JUDGMENT

Pathak, J. - Messrs. Vijay Laxmi Sugar Mills Ltd., a private limited company, was incorporated in 1946. Mathura Prasad and his two sons, Ladli Prasad and Radhey Lal, were its only shareholders. They were also directors of the company from its inception. On August 4, 1949, the members of the company passed a resolution for its winding-up. A similar resolution was passed by the creditors the next day. Two joint liquidators were appointed. Upon subsequent litigation in relation to the winding-up of the company, the High Court made an order dated November 8, 1949, directing the company to be wound up under the supervision of the court. On February 3, 1950, the court also directed the liquidators to submit a report every three months respecting the progress of the winding-up proceedings and realisation of assets. The liquidators, in the course of the winding-up, realised amounts due to the company from time to time and put them in fixed deposits with certain banks. For the assessment year " 1962-63 (the relevant previous year being the calendar year 1961), the income from interest on the fixed deposits amounted to Rs. 13,965. The company, during the previous year, had incurred an expenditure of Rs. 13,023'63, which was made up of Rs. 5,565 on account of litigation expenses, incurred in a suit brought by the liquidators against the former directors of the company for misfeasance, Rs. 6,802 on account of travelling allowance allowed to the liquidators and smaller items for postage, stationery, salary and liquidation expenses. The company claimed that this expenditure was liable to be set off against the income and, therefore, filed a return of net income of Rs. 941, The Income Tax Officer rejected the claim for deduction of expenses and treated the entire sum of Rs. 13,965 as the company's assessable income. The Appellate Assistant Commissioner, on appeal by the assessee, affirmed the action of the Income Tax Officer. In second appeal before the Income Tax Appellate Tribunal, the assessee urged that on the commencement of liquidation the liquidators had engaged themselves in realising the outstandings and assets and had deposited them with the bank, and this constituted the vocation of the assessee. For the purposes of Section 28 of the Income Tax Act, 1961, it was said, the company must be held to be carrying on a vocation and, therefore, the expenditure incurred by it should be adjusted against its profits and gains earned during the year. The Tribunal dismissed the appeal. It held that as the activity of realising the assets and banking them in fixed deposits was in the course of winding-up, it was not in furtherance of the business activity carried on here to before by the company. The assessee could not be said to have carried on a business or profession within the meaning of Section 28, and, therefore, the income from interest on fixed deposits had to be treated from "other sources" u/s 56. The only deductions allowable were those permitted u/s 57, and they consisted of expenditure incurred for the purpose of making or earning income from other sources. The Tribunal pointed out that the expenses did not appear to be of that nature.

2. At the instance of the assessee the Tribunal has 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 ?"

3. It is settled law that when the liquidator of a company is engaged in merely realising the assets of the company he cannot be said to be carrying on any business: The Liquidators of Pursa Limited Vs. Commissioner of Income Tax, Bihar, AIR 1954 SC 253 and COMMISSIONER OF Income Tax, KERALA Vs. WEST COAST CHEMICALS AND INDUSTRIES LTD. (IN LIQUIDATION)., (1962) 46 ITR 135 If, however, for the purpose of facilitating the winding-up the liquidator carries on the company's business and realises the assets of the company in, such a way that what he does bears the char