Reference jurisdiction limits vires challenges, and prior rebate reductions carry forward only when legally arising from a taxable year.

Reference jurisdiction under the Income-tax Act is confined to questions arising within that statutory framework, so the Tribunal and High Court cannot examine the vires of Finance Act provisions in such proceedings. The note also explains that rebate of super-tax for 1959-60 could not be reduced by an alleged unabsorbed reduction from an earlier year unless that reduction had legally arisen in a year where super-tax and rebate were actually computable. On the facts stated, the earlier year involved a loss, so no prior unabsorbed reduction existed and the rebate remained intact.

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Issues: (i) whether, in a reference under the Income-tax Act, the Tribunal and the High Court can examine the vires of provisions of the Finance Act; (ii) whether the assessee's rebate of super-tax for the assessment year 1959-60 could be reduced by the alleged unabsorbed reduction of rebate of Rs. 8,731.10 from the earlier year.

Issue (i): whether, in a reference under the Income-tax Act, the Tribunal and the High Court can examine the vires of provisions of the Finance Act.

Analysis: The reference jurisdiction under the Income-tax Act is confined to questions arising within the statutory framework of that Act. The Tribunal is a creature of statute and cannot decide an ultra vires objection. Since the High Court in reference proceedings derives no wider jurisdiction than the Tribunal, it likewise cannot adjudicate the constitutional validity of Finance Act provisions. The annual Finance Act operates in conjunction with the charging scheme of the Income-tax Act, but that relationship does not enlarge reference jurisdiction to decide vires.

Conclusion: The question of vires could not be gone into in this reference and was outside jurisdiction.

Issue (ii): whether the assessee's rebate of super-tax for the assessment year 1959-60 could be reduced by the alleged unabsorbed reduction of rebate of Rs. 8,731.10 from the earlier year.

Analysis: The second proviso to Paragraph D of Part II of the First Schedule to the Finance Act, 1959, contemplates reduction of rebate only where there was a prior year in which super-tax was in fact chargeable and a corresponding reduction of rebate had remained unabsorbed. On the facts found, the assessee had suffered a loss in the preceding year, so there was no super-taxable income and no occasion for any rebate or reduction of rebate under the earlier Finance Act. In the absence of any prior unabsorbed reduction properly arising under the earlier year, the amount could not be imported into the computation for 1959-60.

Conclusion: The Tribunal was correct in allowing the rebate of super-tax in full without reducing it by Rs. 8,731.10.

Final Conclusion: The reference failed on the jurisdictional question, but the substantive computation issue was answered in favour of the assessee, leaving the rebate intact and the Department's adjustment disallowed.

Ratio Decidendi: In income-tax reference proceedings, vires of Finance Act provisions cannot be adjudicated, and a prior year's unabsorbed reduction of rebate can be carried forward only where it has legally arisen from a year in which super-tax and rebate were actually computable.

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