Referable question of law on loss allocation in computing taxable income; factual shortage findings remained outside advisory reference jurisdiction.

A question of law arose where the dispute concerned the legal permissibility of allocating part of the money-lending concern's loss to the assessee's exempt factory income for purposes of computing taxable income, and that issue was fit for a reference. By contrast, the disallowance relating to shortages depended on appreciation of evidence and factual findings, so no referable question of law arose on that point. The Supreme Court held that the High Court erred in refusing a reference on the loss-allocation issue and directed the Tribunal to state a case on whether any part of that loss was liable to be allocated in computing taxable income.

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Issues: Whether a question of law arose from the Tribunal's decision allocating a part of the loss of the money-lending concern to the assessee's exempt factory income, so as to justify a reference to the High Court under the advisory reference provision.

Analysis: The disallowance relating to shortages was based on appreciation of evidence and involved findings of fact, so no referable question of law arose on that aspect. By contrast, the allocation of part of the loss of the money-lending organisation to the exempt Gwalior factory income raised a legal issue because the assessee contended that no part of that loss was liable to be taken into account in computing the exempt income. Whether such loss could legally be apportioned in determining taxable income was therefore a question fit for reference.

Conclusion: The refusal to direct a reference on the loss-allocation issue was incorrect, and the assessee succeeded on that point.

Final Conclusion: The order of the High Court was set aside and the Tribunal was directed to state a case on the question whether any part of the loss suffered by the money-lending concern was liable to be allocated in determining the assessee's taxable income.

Ratio Decidendi: A question becomes referable where the dispute concerns the legal permissibility of allocating loss in computing income, even if related factual findings are left undisturbed; pure findings on evidentiary shortage claims remain questions of fact outside advisory reference jurisdiction.

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