TaxTMI 
TaxTMI 
2012 (11) TMI 658
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....was entitled to deduct the interest which it was liable to pay to the Government for its moneys (Government moneys) with it (the assessee). 2. Facts in brief as emerged from the corresponding assessment order passed u/s.143(3) of the I.T. Act, 1961 dated 20/11/2006 were that the assessee is a Co-operative Society and the Central Registrar of Cooperative Societies has appointed a liquidator to wind up the Society vide an order dated 11/4/2001. It was noted by the Assessing Officer that a return of loss of Rs.(-)1,45,42,000/- was submitted and on perusal, it was noticed that assessee had earned interest of Rs.37,32,077/- and claimed an expenditure of Rs.1,79,48,000/-. On perusal of accounts, the Assessing Officer had made an observation that for the year under consideration the assessee's Society had not carried out any activity and the assessee was not runnig the business. In addition to the interest earned of Rs.37,32,077/-, it was also found by the Assessing Officer that the assessee had earned Rs.8,50,135/- as rent. Interest was stated to be earned from the funds deposited in the banks. Those funds were found to be provided by the Government of India for the purpose of liquida....
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.... Officer that the appellant had incurred expenditure on insurance, salary, security charges, legal and professional fee, conveyance and telephone expenses and interest paid to Govt.of India and these expenditure were incurred for the purpose of winding up business. Thus, it was held that these expenses were incurred to wind up the appellant society and not to earn interest income. Also there is no nexus between the income earned from other sources and expenditure incurred to wind up the appellant society. 2.2. It is contended that the appellant has incurred huge losses from the year 1994-95 till 1997-98 and Govt.has decided to close down the business activities, and appointed official liquidator in the year 2001 to carry out the business by sale of properties and pay off all liabilities so generated from the assets. Govt. of India had given unsecured loan of Rs.132.84 crores to pay off the statutory dues of more than 2200 employees at the time of closer of business activities in 2000-01. After payment to most of the employees' liabilities, the balance amount of Rs.4.31 crores had to be kept as fixed deposits for disputed liabilities. Against the total earning of Rs.45.82 lacs as....
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....ssets of the assessee, therefore allowable expenditure. Decisions cited by him are as follows:- Sl.No(s) Decision in the case of ... Reported in...ITA.. 1. ITO vs. Bachoobai Woronzow, Bombay (1984) Taxation 76(6)-39 ITA Nos.3595 to 3597/Bom/1981 AYs 1976-77 to 1977-78 [ITAT Bombay Bench 'B'] Order dtd.26-3- 1984 2. CIT vs. Gannon Dunkerley and Co.(P.) Ltd. [2000] 243 ITR 0646 (Mad.) 3. Palani Sri Murugan Textiles Ltd. vs. Asst.CIT [2002] 254 ITR 0333 (Mad.) 6. From the side of the Revenue, ld.Sr.DR Mr. C.K.Mishra has supported the orders of the authorities below and stated that the assessee has failed to establish the nexus between the earning and the expenditure and since the expenditure was capital expenditure, therefore rightly disallowed by the Assessing Officer. 7. Having heard the submissions of both the sides, in our considered opinion, both the issues, i.e. the claim of expenditure of interest on Government of India loan of Rs.34,80,000/- and the other expenditure, such as, legal expenses, car running expenses, traveling, repair and maintenance, etc. are required to be re-examined by the Assessing Officer because of the requirement of the pr....
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....dator has incurred expenditure for the purpose of protecting the source of income. In addition thereto, the earning of interest income by the official liquidator cannot be construed in isolation or apart from other activities of the official liquidator. The official liquidator performed his statutory duties and during the course of his performance of duties, he incurred certain expenditure and earned the interest income. Therefore, we are of the view that there is a connection or nexus between the expenditure incurred and the interest income earned by the official liquidator. We are of the view that the decision of this Court in CIT vs. Dwarka Chit Funds (P) Ltd. (supra) would apply to the facts of the case and this Court after noticing the decision of the Kerala High Court in Wandoor Jupiter Chits (P) Ltd. (In Liquidation), In re (1992) 195 ITR 244 (Ker) : TC 41R.697, the decision of the Calcutta High Court in United Provinces Electric Supply Co. Ltd. vs. CIT (1992) 92 CTR (Cal) 155 : (1993) 204 ITR 794 (Cal), and the decision of the Supreme Court in Vijaya Laxmi Sugar Mills Ltd. vs. CIT [1991] 191 ITR 641 held as under: .... .... 10. Following the said decision, w....