Law: Income Tax Act, 1961

Section: 256

(a) Income-tax---Business---Business expenditure---Company---Winding up by order of Court---Assets sold by liquidator and monies realised invested in fixed deposits with banks---Interest earned---No evidence that Company's business or any trading activity was carried on---Expenses incurred by liquidator towards salaries, legal fees, liquidation expenses, etc.----Not business expenditure---Realisation of assets by liquidator is not "Business"- The appellant, a private company, which carried on the business of manufacture of sugar, was ordered to be wound up by the High Court in November, 1949. In the course of the winding up, the liquidator sold certain assets and invested the monies realised in fixed deposits with certain banks. For the assessment years 1966-67 and 1967-68, the appellant-company sought to deduct expenses incurred by the liquidator towards salaries, legal fees, liquidation expenses, TA and DA., postage and stationery, in computing its income from interest earned on the deposits for the purpose of income-tax. Among the objects mentioned in its memorandum of association, provision was made, inter alia, for advancing and lending monies, and investment of the company's monies. But there was no material on record to indicate that the liquidator had carried on the business of manufacture of sugar or any trading activity for the purpose of facilitating the winding up: Held, (i) that, in merely realising the assets of the appellant-company in the course of its winding up and banking the proceeds in fixed deposits, the liquidator could not be considered as having carried on any business of the company. The appellant-company could not, therefore, be said to have carried on any business to bring the interest income within the meaning of section 28 of the Income-tax Act, 1961, and, therefore, the income from interest was liable to be computed only under the head "Income from other sources". Morvi Mercantile Bank Ltd. v. C.I.T. (1976) 104 ITR 568 (Guj) followed. (ii) That there was no evidence to show that the expenses sought to be deducted were to facilitate the earning of the interest. The interest accrued sui generis. The interest was payable by the bank…

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