Tax Management India. Com
                        Law and Practice: A Digital eBook ...

Category of Documents

TMI - Tax Management India. Com
Case Laws Acts Notifications Circulars Classification Forms Manuals SMS News Articles
Highlights
D. Forum
What's New

Share:      

        Home        
 

TMI Blog

Home List
← Previous Next →

2009 (8) TMI 782

..... e normal course of business for carrying out its business obligations and are legitimately claimed as business loss as they were physically paid out to the bankers by way of cheque payments at the time of the respective settlements to them - Hon’ble Apex Court decision in the case of S.A. Builders Ltd. v. CIT [2006 (12) TMI 82 - SUPREME COURT] – It was held that if the assessee had given corporate guarantee for the purpose of business on grounds of commercial expediency, the amount paid for discharge of corporate guarantee would be allowable as deduction under section 37(1) of the Income Tax Act Appeal is dismissed - 1373 (MAD.) OF 2008 - 21-8-2009 - HARI OM MARATHA, SHAMIM YAHYA, JJ. K.R. Meena for the Appellant. R. Vijayaraghavan for the Respondent. Order Shamim Yahya, Accountant Member. - This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-VIII, Chennai dated 28-3-2008 and pertains to assessment year 2004-05. 2. The issue raised is that the Commissioner of Income Tax (Appeals) erred in deleting the disallowance of Rs. 13,07,05,000 being the amount paid towards discharge of corporate guarantee obligation. 3. The assessee company, M/s. .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... and decided to write off these amounts aggregating to Rs. 13.07 crores together with the advances it has extended in the normal course of business to the extent of Rs.6.11 crores in all aggregating to Rs. 19.18 crores against the share premium available in the books of the company with the approval of the Hon ble High Court at Madras under section 391 of the Companies Act. 5. The assessee further pleaded that as stated earlier, WSI had been advancing monies periodically to its then subsidiary, WSTL for executing the orders placed by it on them on a regular basis since the orders secured were on composite basis along with PLCC outdoor equipment manufactured at its Power Control Division, Settigere, Bangalore, to avoid risk purchase by the customers and since WSI is a continuing entity in the electrical industry. These advances had been made to WSTL in the normal course of business to carry out the regular business activities for the benefit of the company. The corporate guarantees were also issued as part of its regular business activities to protect the company s interest, as otherwise, the business operations of both the companies would have been affected and WSI would have been p .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... unds of commercial expediency, the amount paid for discharge of corporate guarantee would be allowable as deduction under section 37(1) of the Income Tax Act. In this regard, the learned Commissioner of Income Tax (Appeals) referred to the Hon ble Apex Court decision in the case of S.A. Builders Ltd. v. CIT [2007] 288 ITR 12. He further observed that Revenue cannot claim to put itself in the armchair of the business man or in the position of Board of Directors and assume the role to decide whether to give corporate guarantee or not. He further placed reliance upon Hon ble Madras High Court decision in the case of Amalgamation (P.) Ltd. (supra). Accordingly, the learned Commissioner of Income Tax (Appeals) directed the Assessing Officer to delete the addition of Rs. 13.07 crores towards disallowance of amount paid for discharge of corporate guarantees. 9. Against this order Revenue is in appeal before us. Following points have further been agitated by the Revenue:- The learned Commissioner of Income Tax (Appeals) failed to note that the Apex Court decision relied upon in the case of Amalgamations Ltd. (supra) is not applicable to the facts of this case inasmuch as in the said case t .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... l as advances are incidental to the business of the company. When the writing off of the advances has been allowed by the Revenue as business expenditure, there is no reason why the amount spent towards discharge of corporate guarantee should be treated any differently. The Assessing Officer s plea that the said expenditure has not resulted in any income is devoid of cogency as the incurring of expenditure was very much incidental to the interests of the business of the assessee. Hon ble Apex Court in the case of CIT v. Walchand & Co. (P.) Ltd. [1967] 65 ITR 381 has held that in applying the test of commercial expediency whether the expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of businessman and not of the revenue. 12. Hon ble Apex Court in the case of CIT v. Indian Bank Ltd. [1965] 56 ITR 77 had held that there is no need to examine whether the expenditure or allowance which is permissible must be capable of producing taxable income. 13. We further find that in the Articles and Memorandum of Association of the assessee, it has been clearly mentioned in Clause No. 50 .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... ss but held that subsequent receipts could not also be taxed as income. In the further appeals to the Tribunal both by the assessee and the department, the Tribunal held that the assessee had guaranteed the loans in the course of its carrying on its business and the loss was admissible as a deduction. It, however, held that as the assessee had received the last of the payments from the liquidator in the previous year relevant to the assessment year 1962-63, only the balance of Rs. 4,23,256 remained unrecoverable and it was this amount which was allowable as a deduction in the assessment year 1962-63. The Hon ble High Court held as under:- Held, (1) that in view of the assessee s business having been held to include furnishing guarantees to debts borrowed by its subsidiary companies, the assessee incurred this loss in the course of carrying on its business; (2) though the assessee was obliged to pay the bank during the previous year relevant to the assessment year 1958-59, it did not become a loss in that year because there were possibilities of recovery from the liquidators as was clear from later recoveries; and (3) as the final payment was received only in the previous year relev .....

X X X X X X X

Full Text of the Document

X X X X X X X

 

 

← Previous Next →

 

 

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || Database || Members || Refer Us ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.
|| Blog || Site Map - Recent || Site Map ||