TaxTMI 
TaxTMI 
1991 (8) TMI 1
X X X X Extracts X X X X
X X X X Extracts X X X X
.... course of winding up, the liquidator sold certain assets and deposited the money in fixed deposits with certain banks. During the previous year relevant to the assessment year 1966-67, the appellant earned by way of interest from fixed deposits a sum of Rs. 32,237.60. The liquidator had, in the relevant previous year, incurred the following expenditure totalling Rs. 12,379.45: Rs. Salaries 1,215.00 Legal fees 9,725.00 Liquidation expenses 538.85 T.A and D. A. 751.51 Postage 95.34 Stationery 53.75 Total 12,379.45 The assessee-company claimed deduction of the above-said sum of Rs. 12,379.45 from the interest income of Rs. 32,237.60. The Income-tax Officer did not allow any part of the expenditure claimed by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d deposit. At the instance of the assessee, the Tribunal referred the following question : "Whether, on the facts and in the circumstances of the case, the sum of Rs. 13,023 is an admissible charge against the income of the previous year ?" In the decision in Vijay Laxmi Sugar Mills Ltd. v. CIT [1972] 86 ITR 402 (All), the High Court answered that reference holding that the income from the fixed deposit has to be considered as income from other sources and only that expenditure can be deducted which, under section 57(iii) of the Act, can be considered as incurred for earning that income and that the expenses claimed are not related to the earning of that income. Accordingly, the High Court answered the question in the negative and in favo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....revious, year. We are wholly at a loss to understand how this argument impossible on the facts and circumstances of this case. As already stated, the company had been directed to be wound up and a liquidator was appointed by the High Court as early as in 1950. The company, before its liquidation, was engaged in the manufacture of sugar. The records do not disclose that the liquidator was carrying on the business of manufacture of sugar or any trading activity for the purpose of facilitating the winding up. The statement of facts on record shows that the liquidator realised certain amounts by way of sale of the assets of the company in liquidation and it is those sale proceeds that were invested in fixed deposit which earned the interest. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....posits pending distribution. It was contended on behalf of the company in liquidation that the income realised by the liquidator was business income and that the Income-tax Officer was not right in treating it as "Income from other sources". Rejecting this contention the Gujarat High Court held (p. 580) : "That the assets of which the liquidator was seized and which he tried to realise for purposes of winding up were of capital nature and they cannot be said to be business assets, nor can it be said that merely because, he was investing the realisations, assuming that that was permissible either under the memorandum or under the statute, the activities which he was carrying on as a liquidator were those of a businessman. In the circumstanc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uidator in this case can be said to have been incurred solely for the purpose of earning the interest income. It is true that the connection between the expenditure and the earning of income need not be direct and it may be indirect. But, since the expenditure must have been incurred for the purpose of earning that income, there should be some nexus between the expenditure and the earning of the income. There is not even some sort of evidence to show that the expenses incurred by the liquidator were to facilitate the earning of or at least for protecting the income. The interest accrues sui generis. The interest is payable by the bank whether it is claimed or not and whether there is any establishment or not. Normally, there was no necessit....