Law: Income Tax Act, 1961

Section: 57(iii)

Income-tax----Income---Other sources---Deduction---Undertaking taken over by Government---Custodian appointed under special Act---Amount paid to custodian by Government---Amount deposited in Bank---Remuneration of custodian and administrative expenses deductible from the interest received from the Bank---Indian Income-tax Act, 1961, S.57(iii). The assessee, a limited company, was engaged in the manufacture and production of various items of engineering equipment of national importance. The Government of India decided to acquire its undertaking by the Richardson and Cruddas Ltd. (Acquisition and Transfer of Undertaking) Act, 1972. The custodian, on behalf of the assessee, received Rs.30 lakhs from the Central Government and deposited the same in a scheduled bank as required by the Act. Out of the interest received thereon, the custodian paid to himself his own emoluments and also the administrative expenses. The question of assessing the assessee-company arose for the first time in the assessment year 1975-76 after the taking over of the undertaking of the assessee by the new company. The assessee claimed before the Income-tax Officer that the interest received by the assessee-company through the custodian on Rs.30 lakhs deposited in the scheduled bank was not liable to be assessed as its income, secondly, it was contended that the expenses incurred in administering the company should be allowed as deduction and only the net interest income should be taxed if at all. The Income Tax Officer rejected the first contention and allowed a sum of Rs.5,000 only as expenditure on estimate and brought the balance to tax. The Tribunal held that the income was received by way of interest by the custodian and he was under a statutory obligation to disburse the same in a certain manner, that the income was in the nature of trust money and the custodian was under an obligation to spend it for certain definite objects and that the entire remuneration and other administrative expenses were deductible. On a reference: Held, that the remuneration of the custodian and various disbursements made by the custodian must be allowed as deductions before the amount of interest received by…

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