Per Shri S.K. Jain, Judicial Member - This is appeal of the assessee- company, viz., The United Provinces Electric Supply Co. Ltd. (in voluntary liquidation) against the order of the CIT (Appeals) arising out of the assessment order for the assessment year 1981-82.

2. The assessee. company was in voluntary liquidation and a liquidator was appointed for winding it up. A return of income was filed on 24-7-81 by the liquidator showing a business loss of Rs. 23,447. Income from interest and under other heads was shown at Rs. 2,16,265 and against that expenses were claimed at Rs. 2,39,712. However, it was claimed by the assessee that the said receipt of Rs. 2,16,265 was not its income and even otherwise net income of a company in liquidation could be taxed. In this connection the assessee took the following grounds of appeal :

(1) For that the company being in liquidation has no income referred to in section 5 of the Income-tax Act 1961.

(2) For that the Finance Act, 1981 has not fixed any rate of tax for a company in liquidation which is neither a company in which the public are substantially interested nor a company in which the public are not substantially interested.

(3) For that no valid assessment can be made on the basis of a return of income signed and verified by one of the liquidators which return is non est in law having regard to section 140(c) of the Income-tax Act, 1961.

3. The contention of learned counsel for the assessee is that there is vast distinction between a company which is a going concern and a company in liquidation. He took us through several provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959 and enumerated several distinctive features between a company as a going concern and a company in liquidation. He pointed out that the method of accounting prescribed for these two types of companies is also different. It is contended by him that no profit & loss account is required to be prepared in the case of a company in liquidation and only an account of receipts and payments is required to be maintained and that too not year wise. it is also pointed out by him that as provided in section 491 of the Companies Act, an appointment of a liquidator, all the powers of the Board of Directors cease. Thus, according to him because of the several distinctive features between these two categories of the companies the company in liquidation cannot be treated as a company as a going concern. It is further contended by him that the function of a liquidator of a company in liquidation, broadly speaking, is to realise assets of the company and to distribute them amongst the creditors and the shareholders according to law and in accordance with the directions of the Court. Thus, the learned counsel for the assessee contended, the company in liquidation has no income, as such liable to be taxed.

4. He contended that full effect should be given to the provisions of the Companies Act and for that, in support, he placed reliance upon judgment of the Hon’ble Supreme Court in the case of CIT v. Bagyalakshmi & Co. [1965] 55 ITR 660. In support of his argument that no income arises to a company in liquidation he placed reliance upon CIT v. Madurai Mills Co. Ltd. [1973] 89 ITR 45 (SC). He also placed reliance upon judgment of House of Lords in the case of Ayerst (Inspector of taxes) v. C.K. (Construction) Ltd. [1975] 3 W.L.R.16 (HL.).

5. He referred to the Finance Act of 1981 and section 2(18) of the Income-tax Act and so also sections 104 & 108 of the Income-tax Act and contended that these provisions do not envisage the company in liquidation. According to him, a company in liquidation is neither a public company nor a private company.

6. He further referred to section 140(c) of the Income-tax Act as was amended by the taxation Laws (Amendment) Act, 1975 with effect from 1-4-76. Prior to this amendment clause (c) of section 140 was as under :-

"In the case of a company or local authority, by the Principal offic