Unsupported factual findings can raise an error of law and justify a reference in income-tax proceedings.

A finding of fact unsupported by evidence, or reached by ignoring essential material, gives rise to an error of law and can justify a reference under the income-tax reference provisions. The Tribunal's finding that the assessee had an 8-annas share in the branch firm was held to lack evidentiary basis, and its income estimate based on advances was treated as conjectural because profits do not depend solely on capital employed. The proposed questions therefore arose in law, and the High Court was required to call for a reference.

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Issues: Whether the Tribunal's finding as to the assessee's share and the estimate of the branch firm's income were unsupported by evidence or otherwise perverse so as to give rise to a question of law requiring a reference to the High Court.

Analysis: The Tribunal's conclusion that a partner had an 8-annas share in the branch firm was held to be without evidentiary basis. Its estimate of income by reference to advances made to the firm was treated as conjectural and not conclusive, since profits do not depend solely on capital employed. A finding recorded without evidence, or on an impermissible basis, raises an error of law and may justify a reference. The High Court was also found to have discharged the rule without reasons.

Conclusion: The questions proposed by the Revenue did arise in law, and the High Court was required to call for a reference from the Tribunal.

Ratio Decidendi: A finding of fact that is unsupported by evidence, or reached by ignoring essential material, gives rise to an error of law and can justify a reference under the income-tax reference provisions.

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