Reference on question of law: High Court must direct a statement of case if the Tribunal's order raises an arguable legal issue.

A question of law arose from the Tribunal's interpretation of clause 13(b) of the trust deed on whether the 1/8th share of income from the properties in schedules B and C was exempt under section 4(3)(i) of the Indian Income-tax Act, 1922. In proceedings under section 66(2), the High Court was required only to see whether the proposed question was reasonably arguable from the Tribunal's order, not to decide the merits of the exemption claim. Refusing to direct a statement of case on that basis was erroneous, and the order declining reference was set aside with directions to proceed on the specified question of law.

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Issues: Whether the High Court was right in refusing to direct the Tribunal to state a case on the question whether the 1/8th share of the income from the properties in schedules B and C was exempt under section 4(3)(i) of the Indian Income-tax Act, 1922.

Analysis: The Tribunal had interpreted clause 13(b) of the trust deed and the legal effect of that clause gave rise to a question of law. In proceedings under section 66(2), the High Court was only required to see whether a question of law arose from the Tribunal's order and whether it was capable of reasonable argument, not to decide the ultimate merits of the exemption claim. On that basis, the refusal to direct a reference was erroneous.

Conclusion: The High Court should have required the Tribunal to submit a statement of case on the referred question concerning the 1/8th share.

Final Conclusion: The order declining a reference was set aside and the matter was directed to be taken forward for reference on the specified question of law.

Ratio Decidendi: In an application for reference, the High Court must direct a statement of case if a question of law reasonably arises from the Tribunal's order, without entering upon the ultimate merits of the exemption claim.

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