TMI Blog1991 (8) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... e winding up order was made by the High Court on November 8, 1949, and the liquidator was directed to submit reports once in every three months respecting the progress of the winding up proceedings and realisation of the assets. In the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee is entitled to deduction of the whole or any part of the expenses incurred by the liquidator in the computation of the assessee's total income ?" It may be mentioned that, in respect of the assessment year 1962-63, the assessee had claimed deduction of similar expenditure from the interest income earned from fixed 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is is right, the expenditure incurred by the liquidator shall also be considered as for the purpose of earning the above-mentioned income or at least could be said to be wholly and exclusively laid out or expended for the purposes of that business and hence deductible from the total income earned by the company during the relevant previous, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her sources". Very near to the facts of this case is the decision in Morvi Mercantile Bank Ltd. v. CIT [1976] 104 ITR 568 (Guj). In that case, the assessee, banking company, was compulsorily wound up and its licence was suspended by the Reserve Bank. The official liquidator realised the assets and invested the money in short-term deposits 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income chargeable under the head "Income from other sources", section 57(iii) provides that deduction is to be made in respect of expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income. The question for consideration, therefore, is whether the expenses of the type incurred by the liquidator 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. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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