1991 (1) TMI 6 - HC - Income Tax

Summary

Issues involved: Interpretation of expenses related to salary, wages, and rent for a company in voluntary liquidation for the assessment year 1980-81 under section 256(1) of the Income-tax Act, 1961.

Summary:
The High Court of Calcutta addressed a reference under section 256(1) of the Income-tax Act, 1961 regarding the allowance of expenses for a company in voluntary liquidation for the assessment year 1980-81. The Income-tax Officer disallowed a portion of the company's expenditure on salary and wages and rent, stating that the company failed to prove all expenses were incurred for earning interest income. The Commissioner of Income-tax (Appeals) upheld this decision. The Appellate Tribunal, however, directed that the expenses on salary, wages, and rent should be allowed in full. The High Court noted that even in liquidation, a company must maintain staff for statutory duties until the winding-up is complete. Only actual expenses for specific staff members and office rent should be allowed as deductions. The Court ruled that only the actual expenditure on salary, wages, and rent should be allowed as deductions for computing income from other sources. The judgment was agreed upon by both judges.

In conclusion, the High Court of Calcutta clarified the treatment of expenses related to salary, wages, and rent for a company in voluntary liquidation, emphasizing that only actual expenses incurred for specific staff members and office rent should be allowed as deductions for computing income from other sources.