Commissioner of Income Tax vs Gannon Dunkerley and Co. Pvt. Ltd.

Janarthanam, J.—The assessee, Gannon Dunkerley and Company Private Limited, Madras, went into liquidation on March 14, 1969.

The official liquidator disposed of the assets of the company in the process of liquidation.

The company filed "nil" return for the assessment year 1974-75, return of loss of Rs. 1,09,110 for the assessment year 1975-76 and return of loss of Rs. 67,468 for the assessment year 1981-82.

The Income Tax Officer, however, determined the total income at Rs. 2,37,845, Rs. 62,779 and Rs. 1,33,663 respectively for those years.

In determining the total income, the Income Tax Officer completely ignored the expenditure claimed by the assessee for these three years under various heads, such as establishment, postage, printing, travelling, legal charges, etc.

According to the assessee, the official liquidator incurred the expenditure in the course of administration and realisation of the assets of the company, and, therefore, this expenditure was incurred for the safe preservation and maintenance of the assets of the company.

According to the Income Tax Officer, there is no business carried on by the assessee and, therefore, the expenses could not be treated as business expenses. Hence, he rejected the claim of expenses by the assessee.

On appeal, the Commissioner of Income Tax (Appeals) following an earlier order of the Tribunal dated November 26, 1983, in I.T.A. No. 113 (Mds) of 1983 relating to the assessment year 1978-79, wherein the expenditure claimed by the assessee was allowed u/s 57(iii) of the Income Tax Act, 1961, directed the Income Tax Officer to allow the entire claim of expenditure under the heads "Business" and "Other sources", as the case may be, by allocating the expenditure under the heads "Business" and "Other sources" in proportion to the gross income derived by the assessee under these heads.

On appeal by the Revenue, the Tribunal upheld the order of the Commissioner of Income Tax (Appeals) as it was based on an earlier order of the Tribunal to the assessee''s own case for the assessment year 1978-79 on the same issue.

It is on these facts, the Income Tax Appellate Tribunal u/s 256(1) of the Income Tax Act, 1961, referred the common question of law as below for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the entire expenditure incurred by the official liquidator in the course of liquidation proceedings should be allowed as deduction in computing the total income of the company ?"

Arguments of Mr. R. Sivaraman, learned counsel, representing Mr. C. V. Rajan, learned junior standing counsel, representing the applicant, and of Mr. P.P.S. Janarthana Raja, learned counsel, representing Subba-raya Aiyar, learned counsel appearing for the respondent, were heard.

Our attention had been drawn to an unreported decision of a Division Bench of this court in T. C. Nos. 1263 of 1985, 766 and 1016 of 1986--since reported in Commissioner of Income Tax Vs. Gannon Dunkerley and Co. (P.) Ltd., Gannon Dunkerley And Co. (Madras) Ltd., , concerning the assessee''s own case, respectively, relatable to the assessment years 1978-79, 1979-80 and 1980-81. The common question raised in the abovesaid T. C. numbers was identical to the common question as now raised in the instant cases, which is relatable to the assessee''s own case, as earlier stated for the assessment years 1974-75, 1975-76 and 1981-82.

The learned judges of a Division Bench of this court in the unreported decision referred to above (since reported in Commissioner of Income Tax Vs. Gannon Dunkerley and Co. (P.) Ltd., Gannon Dunkerley And Co. (Madras) Ltd., , answered the common question in the affirmative and against the Revenue. The reasoning or rationale as adopted by the said learned judges of the Division Bench in the unreported T.C. numbers as stated above (since reported in Commissioner of Income Tax Vs. Gannon Dunkerley and Co. (P.) Ltd., Gannon Dunkerley And Co. (Madras) Ltd., , will also hold good and there is no need at all for us to reproduce such rationale or reasoning here.

Following the decision of a Division Bench of this court in the unreported decision (since reported in Commissioner of Income Tax Vs. Gannon Dunkerley and Co. (P.) Ltd., Gannon Dunkerley And Co. (Madras) Ltd., , as stated above, we also answer the common question in the instant cases in the affirmative and against the Revenue.

These tax cases are thus disposed of. There shall, however, be no order as to costs, on the facts and in the circumstances of the cases.