The question of whether cash payments are covered by the exemption under rule 6DD(j) of the Income-tax Rules, 1962 is a question of fact.

1. - This reference application under section 256(2) of the I. T. Act, 1961, has been filed against the order of the Income-tax Appellate Tribunal dated 19th November, 1981.

2. The petitioner-assessee, M/s. Registhan Pvt. Ltd. (hereinafter referred to as "the assessee-company "), was a partner in the firm of M/s. Registhan, Jaipur. The ITO disallowed the claim of the assessee-company for an amount of Rs. 62,270/- which was paid in cash and was in violation of the provisions of section 40A(3) of the Act.

3. The assessee-company filed an appeal and the learned Commissioner of Income-tax (Appeals), Rajasthan, held that cash payments in this case were covered by exceptions given clause (j) of r. 6DD of the I.T. Rules and the clarification issued by the Board as per instructions dated 31st May, 1977. The Commissioner took the view that the appellant-company had taken over all the assets and liabilities of the firm and the firm was in the process of closing down its business. In these circumstances, the Commissioner held that it would have not been practicable for the appellant to make payments by cheque to the firm which was in the process of closing down its business. Reliance was placed on Hasanand Pinjomal v. CIT [1978] 112 ITR 134 (Guj) . In the result, the Commissioner allowed the appeal and granted relief for an amount of Rs. 62,270/-. He also allowed an appeal for an amount of Rs. 3,944/- with which we are not concerned. The Revenue, aggrieved against the order of the Commissioner, filed an appeal before the Income-tax Appellate Tribunal. Learned Appellate Tribunal held that a general statement had been made on behalf of the assessee that the payment in cash was made as the payee was in the process of being wound up. Learned Members did not consider it as an exceptional circumstance in view of the fact that only a day earlier, the payee had accepted payments in cheque. They further held that there was no evidence on record that the payee-firm insisted on the payment in cash because of its legitimate business needs. Neither any such evidence had been produced before them that the payee firm insisted on cash payment for its legitimate business needs. They also noticed that the assessee and the payee-firm were stationed at the same station, i.e., Jaipur. If the payments were made by cheque it would have normally been cleared within two/three days and receipt of payment through cheques would not have caused any hardship to the payee unless it was spelt out by the payee in clear terms which have not been spelt out even at the time of hearing of appeal before them. As regards the circular of the Board, the learned Members of the Tribunal pointed out that one of the essential conditions was that an exceptional circumstance should exist before the payment was permitted to be made in cash. Thus, the learned Members of the Tribunal held that the payments were in contravention of section 40A(3) of the Act and had rightly been disallowed by the ITO. Learned Members of the Appellate Tribunal also distinguished the case of the Gujarat High Court in Hasanand Pinjomal's case [1978] 112 ITR 134 . The assessee-company then submitted an application under section 256(1) of the I.T. Act for drawing up a statement of the case and to refer the following questions of law to the Hon'ble High Court :

"1. Whether, the Tribunal was right in holding that the cash payments in question relating to the acquisition of goods from the firm, on dissolution, in which the assessee-company was a partner, fell within the mischief of section 40A(3) of the Income-tax Act, 1961 ?

2. If the answer to question No. 1 is in the affirmative, whether the Tribunal was right in holding that the said payments were not covered by the exemption granted under rule 6DD(j) of the Income-tax Rules, 1962 ? "

4. The learned Appellate Tribunal held that the question decided by them, vide its order dated 19th November, 1981, was purely a finding of fact and as such there was no que