1. 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 heretobefore 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' under Section 56. The only deductions allowable were those permitted under Section 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: Liquidators of Pursa Ltd. v. Commissioner of Income-tax,  25 I.T.R. 265;  S.C.R. 767 (S.C.) and Commissioner of Income-tax v. West Coast Chemicals and Industries Ltd.,  46 I.T.R. 135(S.C.) 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 characteristics of a continuing trading activity, it is possible to infer that the business of the company is being carried on: Commissioner of Income-tax v. National Mills Co. Ltd.,  34 I.T.R. 155 (Bom.) and Liquidator, Delta Plantation Co. Ltd. v. State of Madras,  56 I.T.R. 428 (Mad.). In other words, if the liquidator considers it necessary for a proper and effective realisation of the company's assets to continue the business of the company, the business of the company must be treated, although in a limited sense, as being carried on. But, if all that the liquidator does is to realise the assets, there is no carrying on of the company's business.
4. Upon the facts before us, it is clear that the liquidators did not carry on the business of the company during the relevant previous year. The company had been put into winding-up. Its principal object, according to its memorandum of association, was to acquire and take over the business undertaking of the Vijay Sugar Corporation Ltd. which was engaged in the manufacture of sugar. For the purpose Of carrying on that business it was empowered to erect a sugar mill, manufacture sugar machinery parts, purchase or produce sugar beet, sugarcane and manufacture molasses, alcohol, etc., etc., and for the purpose construct and operate sugar refineries, distilleries, mills and factories. There was also a provision for advancing and lending money on assets of all kinds, investment of the company's moneys 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. Those provisions are contained in Clauses 21, 28, 35 and 40 of the memorandum of association. The assessee relies upon those clauses in support of the contention that when the liquidators were putting the moneys realised in fixed deposit in the banks they did what was contemplated by the memorandum to be the business of the company. In our opinion, the contention cannot be accepted. It seems to us that all that the liquidators were doing was to realise the assets of the company. Upon realising the assets, they were put into fixed deposit with the banks. The banking of the money was merely a mode of keeping it. The money was kept in safe custody and also earned profit. Essentially, the activity was one of realising the assets. Putting the money in fixed deposit was a purely consequential activity. If with a view to facilitating the winding-up, the liquidators had carried on the business activity of the company, and what they did was done for the purpose of a better realisation of the assets, either before or in the course of such realisation, they could be said to have carried on the business of the company. But, here, after they had realised the assets they put them into fixed deposit. The activity on which they rely followed after realisation had been completed. For the purpose of realising the assets they did not carry on any business activity.
5. We are unable to hold that the company carried on any business or vocation, and it seems to us that the Tribunal is right in holding that the case is not governed by Section 28 but falls to be considered under Section 56. The income from the fixed deposits has to be considered as income from 'other sources', and only that expenditure can be deducted from it which under Section 57 can be considered as incurred for earning that income. The Tribunal has found that the expenses claimed are not related to that income, and this finding has not been shown to be erroneous in law.
6. In our judgment, the sum of Rs. 13,023.63 is not an admissible deduction against the interest income earned by the assessee during the previous year. Accordingly, we answer the question referred in the negative.
7. The Commissioner of Income-tax is entitled to his costs, which we assess at Rs. 200. Counsel's fee is assessed in the same figure.
Question answered in the negative.