Section 256(2) — Income-tax Act, 1961

Section 256(2) of the Income-tax Act, 1961 deals with the reference of questions of law to the High Court. When the Income Tax Appellate Tribunal (ITAT) refuses to state a case on the grounds that no question of law arises, the aggrieved party can apply to the High Court. The High Court, if satisfied that a question of law does indeed arise, can require the ITAT to state the case and refer it to the High Court. This provision is significant as it provides a mechanism for judicial review of ITAT decisions, ensuring that legal interpretations can be scrutinized by a higher judicial authority. The burden of proof lies with the applicant to demonstrate that a substantial question of law is involved. This section is crucial for maintaining the integrity of tax law interpretation and ensuring consistency in legal precedents.

Common Litigation Flashpoints

1. Whether a question of law arises from the ITAT order
2. Refusal of ITAT to state a case
3. Interpretation of 'substantial question of law'
4. Timeliness and procedural compliance in filing applications

Judgments on Section 256(2) — Income-tax Act, 1961

• K.C. Builders & Anr. vs The Assistant Commissioner of Income Tax — SC, 2004
  Once the Income Tax Appellate Tribunal finds no concealment of income, the basis for criminal prosecution under the Income Tax Act ceases to exist.
• Commissioner of Income-Tax, Calcutta vs Biju Patnaik — SC,
  A finding on a question of fact is open to attack as erroneous in law when there is no evidence to support it or if it is perverse.
• Maxopp Investment Ltd vs Commissioner of Income Tax, New Delhi — SC,
  Section 14A mandates the disallowance of expenditure incurred in relation to exempt income, applying the principle of apportionment.
• Union of India & Anr. vs M/s. Ganpati Dealcom Pvt. Ltd. — SC,
  The 2016 Amendment Act cannot be applied retrospectively as it creates new offences and substantive changes, which cannot be applied to past transactions.
• Aditya Birla Nuvo Limited vs The Deputy Director of Income-tax — HC,
  The beneficial ownership of shares, despite being registered in the name of a permitted transferee, determines the taxability of capital gains in India.