V.RAMASWAMI - (1.) THE appellant is a private limited company in liquidation. THE winding up order was made by the High Court on 8/11/1949 and the liquidator was directed to submit reports every three months respecting the progress of the winding up proceedings and realisation of the assets. In the course of winding up the liquidator sold certain assets and deposited the money in fixed deposits with certain banks. During the previous year relevant to the assessment year 1966-67 the appellant earned by way of interest from fixed deposits a sum of Rs. 32,237.60. THE liquidator had in the relevant previous year incurred the following expenditure totalling Rs. 12,379.45: JUDGEMENT_331_SUPP2_1991Html1.htm THE assessee-company claimed a deduction of the above said sum of Rs. 12,379.45 from the interest income of Rs. 32,237.60. THE Income-tax Officer did not allow any part of the expenditure claimed by the assessee-company and assessed the entire amount of Rs. 32,237.60 as taxable under S. 56 of the Income-tax Act, 1961 (hereinafter referred to the 'Act'), under the head "INCOME FROM OTHER SOURCES". This assessment order was confirmed by the Appellant Assistant Commissioner and the Tribunal on an appeal.
(2.) IN the assessment year 1967-68 also the assessee earned certain amounts of money by way of interest from fixed deposits and the liquidator incurred identical expenditures as in the assessment year 1966-67 except for the difference in the amount. The INcome-tax Officer refused to allow any deduction of any part of the expenditure claimed by the assessee. Even in this assessment year the entire interest income was taxed under S. 56 of the Act under the head "INcome From Other Sources". The appeals filed in respect of this assessment year also were unsuccessful. In respect of both these assessment years the following identical question was directed to be referred by the High Court under S. 56(2) of the Act on the refusal of the Tribunal to refer the same under S. 256(l): "Whether on the facts and in the circumstances of the case, the assessee is entitled to the deduction of the whole or any part of the expenses incurred by the Liquidator in the computation of the assessee's total income." It may be mentioned that in respect of the assessment year 1962-63 the assessee had claimed deduction of similar expenditure from the interest income earned from fixed deposit. At the instance of the assessee the Tribunal referred the following question: "Whether, on the facts and in the circumstances of the case, the sum of Rs. 13,023 is an admissible charge against the income of the previous year."
(3.) IN the decision reported in Vijay Laxmi Sugar Mills Ltd, v. Commr. of INcome-tax, Delhi Central (1972) 86 ITR 402: (1972 Tax LR 142) (All), the High Court answered that reference holding that the income from the fixed deposit has to be considered as income from. other sources and only that expenditure can be deducted which under S. 57(iii) of the Act can be considered as incurred for earning that income and that the expenses claimed are not related to the earning of that income. Accordingly, the High Court answered the question in the negative and in favour of the revenue. It may also be mentioned that the assessing officers and the Tribuna1 followed this decision which was assessee's own case for the earlier assessment year, in the assessments now in question. The learned counsel for the appellant canvassed the correctness of the view propounded in Vijay Laxmi Sugar Mills Ltd. v. Commr of Income-tax, Delhi Central (1972 Tax LR 142) (All) (supra). The learned counsel contended that among the objects mentioned in the memorandum of association of the company provision is made for advancing and lending money, investment of the company's money and dealing in debentures, shares, stocks and other securities and carrying on various other businesses such as the company considered desirable in lieu of any other business which it was authorised to carry on. Therefore, in effecting sale and realising of the assets of the company in liquidation and investing in fixed deposits the Liquidator was engaged in the businesses of making investment in fixed. deposits. The interest income earned therefrom is a business income taxable under S. 28 of the Act and not under S. 56 of the Act under the head "Income From Other Sources". If this contention of his is right the expenditure incurred by the Liquidator shall also be considered as for the purpose of earning the above mentioned income or at least could be said as wholly and exclusively laid out or expended for the purposes of that business and deductible from the total income earned by the company during the relevant previous year. We are wholly at a loss to understand how this argument is possible on the facts and circumstances of this case. As already stated the company had been directed to be wound up and a liquidator was appointed by the High Court as early as in 1950. The company before its liquidation was engaged in the manufacture of sugar. The records do not disclose that the liquidator was carrying on the business of manufacture of sugar or any trading activity for the purpose of facilitating the winding up. The statement of facts on record shows that the liquidator realised certain amount by way of sale of the assets of the Company in liquidation and it is those sale proceeds that were invested in fixed deposit which earned the interest. The liquidator in merely realising the assets of the company could not be considered as carrying on any business of the company. The activity of realising the assets and banking them in fixed deposit was in the coarse of winding up and it was not in furtherance of any business activity carried on by the company before its, winding up.;