Allocation of Loss between exempt factory income and other ventures raised a legal question requiring tribunal referral for High Court determination.

Allocation of loss between an exempt factory and other business ventures was treated as raising a question of law concerning attribution and allocation of losses, distinct from factual findings on shortages which the Tribunal had decided by appreciation of evidence; the Supreme Court held that the legal issue-whether a share of the financial organisation's loss was chargeable to the exempt factory income-required referral and directed the Tribunal to submit a statement of case to the High Court for determination.

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Issues: Whether, on the facts and in the circumstances of the case, any part of the loss suffered by Khanchand Lachmandas was liable to be allocated between the Gwalior factory and the other ventures of the assessees in determining their taxable income for the assessment year 1954-55?

Analysis: The Court examined whether the allocation of a portion of the loss of the assessees' financial operations to the Gwalior factory raised a question of law that could be referred by the Tribunal to the High Court under the advisory provisions. The Court distinguished conclusions reached by the Tribunal on shortages (which it treated as factual findings based on appreciation of evidence) from the legal question whether a share of the loss of the financial organisation (Khanchand Lachmandas) was chargeable to the exempt factory income, noting that the contention that the investment came wholly from partners' capital and not borrowings raised a legal issue concerning attribution and allocation.

Conclusion: The Court held that a question of law did arise in relation to the allocation of the loss of Khanchand Lachmandas and set aside the High Court's refusal; it directed the Income-tax Appellate Tribunal to submit a statement of case to the High Court of Madhya Pradesh on the specified question of allocation.

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