1986 (3) TMI 123 - AT - Income Tax

Tribunal permits liquidator expenses, except unpaid Government fees. Decision favors assessee in appeal.

BANK OF CHINA. Versus Income-Tax Officer.

The Tribunal allowed the appeal, condoning the delay in filing and permitting most expenses incurred by the official liquidator as deductions, except for ... Appellate Tribunal Issues Involved:1. Condonation of Delay in Filing Appeal2. Classification of Income3. Allowability of Expenses1. Condonation of Delay in Filing Appeal:The appeal was marked as time-barred by 79 days, with 12 days attributed to obtaining a certified copy of the order. The assessee requested condonation of delay citing the official liquidator's severe constraints. The Tribunal referred to a similar case, Sree Radhakrishna Cotton Mills Ltd., where the delay was condoned due to the peculiar circumstances of the official liquidator's role. The Tribunal found the reasons for the delay reasonable and condoned it, allowing the appeal to proceed on merits. However, one member disagreed, emphasizing that the official liquidator's constraints did not constitute sufficient cause for the delay. The matter was referred to a third member, who ultimately agreed with condoning the delay, noting that the correct date of communication was 23-4-1982, making the appeal timely when considering the 12 days for obtaining the certified copy.2. Classification of Income:The assessee argued that the income should be classified under 'business' as the main activity before liquidation was investing or money-lending. The Commissioner (Appeals) and the Tribunal disagreed, noting that the official liquidator's role was confined to winding up the company, not continuing its business. The income from fixed deposits and rent was correctly classified under 'Income from other sources' as per section 57 of the Income-tax Act, 1961. The Tribunal found no basis to treat the income as business income, especially since the official liquidator was not engaged in the company's business activities but rather in statutory liquidation proceedings.3. Allowability of Expenses:The assessee contended that all expenses incurred by the official liquidator should be allowed as deductions, arguing they were necessary for liquidation proceedings. The ITO allowed Rs. 10,000 on an estimate, which the Commissioner (Appeals) increased to Rs. 25,000. The Tribunal considered various expenses, including establishment, sundry, rent, law charges, telephone, and insurance premiums, and concluded that these were necessary for maintaining the company's status and profitable disposal of assets. The Tribunal allowed these expenses as deductions under section 57(iii), except for Rs. 17,679 on account of Central Government fees, which were not paid during the year due to the cash system of accounting maintained by the assessee.Conclusion:The Tribunal partly allowed the appeal, condoning the delay and permitting the deduction of most expenses incurred by the official liquidator, except for the unpaid Central Government fees. The appeal was thus resolved by recognizing the unique circumstances of the official liquidator's role and the statutory requirements of liquidation proceedings.