Reference on taxability of asset-sale surplus must be directed when facts disclose a debatable question of law.

A question of law arose on whether the excess realised on transfer of assets over written down value could lawfully be treated as taxable income. The text states that where the facts found disclose a debatable legal issue, the Tribunal's refusal to make a reference does not end the matter. In such circumstances, the High Court, acting under section 66(2), is required to direct the Tribunal to state a case and refer the reframed question for opinion. The matter was therefore to proceed through the statutory reference process, leaving the taxability question to be answered on reference.

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Issues: Whether the High Court ought to have directed the Income-tax Appellate Tribunal to state a case and refer the reframed question as to whether the sum of Rs. 1,30,785 could in law be treated as income, profits and gains under the facts and circumstances of the case.

Analysis: The question whether the amount realised on transfer of the assets, and particularly the excess of sale proceeds over the written down value, could be treated as taxable income involved a legal issue and was not merely one of fact. The refusal of the Tribunal to make a reference did not conclude the matter where a question of law arose from the facts found. In such a situation, the High Court, in exercise of jurisdiction under section 66(2), was required to require the Tribunal to state a case and refer the question for opinion.

Conclusion: The High Court should have directed a reference of the reframed question; the assessee succeeded on the reference issue.

Final Conclusion: The matter was sent back for the statutory reference process, and the legal question on taxability was left to be answered by the High Court on reference.

Ratio Decidendi: Where the facts disclose a debatable question of law arising from an assessment dispute, the High Court must, on an appropriate application, require the Tribunal to state a case and refer that question for decision.

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