of fact drawn from the materials before the taxing authorities, including the appellants' conduct of not selling the shares, progressive increase in holdings, interest in managing agency, family holdings, and the timing of filing returns after market fluctuations were known. The assessments for earlier years treated the shares as stock-in-trade but each assessment year is complete in itself and prior years' decisions on materials before the taxing authorities are not binding on subsequent years' assessments. The jurisdiction to refer a question under section 66(2) arises where a question of law is involved; a dispute that is essentially one of fact or one that rests on inferences from evidence does not attract the statutory reference. The Tribunal considered the material facts and arrived at a factual conclusion; no omission to consider material facts or pure question of law was shown that would require reference under section 66(2).

Conclusion: The High Court correctly refused to call for a statement of case under section 66(2) of the Income-tax Act, 1961; no question of law requiring reference was made out and the appeal is dismissed against the appellants (i.e., the result is in favour of the Revenue).

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