Interest from fixed deposits in liquidation taxed as other sources, and deduction claim under section 57(iii) failed.

Interest earned on fixed deposits created from sale proceeds of a company in liquidation was assessable as income from other sources, because merely realising assets and parking the proceeds in deposits did not amount to carrying on the company's business. On that basis, the claim for deduction under section 57(iii) failed, as the expense claim had to satisfy the deduction rules applicable to income from other sources rather than business income. The Kerala HC therefore held that the assessee was not entitled to the claimed deduction and answered the reference in favour of the Revenue.

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Issues: Whether the assessee was entitled to deduction under section 57(iii) of the Income-tax Act, 1961 in respect of expenses claimed against interest income earned from fixed deposits.

Analysis: The assessee was a company in liquidation and the interest income arose from funds invested in fixed deposits. The controlling principle applied was that, in merely realising assets and placing the sale proceeds in fixed deposits, the liquidator does not carry on any business of the company, so the resulting interest cannot be treated as business income under section 28. The income was therefore assessable only under the head "Income from other sources", and the claim for deduction was governed by the applicable deduction provision on that basis.

Conclusion: The assessee was not entitled to the claimed deduction, and the question referred was answered in favour of the Revenue.

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