Law:

Section:

Section 57(iii) of the Income-tax Act, 1961 - Income from other sources - Deductions - Assessment year 1972-73 - Whether expenses incurred by a company, even when it does not carry on business, to maintain establishment for complying with statutory obligation until its name is struck off the register or it is dissolved, are allowable as deduction - Held, yes FACTS For the assessment year 1972-73, while computing the 'Income from other sources' the ITO disallowed expenses which included office rent, salary, contribution to provident fund, rates and taxes, audit fee, printing and stationery charges filing fees, and staff welfare expenses. The Tribunal, held that none of the expenses claimed by the assessee could be said to be for any purposes other than those wholly and exclusively required for its activities to earn income and, therefore, it allowed the expenditure claimed as deduction by the assessee. On reference: HELD A limited company even if it does not carry on business, even if it derives income from other sources, has to maintain its establishment for complying with statutory obligation so long as it is in operation and its name is not struck off the register or unless the company is dissolved. So long as the company is in operation, it has to maintain the status as a company and it has to discharge certain legal obligations and for that purpose it is necessary to appoint clerical staff and secretary or accountant and incur incidental expenses. In this background, the conclusion of the Tribunal that the expenses incurred were wholly and exclusively for the activities to earn income was a reasonable conclusion. The Tribunal was, thus, justified in allowing the expenditure claimed by the assessee as deduction. EDITOR'S NOTE The High Court's decision relates to the allowance of certain expenses against 'income from other sources' in the case of a company. The Court following its own decisions in CIT v . New Savan Sugar & Gur Refining Co. Ltd. [1990] 185 ITR 564 (Cal.) and of the Allahabad High Court in the case of CIT v. Rampur Timber & Turnery Co. Ltd. [1973] 89 ITR 150 , has decided that a limited company, even if it does not carry on business and…

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