Deductibility of liquidation expenses turns on necessity for maintaining the establishment, not on liquidation priority alone.

Expenditure on salary, wages and rent incurred by a company in voluntary liquidation may be deductible if it is necessary to maintain the establishment during liquidation and is properly referable to income computation. Liquidation priority does not, by itself, make every such item automatically allowable. On the facts noted, the disputed liquidation expenses were treated as allowable in full, granting partial relief to the assessee.

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Issues: Whether liquidation-related salary, wages and rent incurred by a company in voluntary liquidation were allowable as deductions in computing income.

Analysis: A company in liquidation must continue to exist in that status and incur necessary establishment and maintenance expenses. Although liquidation costs are payable out of the assets of the company in priority, that does not mean every item of expenditure is automatically deductible under the income-tax computation provision. The claimed items of salary, wages and rent were considered necessary for maintaining the establishment in liquidation, and the amounts earlier allowed were found insufficient.

Conclusion: The liquidation expenses relating to salary, wages and rent were directed to be allowed in full, in favour of the assessee.

Final Conclusion: The appeal succeeded only to the extent of the disputed liquidation expenses, while the remaining grounds did not alter the overall partial relief granted.

Ratio Decidendi: Expenditure necessary to maintain the establishment of a company in liquidation may be deductible in full where it is properly referable to the computation of income, but liquidation priority by itself does not make every such expense automatically allowable.

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