Suhas Chandra Sen, J.
1. The following question of law has been referred to this court by the Tribunal under Section 256(2) of the Income-tax Act, 1961 :
' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the entire remuneration to the custodian and other administrative expenses were admissible deductions under Section 57(iii) of the Income-tax Act ?'
2. The assessment year involved is the assessment year 1974-75 for which the relevant period of account is the year ending on May 30, 1973.
3. The facts stated by the Tribunal are as under :
The dispute in all these appeals related to the assessee's claim for deduction of remuneration to the custodian and other administrative expenses incurred by it against its income from other sources. The assessee is a limited company and was engaged in the manufacture and production of various engineering equipment of national importance. It went into bad ways and, therefore, the Government of India decided to acquire its undertaking by the Richardson and Cruddas Limited (Acquisition and Transfer of Undertaking) Act, 1972, the relevant terms whereof are mentioned in paragraph 1 of the order of the Tribunal. The custodian, on behalf of the assessee, received Rs. 30 lakhs from the Central Government and deposited the same in a scheduled bank as required by the Act. Out of the interest received thereon, the custodian paid his own emoluments and also the administrative expenses. The question of assessing the assessec-company arose for the first time in the assessment year 1975-76 after the taking over of the undertaking of the assessee by the new company, The assessee claimed before the Income-tax Officer that the interest received by the assessee-company through the custodian on Rs. 30 lakhs deposited in the scheduled bank was not liable to be assessed as its income. Secondly, it was contended that the expenses incurred in administering the company should be allowed as a deduction and only the net interest income should be taxed if at all. The Income-tax Officer rejected the first contention and allowed a sum of Rs. 5,000 only as expenditure on estimate and brought the balance to tax, For the subsequent years, i.e., up to the assessment year 1978-79, the Income-tax Officer followed the same line except that he allowed some more amounts by way of estimates.
4. His conclusions were confirmed by the Commissioner of Income-tax (Appeals) in appeal.
5. On further appeal, the Tribunal held, inter alia, as follows :
'Under the statutory enactment, the custodian has to be paid remuneration by virtue of the provisions of the Act. The appointing authority is the Central Government. The custodian has no option but to keep the sum of Rs. 30 lakhs in a scheduled bank till the final stage comes. The custodian has to discharge several functions under the Act. The custodian has to maintain an administrative office and discharge other statutory functions under the Companies Act as well as under the Act for which he has to meet several expenses. The custodian holds the funds of the assessee in trust. In other words, he acts as a trustee, the beneficiary being the assessee-company. Whatever amount the custodian is left with is on the beneficiary's account. The custodian no doubt is in receipt of interest income. But, before he can part with the income, the expenditure which he incurs is bound to be deducted. He cannot part with more than what he has been left with. The income that he receives is subjected to the expenditure involved in the administration of the assessee-company. It is nobody's case that the expenditure was not necessary to be incurred and the genuineness of the expenditure is not in doubt. Obviously, the expenditure was essential for running the company and discharging certain statutory obligations. The assessee-company cannot be expected to have more than what is ultimately left after meeting the expenditure by the custodian. It is true that the expenditure the custodian meets is again on behalf of the assessee-company. The remuneration that he receives is also charged to the company's income. Under the Act, the whole process of keeping the money in deposit and earning interest therefrom and the administration of the company till a particular object is achieved is an integrated process and each one of them cannot be viewed in isolation.
If the above approach is kept in mind, it is a matter of common-sense that what is ultimately left with the company should be treated as income. There is no question of disallowing any expenditure, The entire expenditure should be treated as allowable as directly connected with the earning of interest income. Even if, by any chance, it cannot be treated as directly connected with interest, it, at any rate, has an indirect connection in which case also such expenditure can be allowed.'
6. We are of the view that the Tribunal has taken a correct view of the matter. The custodian was appointed by the Central Government under the provisions of the Richardson and Cruddas Ltd. (Acquisition and Transfer of Undertaking) Act, 1972. Under that Act, the undertaking of the old company vested in the Central Government on the appointed day. The custodian was appointed under Section 10 of the Act to manage the old company. The Act lays down the duties of the custodian. According to Chapter III of the Act, the custodian has to reconstruct a register of members of the old company, the custodian has to issue fresh share certificates, the custodian has the power not to hold the annual general meeting until reconstruction of the register of the members of the old company. Under the Act, the remuneration of the custodian has to be fixed by the Central Government and he is to be a public servant under Section 11 of the Act and under Sub-section (3) of Section 10 of the Act, he shall hold office at the pleasure of the Central Government. Under Section 8 of the Act, the Central Government paid a sum of Rs. 30 lakhs to the custodian and the custodian was under an obligation to open an account in the name of the old company with any scheduled bank and credit the said amount to the said account and hold the same in trust for and on behalf of the old company.
7. It was found by the Tribunal that the Central Government paid a sum of Rs. 30 lakhs which the custodian kept in deposit with a nationalised bank. The interest received by the custodian was mainly utilised for defraying the administrative expenses of the company. The Tribunal held that the income was received by way of interest by the custodian and he was under a statutory obligation to disburse the same in a certain manner. The income was in the nature of trust money and the custodian was under an obligation to spend it for certain definite objects.
8. Therefore, the remuneration of the custodian and various disbursements made by the custodian must be allowed as deductions before the amount of interest received by the custodian against deposit of the said sum of Rs. 30 lakhs can be brought to tax. The obligation to pay arose by virtue of the statutory provisions. The question of paying income-tax does not arise as the receipt of the income was subject to certain statutory obligations.
9. Therefore, we are of the view that the question must be answered in favour of the assessee.
10. Accordingly, the question is answered in the affirmative and in favour of the assessee.
11. There will be no order as to costs.
Bhagabati Prasad Banerjee, J.
12. I agree.