1987 (6) TMI 81 - AT - Income Tax

Company in Liquidation Taxable: Liquidator's Return Valid; Assessment Order Need Not Compute Tax; ITO Determines Deductions

United Supply Agency Pvt. Limited. Versus Income-Tax Officer.

The Tribunal held that a company in liquidation is a taxable entity, the return signed by the liquidator is valid, the assessment order need not compute ... Company Court, Company In Liquidation, Income From Other Sources, Income Tax, Representative Assessee, Winding Up Issues Involved:1. Taxability of income for a company in liquidation under Section 5 of the Income-tax Act, 1961.2. Applicability of the Finance Act, 1981 rates to a company in liquidation.3. Validity of the return signed by a liquidator under Section 140(c) of the Income-tax Act, 1961.4. Requirement to compute tax payable in the body of the assessment order.5. Deductibility of liquidation expenses under Section 57 of the Income-tax Act, 1961.Detailed Analysis:1. Taxability of Income for a Company in Liquidation:The assessee argued that a company in liquidation has no income liable to be taxed under Section 5 of the Income-tax Act, 1961. The Tribunal noted that a company retains its original character until dissolution and does not transform into a new entity merely because of winding-up proceedings. The Tribunal referenced the Madras High Court's observation in *Artisan Press Ltd. v. ITAT* and the Patna High Court's decision in *CIT v. Gaya Sugar Mills Ltd.*, affirming that a company in liquidation remains a taxable entity. The Tribunal concluded that the income of a company in liquidation is taxable and the liquidator acts as the representative assessee.2. Applicability of the Finance Act, 1981 Rates:The assessee claimed that the Finance Act, 1981 did not fix any tax rate for a company in liquidation. The Tribunal found this argument irrelevant, emphasizing that the company retains its identity and tax obligations during liquidation. The Tribunal did not find any merit in this contention, stating that the company in liquidation is still subject to the prevailing tax laws.3. Validity of the Return Signed by a Liquidator:The assessee contended that a return signed by a liquidator is invalid under Section 140(c) of the Income-tax Act, 1961, as amended by the Taxation Laws (Amendment) Act, 1975. The Tribunal disagreed, stating that the liquidator, as the representative assessee, is duty-bound to file the return. The Tribunal referenced the Supreme Court's decision in *Hari Prasad Jayantilal & Co. v. V.S. Gupta, ITO*, affirming that the liquidator acts as an agent of the company and the return filed by the liquidator is valid. The Tribunal also noted that even if the return was invalid, the ITO could still frame the assessment.4. Requirement to Compute Tax Payable in the Body of the Assessment Order:The assessee argued that the assessment order was invalid as it did not compute the tax payable within the order itself. The Tribunal referenced the Supreme Court's decision in *Ishwarlal Girdharilal Parekh v. State of Maharashtra*, clarifying that the liability to pay income-tax arises from the accrual of income, not from the computation in the assessment order. The Tribunal agreed with the CIT (Appeals) that the computation of tax payable in Form No. ITNS-150, which is part of the assessment order, satisfies the requirement, and the assessment order is valid.5. Deductibility of Liquidation Expenses:The assessee contended that the entire amount of Rs. 2,39,712 claimed as liquidation expenses should be deductible. The Tribunal noted that the company court's supervision over liquidation expenses does not override the ITO's jurisdiction to assess allowable deductions under the Income-tax Act. The Tribunal referenced the Supreme Court's decision in *S.V. Kondaskar, Official Liquidator & Liquidator of the Colaba Land & Mills Co. Ltd. v. V.M. Deshpande, ITO*, affirming that the ITO has complete jurisdiction to frame assessments and determine allowable deductions. The Tribunal found no merit in the assessee's claim and upheld the CIT (Appeals)'s decision to allow Rs. 74,306 as deductible expenses.Conclusion:The appeal was dismissed, affirming that a company in liquidation is a taxable entity, the return signed by the liquidator is valid, the assessment order need not compute tax payable within its body, and the ITO has jurisdiction to determine allowable deductions for liquidation expenses.