Reference on clubbing spouse's profit share must be examined on merits, not rejected as merely academic

The High Court should not have rejected the section 256(2) application as merely academic where the Revenue's proposed question on clubbing a spouse's share of profit under section 64 had not been finally foreclosed by earlier decisions. The Court treated the controversy as requiring substantive consideration on merits, and held that the reference could not be refused on the ground adopted by the High Court. The appeal was allowed and the Tribunal was directed to state the question for the High Court's opinion.

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Issues: Whether the High Court was justified in rejecting the application under section 256(2) of the Income-tax Act on the ground that the proposed question was merely of academic interest, and whether the reference question concerning clubbing of a spouse's share of profit under section 64 required consideration on merits.

Analysis: The refusal to direct a reference was challenged on the footing that the legal issue had not been finally concluded in earlier decisions cited before the High Court. The Court held that the controversy raised by the Revenue was not foreclosed and that the proposed question was one which ought to be examined substantively, rather than treated as academic. In that view, the application under section 256(2) could not be rejected on the ground adopted by the High Court.

Conclusion: The appeal was allowed and the Tribunal was directed to state the question for the opinion of the High Court.

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