1991-VIL-620-CAL-DT

Equivalent Citation: [1993] 204 ITR 804, 81 TAXMANN 531

CALCUTTA HIGH COURT

Date: 14.01.1991

COMMISSIONER OF INCOME-TAX

Vs

BENARAS ELECTRIC LIGHT AND POWER COMPANY LIMITED

BENCH

Judge(s)  : SHYAMAL KUMAR SEN., AJIT KUMAR SENGUPTA 

JUDGMENT

AJIT K. SENGUPTA J.-In this reference under section 256(1) of the Income-tax Act, 1961, for the assessment year 1980-81, the following question has been referred to this court :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the expenses relating to salary and wages and rent would have to be allowed in full and thereby directing the Commissioner of Income-tax (Appeals) to compute the deduction of these two items accordingly ?"

Shortly stated, the facts are :

The matter arises out of the income-tax assessment of the assessee for the assessment year 1980-81, the accounting period ending on March 31, 1980. The assessee-company was under voluntary liquidation since the Government took over the business of the assessee. The assessee had income only from interest during the year in question. The Income-tax Officer, while assessing the company, disallowed a portion of the assessee's expenditure out of salary and wages (Rs. 50,785) and rent (Rs. 11,726) by observing that the assessee was unable to convince him that all the expenses were incurred for earning its interest income.

Being aggrieved by the aforesaid order of the Income-tax Officer, the assessee-company went on appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) dismissed the appeal of the assessee by confirming the order of the Income-tax Officer.

As against the order of the Commissioner of Income-tax (Appeals) as aforesaid, the assessee preferred an appeal before the Appellate Tribunal. The Tribunal held that the two items of expenditure as aforesaid have to be allowed in full in the circumstances of the case, and for the reasons detailed in its order and directed the Commissioner of Income-tax (Appeals) to compute the deduction of these items of expenses referred to above.

Before us, the contentions raised before the Tribunal have been reiterated. It appears that the Income-tax Officer allowed part of the expenses on account of salary and wages and rent. In our view, even if the company had gone into liquidation, unless the winding-up is complete and the name of the company struck off from the register, the company has to maintain a skeleton staff for performing its statutory duties and obligations. The Income-tax Officer has, therefore, allowed only a part of the salary and wages and the rent of the premises where the office of the company in liquidation is situate. In our view, when a company goes into liquidation, the expenditure which is incurred towards salary and wages of the staff and the rent would be an expenditure incurred wholly and exclusively for the purpose of earning income assessable under the head "Other sources". It does not appear from the facts which have been stated by the Tribunal that how many of its staff were engaged by the company in liquidation, and what is the quantum of salary or wages payable to them. In our view, only the actual expenditure incurred for payment of the salary of the accountant, typist and stenographers and sub-staff should be allowed as deduction. Similarly, actual rent paid for the office of the company in liquidation should also be allowed.

For the reasons aforesaid, we answer the question by saving that only the actual expenditure incurred on the salary and wages of the staff mentioned in the judgment and the rent should be allowed as deduction in computing the income from other sources.

There will be no order as to costs,

SHYAMAL KUMAR SEN J.-I agree.

 

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