1987 (10) TMI 87 - AT - Income Tax

Summary

Issues:
1. Assessment of income for a company in voluntary liquidation under the IT Act, 1961
2. Fixing tax rate for a company in liquidation as per the Finance Act, 1980
3. Validity of return signed by a liquidator under section 140(C) of the IT Act, 1961
4. Allowance of expenses of liquidation under section 520 of the Companies Act, 1956
5. Set off of unabsorbed depreciation from earlier years
6. Interpretation of provisions of the Companies Act, 1956 and IT Act, 1961 in relation to liquidation expenses and tax computation
7. Discrepancy in the calculation of tax payable under the Finance Act, 1980

Analysis:
1. The appeal challenged the assessment order for the company in voluntary liquidation for the assessment year 1980-81. The grounds included the absence of assessable income under section 5 of the IT Act, 1961 for a company in liquidation, the absence of a fixed tax rate for such companies under the Finance Act, 1980, and the validity of the return signed by a liquidator under section 140(C) of the IT Act, 1961.
2. The Tribunal noted that similar grounds raised in a previous case had been decided against the assessee. Therefore, the Tribunal rejected the first three grounds based on the precedent set by the earlier judgment.
3. The remaining grounds focused on the allowance of expenses of liquidation under section 520 of the Companies Act, 1956. The assessee argued that certain expenses, such as salary, wages, and rent, should be fully deductible. The Departmental Representative supported the CIT(A)'s decision to reject these claims, citing the ITO's authority to consider each expenditure item in the assessment order.
4. After considering the arguments, the Tribunal found merit in the assessee's contention regarding the deduction of specific expenses related to salary, wages, and rent. The Tribunal emphasized that while liquidation costs are a priority payment, not all expenses may be legally deductible under section 57 of the IT Act. The Tribunal directed the CIT(A) to compute the deduction for the specified expenses in full.
5. Consequently, the appeal was allowed in part, specifically concerning the allowance of certain expenses related to liquidation as claimed by the assessee.