P L D 1957 (W (PLP)

WAHIDUDDIN. J.

This order will dispose of two Civil References, Nos, 56 and 57 of 1952 under section 66 (2) of the Pakistan Income-tax Act. The facts leading to these applications are that the assessee-firm was originally carried on by T. Jiwatram and his brother Parmanand in partnership. The two brothers separated on 31st March 1942 and the Eastern Silk Stores fell to the share of T. Jiwatram. Under the terms of the agree ment T. Jiwatram could not employ any of the 3 principal employees Khillumal, Gulliram and Jiwatram. In order to circumvent this condition, the father transferred the business as a going concern to his two sons who in their turn took the three employees as partners. Apparently the value of the business was treated as Rs. 1 lac and this amount was considered as a loan advanced by T. Jiwatram to his two sons on the security of the stock of the business carrying interest at 5010 per annum. T. Jiwatram also advanced a sum of Rs. 70,000 as a further loan without security carrying interest at 9010 per annum. The father also helped the sons in carrying on the business but charged no remuneration for the first year, namely, financial year 1942-43 for the second year 1943-44 T. Jiwatram charged remuneration of Rs. 11,000 and this was allowed in the firm's assessment. For the financial year 1944-45 and 1945-46, the three employees ceased to be partners, but continued to serve as employees getting a certain remuneration. In the financial year 1944-45 on the basis of a written agreement, T. Jiwatram was to get a commission calculated at 200 of the total turn-over and for the following year namely 1945-46, there was a fresh agreement according to which be was given o commission of 1 %. On 1st April 1944, the sons executed a promissory note in favour of T. Jiwatram for Rs. 1,70,000 and agreed to pay interest at 1200 Der annum. The matter was hotly contested and was finally disposed of by the order of the Tribunal, dated 31st August 1951 whereby the learned Tribunal reduced the commission of T. Jiwatram for the financial year 1944-45 and 1945-46 from Rs. 72,355 in the first year and Rs. 50,004 in the second year to Rs. 21,000 for each of the two years under review. The Tribunal on this question expressed itself in the following terms " In our opinion the case of T. Jiwatram stands on a different footing. The partners being the only two sons of T. Jiwatram, it was in the interest of the sons to sanction any amount of commission because after all it was the family who was ultimately going to be benefited. In the second year the three principal assistants were also partners and it was not an easy job for the father to take as much as he liked. In the fitness of things, therefore, only so much was allowed in his case as was dictated by business consideration. The three working partners having retired as such during the years under consideration, the sons had a free hand in giving to their father as much as they wished irrespective of any business con sideration. In our opinion the increase in the remuneration paid to T. Jiwatram is not motivated by any commercial expediency. In his case, therefore, the remuneration should be limited to Rs. 21,000 for each of the two years under review." The assessee-firm also contested the order of the Income Tax Authorities reducing the commission from 12010 to 6010 but the learned Tribunal allowed the assessee interest at 90/c on the entire amount, and made the following observa tion in this respect by their order, dated 31st August 1951 " In the case of T. Jiwatram, the Income-tax Officer himself had allowed in the next preceding year interest at the rate of 9% on the unsecured loan of Rs. 70,000 and this was done although in that year also the interest paid to other employees was, according to the appellate Assistant Commissioner 6% only. The next question is whether we should allow 12% or only 9% which was paid to T. Jiwatram on the unsecured loan in the previous year. No reason has been suggested why there should be a further increase by 3010. It is true that when the secured loan was converted into an unsecured loan there was fresh consideration for enhancing the rate of interest but, unless some special circumstances existed the debtor would not be expected ordinarily to concede an amount of interest higher than what the creditor had agreed to charge when the loan was first advanced. In our opinion, the rate of 9% is reasonable for an unsecured debt and since the Income Tax Officer had himself allowed this rate in the earlier years, we do not think we would be justified in cutting down the rate so as to make it less than 9%. The extra 3%, must be taken to have been paid for non- commercial reasons." The assessee-firm made two applications under sections 66 (1) and called upon the Income Tax Tribunal to refer the following two questions of law to the High Court for decision (1) Whether the order allowing Rs. 21,000 only as allowance or deduction on account of commission paid to Mr. T. Jiwatram out of Rs. 72,355 actually paid to him in accordance with the written agreement for services rendered by him is legal and in accordance with section 10 (2) (xv) of the Income Tax Act. (2) Whether the order of the Tribunal making an allowance or reduction of interest paid to T. Jiwatram on his advance to Rs. 9 /o as against 12010 actually paid to him in accordance with the terms of the contract is legal and in accordance with section 10 (2)(iii). The learned Tribunal dismissed these applications by their order, dated 18th January 1952 on the ground that in their opinion no question of law arose out of their order, dated 31st August 1951, and further observed that the matter is concluded by the finding of facts arrived at by them, and refused to refer the matter to the High Court. The assessee-firm thereafter made two applications under section 66 (2) of the Pakistan Income Tax Act, and prayed that the above-mentioned questions are questions of law and have arisen from the order of the learned Tribunal, dated 31st August 1951 and further prayed that in the circumstances of the present case the Appellate Income-tax Tribunal should be called upon to state the facts of the case and refer the above-mentioned questions for decision to this Court. The learned counsel for the applicants has taken us through the record of the case and has submitted that the finding on the question of commission is based primarily on the ground that the commission given to T. Jiwatram was not based on any commercial expediency. According to him, the question whether a particular remuneration should be given to a servant or not is a question for the businessman to decide and not to be decided by the Department. He further contended that the Income-tax Tribunal has made wrong inferences on the evidence recorded and, therefore, the question of law has arisen whether their conclusions are correct or not. As regards the question of interest, the learned counsel has urged that under section 10 (2) (iii), Income Tax Act interest actually paid by the assessee to the creditor must be allowed as an allowance for purposes of computing the profit and gain in the relevant year. In order to appreciate the arguments of the learned counsel for the assessee, it will be advantageous to refer to the relevant portion of section 10 (2) (xv) of the Income Tax Act. It reads as under: "Section 10 (2) (xv), any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation." This subsection contemplates that any expenditure not in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly or exclusively for such business, profession or vocation shall be given allowance by the Income Tax authorities. The onus of establishing that a particular expense was wholly or exclusively for the purpose of such business, is clearly on the assessee. The learned counsel, however, urged that in this matter it was admitted that there was a written agreement between the assessee and T. Jiwatram. It was further not disputed that the amount of commission for both the years were in fact paid : it was also proved that the other employees particularly Khilumal was paid commission at W/o and the commission paid to him at this rate was allowed as allowance under the above-mentioned subsection. The reason why commission of 2 % to T. Jiwatram was not allowed, was that it was not motivated by commercial con siderations. According to him, there was no evidence on the record to arrive at this conclusion and, therefore a question of law has arisen and the Income-tax Appellate Tribunal should be called upon to make a statement of the case and to refer the question of law relating to commission to this Court. He placed reliance on Eastern Investments Ltd. v. Commissioner of Income Tax, West Bengal (A I R 1951 S C 278) and urged that in that case under section 12 (2) of the Income-tax Act the question under consideration was also whether the expenditure was incurred solely for the purpose of keeping or earning such income, profits or gain and their Lordships of the Supreme Court of India, laid down the following principles to decide whether the facts of the particular case raised any question of law: (a) Though the question must be decided on the facts of each case, the final conclusion is one of law. (b) It is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned. (c) It is enough to show that the money was expended not of necessity with a view to a direct and immediate benefit to the trade but voluntarily and on the ground of commercial expediency, and in order indirectly to facilitate the carrying on of the business. (d) beyond that no hard and fast rule can be laid down to explain what is meant by the word (solely)." The learned counsel further relied on a decision of the Madras High Court reported in The Newton Studios Ltd. v. The Commissioner of Income Tax Madras ((1955) 28 1 T R 378: A I R 1955 Mad. 646). The last mentioned case is his sheet anchor and strongly relied upon in support of the contention raised by the assessee company in the present applications. The learned judges of the Madras High Court applied the principles enunciated in the above-mentioned Supreme Court case and observed: " In applying the test of commercial expediency to determine whether the expenditure is wholly and exclusively laid out for the purpose of the business, the reasonableness of the expenditure should be considered from the point of view of the businessman and not from the point of view of outsiders including the Income Tax Officer." According to the facts of that case, the directors of the company were paid Rs. 59,100 as honorarium in addition to the other emoluments i.e. commission, car allowance and bonus in pursuance of the resolution of the company. There was no dispute about the payment of the amount in question, and the only reason why the whole of this amount was not allowed, was that there was no proof that either the Managing Director or other technical directors had in the year of account, acquired qualification which increased the market value of their services. The Income-tax Authorities considered that the quantum of honorarium claimed was too much and was not fair and reasonable and, therefore. dis allowed the same. The learned judges in this case held that it is not necessary for the assessee to shoe that the expenditure was a profitable one or in fact any profit was earned, and according to them there was no room for subjective standard in applying the test of commercial expediency. They further held that there was really no basis at all on the evidence placed before the Tribunal for the conclusions reached, and the whole of Rs. 59,100 expended as salaries during the year of account, could not be claimed as a legitimate deduction under section 10 (2) (xv). There is no doubt that the decision in this case was in favour of the assessee, but the following observations of the learned judges are sufficient to dispose of this case. The learned judges at p. 385 observed: "There was certainly nothing to indicate that the increase in salaries the share-holders authorised was a colourable devise to divert a portion of the anticipated profits of the company to four of its share-holders." The learned judges further observed: "Under our taxing system, it is for the assessee to conduct his business, and in his wisdom or otherwise to fix the remuneration to his staff. The Income Tax Act does not clothe the taxing authority with any power or jurisdiction to determine the reasonableness of the amount so fixed and paid by the assessee. The only test for the deductibility of such remuneration is whether the expenditure has been incurred solely and exclusively for the purpose of the business. If the reality of the payment is challenged or is in dispute different considerations arise ; so also in cases where the tax authorities are able to point to some conside ration other than the purpose of the business as accounting for any portion of the payment made. In such cases, of course, such portion of the amount claimed, which is either not held to have been paid or is held to have been paid for reasons other than business expediency, could and should be disallowed ; but the reason for the disallowance is because either the portion disallowed is not paid, or because the expenditure is not solely aced exclusively for the business, and not on the ground that in the opinion of the Income Tax Officer or other taxing authority the remuner ation is "unreasonably" high either because the employee does not, in the authority's opinion, deserve so much, or because the assessee could have secured other employees on more favourable terms." It will thus be seen that even this case doe's not support the contention of the learned counsel for the assessee, because in the present case the Income Tax Appellate Tribunal came to a definite finding that the sons had a free hand in giving to the father as much as they wished irrespective of any business consideration, and in their opinion it was paid because after all the family was ultimately going to be benefited, and the remuneration paid to Jiwatram was not motivated by any commercial expediency. It was submitted by the learned counsel for the Depart ment that in those cases where there is a definite finding of fact on a particular question, the Courts were not entitled to call upon the Income Tax Authorities to refer the matter to them under section 66 (2), notwithstanding that the conclusions of fact arrived by them were erroneous or that some other conclusion could be arrived at by another Tribunal. The only consideration in such cases should be whether the Income Tax Appellate Tribunal had any material before them to arrive at such conclusion. We think the contention raised by the learned counsel for the Department is not without force. He is supported in his contention by a number of authorities, particularly Jethabhai Hirji & Co. v. Commis sioner of Income Tax, Bombay (A I R 1950 Bom. 29), Hotz Trust Simla v. Commissioner of Income Tax, Punjab ((1952) 21 I T R 149), Commissioner of Income Tax, West Bengal v. Calcutta Agency Ltd. (A I R (1951) S C 108) and Hansraj Gupta & Co. v. Commissioner of Income Tax ((1956) 29 I T R 667). In A I R 1950 Bom. 29, the learned judges of the Bombay High Court observed "It must be left in every case to an employer to determine for himself, taking all circumstances into consideration, in what manner he should remunerate his employee who is rendering certain services to him. But section 10 (2) (xv) requires that whatever amount he pays to his employee must be paid wholly and exclusively for the purposes of his business, and it is for the Income Tax Officer to decide whether any remuneration paid by the employer to his employee was wholly and exclusively expended for the purposes of his business. It is erroneous to contend that as soon as an assessee bas established these two facts, viz., the existence of an agreement between the employer and the employee and the fact of actual payment, no discretion is left to the Income Tax Officer except to hold that the payment was made wholly and exclusively for the purpose of the business. Although the payment might have been made and although there might be an agreement in existence, it would be open to the Income Tax Officer to take into consideration various factors which would go to show whether the amount was paid as required by the section. For instance, the Income Tax Officer may take into consideration whether the moneys were paid to a near relation of the employer. He may take into consideration the extent of the business and the particular services rendered by the employee which called for a special remuneration at the handy of his employer. He may take into consideration the quantum of the payment made with a view to decide whether the payment was or was not grossly out of proportion to the work done by the employee. If after taking these factors into consideration, he comes to the conclusion that the payment was not made wholly and exclusively for the purpose of the business of the assessee, it would be open to him either to disallow the whole sum or a part of the sum paid. The question whether a particular sum was expended wholly and exclusively for the purposes of such business must essentially be a question of fact to be, determined by the Income Tax Officer, But it would be open to the assessee to contend, that the decision arrived at by the Income Tax Officer was based on no evidence at all. If the assessee satisfies the Court that apart from the actual payment and existence of the agreement there were no other factors which were taken into consideration by the Income Tax Officer, then perhaps the Court would say that the Income Tax Officer was not justified in coming to the conclusion that he did." In (1952) 21 1 T R 149, the learned judges of the Punjab High Court observed as follows: "If the claim of an assessee is a claim for exemption of an amount under section 10 (2) (xv) of the Indian Income Tax Act 1922, the burden of proving the necessary facts in that connection is on the assessee. The assessee, a trust which owned some hotels, increased the salary of each of their three managers from Rs. 1,200 to Rs. 2,000 per mensem. The Appellate Tribunal held that the increment of Rs. 800 per mensem to two of the managers during the relevant years was not at all justified by business considerations and that the Income-tax authorities were perfectly justified in allowing only an increase of Rs. 400 per month in their case. In arriving at this decision the Tribunal gave, inter alia, the following reasons ; that no particular reason was given by the assessee for the increase ; that the two managers were not called upon to render any service in addition to what they had been rendering in the past ; that no demand was made by the managers for increase in the salaries. On a reference under section 66 (1). the assessee contended that it was for the assessee to determine what remuneration the assessee should pay to its employees for the services rendered by them and considering that it was not disputed that there was a agreement between the assessee and the employees to pay Rs. 2,000 per mensem to each of them, the Tribunal was not entitled to challenge the amount paid by the assessee to its servants for their services on the ground of excess or over generosity in the amount. Held, (1) that the contention of the assessee was not acceptable to the High Court ; (2) that, the assessee had not discharged the burden of proving the necessary facts to claim the exemption of the amount under section 10 (2) (iii) and that there was material for the Tribunal in arriving at the finding that it did." In (1956) 29 I T R 667, the learned Judges of the Punjab High Court observed: "A company which took over the business of a partner ship employed the general manager of the partnership for a remuneration of 10 per cent. of the annual profits and an agreement was entered into accordingly. The Income Tax Officer allowed only half of this commission as business expenditure taking into account the previous history of the case, the services rendered by him, what he was receiving before and the extent of the business. The Appellate Assistant Commissioner and the Appellate Tribunal confirmed the order of the Income Tax Officer. The Tribunal refused to state a case as it was of opinion that no question of law arose. Held, that, assuming that the commission fell under section 10 (2) (xv) of the Income Tax Act as contended by the company, what was the amount which was laid out wholly and exclusively for the purposes of the company was a question of fact and it was for the Officer or the Tribunal, as the case may be, to determine whether the payment was made wholly and exclusively for the purposes of the business of the assessee (ii) that the burden of proving the necessary facts in order to entitle the company to claim exemption under section 10 (2) (xv) was on the Company (iii) that it could not be said that there was no material on which the Income Tax Officer could come to the conclusion which he came to." The last mentioned case is more relevant as in that case one Melaram who was also shareholder of Hansraj Gupta & Co. entered into an agreement and was paid a large amount of commission during the assessment years beginning from 1942-43 to 1948-49 but the Income Tax authorities allowed only 50 per cent. of this commission and disallowed the rest of it on the ground that the commission paid to him was not paid on the ground of any commercial expediency. The assessee applied to the Income Tax Tribunal to refer the matter under section 66 (1) but they refused to do so holding that it was a question of fact and not one of law. It was argued in the High Court that the whole of the income paid to Melaram was exclusively and wholly laid out or expended for the purposes of the business of the company and, therefore, the question involved was a question of law and not a question of fact. The learned Judges relying on the observations of Chagla, C. J. in A I R (1950) Bom. 29. "the question whether a particular sum was expended wholly and exclusively for the purpose of such business was essentially a question of fact to be determined by the Income Tax Officer," held that it cannot be said that there was no material before the Taxing Officer and dismissed the application under section 66 (2) of the Income Tax Act. In facts this view is also fortified by the decision of the Supreme Court of India in A I R (1951) S C 108 where their Lordships of the Supreme Court of India held-"a claim for exemption of an amount, contended to be an expenditure falling under section 10 (2) (xv), the burden of proving the necessary facts in that connection was on the assessee, it being common ground that the commission was due and had become payable and was, therefore, the business income of the assessee company liable to be taxed in the assessment year. The jurisdiction of the High Court in the matter of income tax references is an advisory jurisdiction and under the Act the decision of the Tribunal on facts is final, unless it can be successfully assailed on the ground-that there was no evidence for the conclusions on facts recorded by the Tribunal." The learned counsel for the assessee also invited our attention to a decision of their Lordships of the Privy Council in Aspro Ltd. v. The Commissioner of Income Tax ((1936) 4 I T R 264 : 1932 A C 683). In that case there were two shareholders of a company who were also the sole directors of the company. At the end of each trading year the company fixed by resolution in general meeting more than half of the profit as directors' fees and in the year 1928 a sum of 10,000 was debited as directors' fees. The matter came up before the Commissioner of Income Tax who happened to be a Magistrate and he disallowed this item to the extent of 8,

000. Their Lordships at page 269 observed `'that the true issue is whether there was evidence before the Magistrate on which he was entitled to refuse to hold it proved that the 10,000 had been exclusively incurred in the production of the assessable income and that the assessment was excessive." It was therefore urged that we should also consider the present case in the light of the above-mentioned principles and decide whether there was any evidence before the Tribunal on which they could refuse or disallow any portion of the amount claimed as commission. In the Privy Council case also their Lordships upheld the finding of the Commis sioners as it was found that the amount of fee claimed had not been exclusively needed for the production of the Income of the company and there was complete identity of the person interested as shareholders and the directors to whom the fees were to be paid. Keeping these principles in mind, it seems to us that what we have to consider in the present case is whether there was any evidence before the Income-tax Appellate Tribunal to come to the conclusion that the commission paid to T. Jiwatram was not motivated by commercial expediency. The facts of this case have already been set out in the earlier part of the judgment. T. Jiwatram is the father of the partners of the assessee firm. He transferred this business to his two sons in order to avoid the terms of the agreement which were arrived at between him and his brother Parmanand. This was done because 3 employees of the previous partnership were found indispensable for the business acquired by T. Jiwatram. The two sons thereafter started Z the business in partnership, took the 3 employees as partners in the new firm, and continued the business with the help of these persons. There is also evidence on the record to establish that in the first year the father did not draw any remuneration ; in the second year he drew only Rs. 21,00 and in the years under review he drew a huge amount of Rs.72,355 and Rs. 50,004 as remuneration. The Appellate Income-tax Tribunal came to the conclusion that as there was relationship between the assessee and T. Jiwatram, there fore, the arrangement for payment of commission at 2 percent. on the whole turnover of the business was a family affair and was paid out of family feeling and for the benefit of the t family. In our opinion it may be that after the facts of this l particular case are reviewed as a whole one may differ from the conclusions of the Income-tax Appellate Tribunal on the finding of fact, but we cannot say that they had no evidence to arrive at such a conclusion. The finding therefore is purely a finding of fact and it does not raise at all any question of law. The learned counsel for the assessee has further invited our attention to a case reported as Edwards v. Bairston ((1955) 3 All Eng. Reports 48 : (1955) 28 I T R 579) particularly to the observations made by the learned Lords of appeal at pp. 587, 592 and

594. Viscount Simonds observed "When the Commissioners, having found the so-called primary facts which are stated in paragraph 3 of their case, proceed to their finding in the supplemental case that 'the transaction, the subject-matter of this case was not an adventure in the nature of trade', this is a finding which is in truth no more than an inference from the facts previously found. It could aptly be preceded by the word `therefore'. Is it, then, an inference of fact ? My Lords, it appears to me that the authority is overwhelming for saying that it is. Such cases as Cooper v. Stubbs ((1925) 2 K B 753), Jomes v. Leeming ((1930) A C 415) and Inland Revenue Commissioners v. Lysaght ((1928) A C 234) (a case of residence) amongst many others are decisive. Yet it must be clear that is to say that such an inference is one fact of postulates that the character of that which is inferred is a matter of fact. To say that a transaction is or is not an adventure in the nature of trade is to say that it has or had not the characteristics which distinguish such an adventure. But it is a question of law, not of fact, what are those characteristics or, in other words, what the statutory language means. It follows that the inference can only be regarded as an inference of fact if it is assumed that the Tribunal which makes it is rightly directed in law what the characteristics are and that, I think, is the assumption that is made. It is a question of law what is murder a jury finding as a fact that murder has been committed has been directed on the law and acts under that direction. The Commissioners are making an inference of fact that a transaction is or is not an adventure in the nature of trade are assumed to be similarly directed, and their finding thus becomes an inference of fact". Lord Radcliffe observed at p. 592 "I think that the true position of the Court in all these cases can be shortly stated. If a party to a hearing before Commissioners expresses dissatisfaction with their deter mination as being erroneous in point of law, it is for them to state a case and in the body of it to set out the facts that they have found as well as their determination. I do not think that inferences drawn from other facts are incapable of being themselves findings of fact, although there is value in the distinction between primary facts and inferences drawn from them. When the case comes before the Court it is its duty to examine the determination having regard to its knowledge of the relevant law. If the case contains anything ex facie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances, too the Court must intervene. It has no option but to assume that there has been some misconception of the law and that this has been responsible for the determination, so there, too, there has been error in point of law. I do not think that it much matters whether this state of affair is described as one in which there is no evidence to support the determination or as one in which the evidence is inconsistent with and contradictory of the determination, or as one in which the true and only reasonable conclusion contradicts the deter mination rightly understood, each phrase propounds the same test. For my part, I prefer the last of the three, since I think that it is rather misleading to speak of there being no evidence to support a conclusion when in cases such as these many of the facts are likely to be neutral in them selves, and only to take their colour from the combination of circumstances in which they are found to occur", Lord Radcliffe further observed ; "I think it possible that the English Courts have been led to be rather over-read- to treat these questions as pure questions of facts by some observations of Warrington and Atkin L. JJ. in Cooper v. Stubbs ((1925) 2 K B 753). If se, I would say, with very great respect, that I think it a pity that such a tendency should persist. As I see it, the reason why the Courts do not interefere with Commissioner's findings or determinations when they really do involve nothing but questions of fact is not any supposed advantage in the Commissioners of greater experience in matters of business or any other matters. The reason is simply that by the system that has been set up the Commissioners are the first tribunal to try an appeal, and in the interests of the efficient administration of justice their decisions can only be upset on appeal if they have been positively wrong in law. The Court is not a second opinion, where there is reasonable ground for the first. But there is no reason to make a mystery about the subjects that Commissioners deal with or to invite the Courts to impose any exceptional restraints upon themselves because they are dealing with cases that arise out of facts found by Commissioners. Their duty is no more than to examine those facts with a decent respect for the Tribunal appealed from and if they think that the only reasonable conclusion on the facts found is inconsistent with the determination come to, to say so without more ado". It is true that in this judgment their Lordships of the House of Lords have differed from the law laid down in Levene v. Commissioner of Inland Revenue (1928 A C 217) and Commissioner of Inland Revenue v. Lysught (1928 A C 234). But even if the test laid down in the above-mentioned authority is applied, the finding of the Income-tax Appellate Tribunal will still remain a finding of fact. On the facts of the present case, we are not inclined to hold that the Income-tax authorities have put wrong construction on the language of the subsection or that the conclusion of fact arrived at by them are such "that no person acting judicially and properly instructed as to the relevant law" could have come to the determination under appeal. We are, however, with respect, clear in our mind that as laid down by their Lordships in Commissioner of Income-tax United and Central Provinces v. Budridas etc. (A I R 1937 P C 133), it is not possible to turn a mere question of fact into a question of law by asking whether as a matter of law an officer came to a correct conclusion upon a matter of fact. In our view, the Income-tax Appellate Tribunal was perfectly justified in refusing to refer this question to the High Court. The next question for consideration is whether the Income-tax authorities were justified in refusing to give allowance of the interest actually paid to the creditor. There is a finding of fact that the loan advanced was not a sham transaction. It was also not disputed that interest at 12 per cent. was paid to the creditor. The Ttibunal has allowed interest at 9 per cent. and refused to allow interest at the remaining 3 per cent. on the ground that it was paid for non commercial reason. Section 10 (2) (iii) reads as under: "Section 10 (2) (iii), in respect of capital borrowed for the purposes of the business, where the payment of interest thereon is not in any way dependent on the earning of profits, the amount of the interest paid". It is contended that this subsection does not contemplate that allowance of only such interest should be given as was paid for commercial reasons. There is much force in this argument. It cannot be summarily rejected and requires consideration. It is well-settled that if the Tribunal has misunderstood the statutory language and has misdirected itself as to the meaning and import of the relevant provisions] of law, then there will arise a question of law within the meaning of section 66 of the Income-tax Act. It appears to us that in the present case the finding on the question of interest is a conclusion of law and the learned Appellate Tribunal committed an error in refusing to refer this question for the opinion of this Court. In these circumstances we order the Income-tax Appellate Tribunal to refer the following question along with a state ment of facts, for answer under section 66 (2) of the Income tax Act to this Court. "Whether, when interest has been paid in respect of capital borrowed for the purposes of the assessee's business, the Income-tax Authorities are justified in reducing the rate of interest on the ground that an excessive amount has been paid for non commercial reasons ?" The parties will bear their own costs. A. H. Order accordingly