ivil Appeal Nos
1103  1104 of 1979
From the Judgment and Order dated 203
1978 of the Allahabad High Court in I TR Nos
42872 and 542 of 1973
Ashok Grover for the Appellant
J Ram Murthy section Rajappa and Ms A Subhashini for the Respondent
The Judgment of the Court was delivered by V RAMASWAMI J
The appellant is a private limited company in Liquidation
The winding up order was made by the High Court on 8th November 1949 land the Liquidator was directed to submit reports every three months respecting the progress of the winding up proceedings and realisation of the assets
In the course of winding up the Liquidator sold certain assets and deposited the money in fixed deposits with certain banks
During the previous year relevant to the assessment year 1966 67 the appellant earned by way of interest from fixed deposits a sum of Rs3223760
The Liquidator had in the relevant previous year incurred the following expenditure totalling Rs 1237945 Salaries Rs 12 1500 Legal fees Rs 972500 Liquidation expenses Rs 53885 TA  DA Rs 75151 Postage Rs 9534 Stationery Rs 5375 Total Rs 1237945 386 The assessee company claimed a deduction of the above said sum of Rs 1237945 from the interest income of Rs3223760
The Income Tax Officer did not allow any part of the expenditure claimed by the assessee company and assessed the entire amount of Rs3223760 as taxable under section 56 of the Income Tax Act 1961 hereinafter referred to as the Act  under the head INCOME FROM OTHER SOURCES
This assessment order was confirmed by the Appel late Assistant Commissioner and the Tribunal on an appeal
In the assessment year 1967 68 also the assessee earned certain amounts of money by way of interest from fixed deposits and the Liquidator incurred identical expenditures as in the assessment year 1966 67 except for the difference in the amount
The Income Tax Officer refused to allow any deduction of any part of the expenditure claimed by the assessee
Even in this assessment year the entire interest income was taxed under section 56 of the Act under the head Income From Other Sources
The appeals flied in respect of this assessment year also were unsuccessful
In respect of both these assessment years the following identical question was directed to be referred by the High Court under section 562 of the Act on the refusal of the Tribunal to refer the same under section 256 1 Whether on the facts and in the circumstances of the case the assessee is entitled to the deduction of the whole or any part of the expenses incurred by the Liquidator in the computation of the assessee s total income
It may be mentioned that in respect of the assessment year 196263 the assessee had claimed deduction of simmilar expenditure from the interest income earned from fixed deposit
At the instance of the assessee the Tribunal re ferred the following question Whether on the facts and in the circum stances of the case the sum of Rs 13023 is an admissible charge against the income of the previous year
In the decision reported in Vijay Laxmi Sugar Mills Ltd vs Commissioner of Income Tax Delhi Central All
the High Court answered that reference holding that the income from the fixed deposit has to be considered as income from other sources and only that ex penditure can be deducted which under section 57iii of 387 the Act can be considered as incurred for earning that income and that the expenses claimed are not related to the earning of that income
Accordingly the High Court answered the question in the negative and in favour of the Revenue
It may also be mentioned that the assessing officers and the Tribunal followed this decision which was assessee s own case for the earlier assessment year in the assessments now in question
The learned counsel for the appellant canvassed the correctness of the view propounded in Vijay Laxmi Sugar Mills Ltd vs Commissioner of Income Tax Delhi Central supra
The learned counsel contended that among the ob jects mentioned in the memorandum of association of the company provision is made for advancing and lending money investment of the company s money and dealing in debentures shares stocks and other securities and carrying on various other businesses such as the company considered desirable in lieu of any other business which it was authorised to carry on
Therefore in effecting sale and realising of the assets of the company in Liquidation and investing in fixed depos its the Liquidation was engaged in the businesses of making investment in fixed deposits
The interest income earned therefrom is a business income taxable under section 28 of the Act and not under section 56 of the Act under the head Income From Other Sources
If this contention of his is right the expenditure incurred by the Liquidator shall also be considered as for the purpose of earning the above men tioned income or at least could be said as wholly and exclu sively laid out or expended for the purposes of that busi ness and deductable from the total income earned by the company during the relevant previous year
We are wholly at a loss to understand how this argument is possible on the facts and circumstances of this case
As already stated the company had been directed to be wound up and a Liquidator was appointed by the High Court as early as in 1950
The company before its Liquidation was engaged in the manufac ture of sugar
The records do not disclose that the Liquida tor was carrying on the business of manufacture of sugar or any trading activity for the purpose of facilitating the winding up
The statement of facts on record show that the Liquidator realised certain amount by way of sale of the assets of the company in Liquidation and it is those sale proceeds that was invested in fixed deposit which earned the interest
The Liquidator in merely realising the assets of the company could not be considered as carry on any business of the company
The activity of realising the assets and banking them in fixed deposit was in the course of winding up and it was not in furtherance of any business activity 388 carried on by the company before its winding up
There may be cases where the Liquidator may be said to carry on the company s business in so far as is necessary for the winding up or facilitate the winding up or realise the assets of the company in such a way as to involve the carrying on trade
But in this case there is no evidence in this regard
In fact the winding up order was made as early as in 1950 and nothing of the winding up activity is in evidence
The only accepted fact is that the interest income was derived from fixed deposits purchased out of the pro ceeds of sale of assets during winding up
The assessee therefore could not be said to have carried on any business to bring the interest income within the meaning of section 28 of the Act and that therefore the interest income was liable to be assessed only under the head Income From Other Sources
Very near to the facts of this case is the decision reported in Morvi Mercantile Bank Ltd In Liquidation vs Commissioner of Income Tax Gujarat Guj
In that case the assessee a banking company was compul sorily wound up and its licence was suspended by the Reserve Bank
The Official Liquidator realised the assets and in vested the money in short term deposit pending distribution
It was contended on behalf of the company in Liquidation that the income realised by the Liquidator was business income and that the Income Tax Officer was not right in treating it as Income From Other Sources
Rejecting this contention the Gujarat High Court held That the assets of which the liquidator was seized and which he tried to realise for purposes of winding up were of capital nature and they cannot be said to be business assets nor can it be said that merely because he was investing the realisations assuming that that was permissible either under the memorandum or under the statute the activities which he was carrying on as a liquidator were those of a businessman
In the circumstances therefore we cannot uphold the contention of Mr Patel that the liquidator was making for merecantile necessity the investment of realisations as a business for beneficial winding up of the company
The Tribunal has found as a fact that the main business of the assessee company having gone as a result of the winding up order there did not remain any other activity 389 which can be legitimately said to be a busi ness activity and whatever the liquidator did was merely as a liquidator for purposes of liquidation of the company
This is indeed the view to be taken even in this case also
The Tribunal was therefore right in holding that the interest income in the instant case is not governed by section 28 but fails to be considered under section 56
The next submission of the learned counsel for the assesee was that in the course of effecting the winding up of the assessee company the Liquidator has been incurring expenses such as salaries legal fees travelling expenses and other liquidation expenses and that these expenses are allowable deduction from income earned by way of interest from fixed deposits in the relevant year
In computing the income chargeable under the head Income From Other Sources section 57iii provides that deduction is to be made in respect of expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income
The question for consideration therefore is wheth er the expenses of the type incurred by the Liquidator in this case can be said to have been incurred solely for the purpose of earning the interest income
It is true that the connection between the expenditure and the earning of income need not be direct and it may be indirect
But since the expenditure must have been incurred for the purpose of earning that income there should be some nexus between the expenditure and the earning of the income
There is not even some sort of an evidence to show that the expenses incurred by the Liquidator was to facilitate the earning or at least for protecting of the income
The interest accrues SUI GENERIS
The interest is payable by the bank whether it is claimed or not and whether there is any establishment or not
Normally there was no necessity for spending anything separately for earning the interest
However we may hasten to add that if any explenditure was incurred like commission for collection or such similar expenditures which may be considered as spent solely for the purpose of earning that income the position may be different
But that was not so in this case
It could not also be said that the expenditure incurred was to preserve or acquire the asset
Nor could it be said that the expenses were incurred for the purpose of maintenance of the source
The requirement under section 57iii that the expenditure should have been incurred for the purpose of making or earning such income show that the object of spending or the end or aim or the intention of such spending was for earning the interest 390 income
There could be no doubt that the expenditure incurr eid by the Liquidator in this case can by no stretch be said to have been incurred with the object or for the purpose of earning the interest income
The Tribunal was therefore right in holding that the expenses claimed are not related to the interest income and was not a deductable expenditure under section 57
We are therefore of the view that the High Court correctly answered the reference in the negative and in favour of the Revenue
The appeals are accordingly dismissed with costs
RP Appeals dismissed


Summary:
The appellant a cash clerk in the establishment of Delhi Milk Scheme was placed under suspension under Rule 102 of the Central Civil Service Classification Control and Appeal Rules 1965 pending investigation into a crimi nal case connected with the forgery of a cheque in which he was arrayed as an accused
Subsequently his services were terminated under Rule 51 of the Central Civil Serv ices Temporary Service Rules 1965
Though he was acquit ted in the criminal case he was not re instated
However the Central Administrative Tribunal set aside the termina tion order and directed that the appellant would continue to be under suspension from the original date of termination of service and that it would be open to the competent authori ty to revoke his suspension and re instate him in service or continue him under suspension if it decided to initiate disciplinary proceedings against him
Pursuant to the decision of the Tribunal the Management passed an order under Rule 104 of the Rules placing the appellant under suspension from the date of original order of termination and also directed that there should be fur ther enquiry against the appellant
Allowing the appeal preferred by the appellant and modifying the Tribunal s order HELD 11 There are three requirements for the applica tion of Rule 104 of the Central Civil Services Classifi cation Control and Appeal Rules 1965
These are i the Government servant is dismissed removed or compulsorily retired as a measure of penalty ii the said 331 penalty is set aside or declared or rendered void by a decision of a Court of Law and iii the disciplinary authority decides to hold a further inquiry against the Government servant on the allegations on which the original order of penalty was imposed
334F G 12 In the instant case the original order of termina tion was not passed against the appellant as a measure of punishment
It was a simpliciter termination  under Rule 51 of the CCS Temporary Service Rules 1965
The Tribu nal has set aside that order on the ground that it amounts to punishment and the order of punishment could not have been made without holding an inquiry
But that is not the same thing to state that the Management made an order termi nating the services by way of penalty
It treated the said order as a simpliciter discharge
Hence Rule 104 has no application
Besides there was no question of the Manage ment deciding to hold a further inquiry since there was no earlier inquiry against the appellant and it would be misno mer to call it a further enquiry as contemplated under Rule 104
335B C 13 Thus the power to place a delinquent officer under suspension from the date of the original order of dismissal removal or compulsory retirement from service would be available provided the original order was made by way of penalty and that order has been set aside by a Court of Law
Since there was no inquiry leading to the removal of the appellant in the first instance the decision to hold fresh inquiry does not attract Rule 104
The retrospective suspension of the appellant is therefore unjustified and without authority of law
However the order of suspension would operate prospectively and the appellant would be entitled to re instatement with all back wages till that day since the original order of termination has been set aside by the Tribunal
The Tribunal s order is modified according ly
335D G