TMI Blog2012 (10) TMI 841X X X X Extracts X X X X X X X X Extracts X X X X ..... rantee fee was by way of assistance from financial institution; it was not an asset or advantage of an enduring nature. In favour of assesse - IT APPEAL NO. 273 OF 2011 - - - Dated:- 24-8-2012 - SUNIL AMBWANI AND ADITYA NATH MITTAL, JJ. Dhananjay Awasthi for the Appellant. S.R. Patnaik, Ms. Akansha Agarwal and Ashish Agrawal for the Respondent. ORDER 1. We have heard Shri Dhananjay Awasthi, learned counsel appearing for the appellant. Shri S.R. Patnaik, Ms. Akansha Agarwal, and Shri Ashish Agrawal appear for the respondent-assessee. 2. The Commissioner of Income Tax, Ghaziabad has filed this Income-tax Appeal under Section 260-A of the Income Tax Act, 1961 against the judgment and order dated 20.4.2009 passed by Income Tax Appellate Tribunal, Delhi Bench 'E', New Delhi in ITA No. 1683 2864/Del/06 for assessment year 2003-04 on the questions of law for consideration by this Court:- "(1) Whether the Hon'ble ITAT is justified in holding that the amount of expense of Rs. 1, 18, 01, 923/- incurred on account of take out assistance fee as revenue expenditure when the same is related to fixed capital of the assessee. (2) Whether the ITAT correctly inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ield of circulating capital, it is revenue account. The Taxing Officer also relied upon Indian Ginning Pressing Co. Ltd. v. CIT [2001] 252 ITR 577 in which it was held that in relation to the capital of enduring benefit, what is material is to consider the nature of the advantage in a commercial sense, and it is only where the advantage is in the capital field that the expenditure would be disallowable. If the advantage consists merely in facilitating the assessee's trading operations, or enabling the management and conduct of the business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite period. The AO held that it is clear that the nature of payment under consideration, is capital in nature, and consequently added back the amount paid by the assessee-company, as 'take out assistance fee', in the income of the assessee as disallowable expense and also directed penalty proceedings under Section 271(1)(c) to be initiated separately. 7. The Commissioner of Income Tax (Appeals)-XIV, New Delhi in appeal held that the fee is being paid for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onceded that by entering into agreement no asset has been acquired by the assessee. DDBs were issued and loans were obtained. The original loan or its replacement by another loan, by no stretch of imagination, can be treated to be a capital asset or an enduring benefit. This has been authoritatively held in India Cement Ltd. (supra). The assessee has an obligation to repay the loan by discharging or redeeming DDBs. In case payment is made by financial institutions, the obligation of the assessee is shifted from bondholders to the financial institution in addition to payment of fee to the institutions. Thus instead of an advantage, burden of the assessee is increased on account of agreements necessitated by circumstances. There is no case of enduring advantage or advantage in capital field. No capital asset can be said to be acquired by the assessee in the payment of take out assistance fee. Two decisions referred to by the Assessing Officer have no application in this case as those cases pertain to payment of computation fees and repair and maintenance of building. Cited cases do not pertain to discharge of obligation relating to payment of loan. The case of the assessee is covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case an amount claimed towards repairs of building used as a cherish for children of female employees. It was converted for use as administrative offices. The High Court held that the assessee had incurred expenses, which were both at the point of time i.e. before and after expenditure was incurred related to the business of the assessee. There was no addition to or expansion of the profit making apparatus of the assessee. The expenditure was deductible as revenue expenditure. 11. Learned counsel appearing for the assessee submits, supporting the judgment of the Tribunal, that the point and issue is squarely covered by the judgment of Supreme Court in India Cements Ltd. v. CIT [1966] 60 ITR 52 which has been followed in Kinetic Engg. Ltd. v. CIT [1998] 233 ITR 762. In India Cements Ltd. (supra) the Supreme Court held that the nature of the expenditure incurred in raising a loan would depend upon the nature and purpose of the loan. A loan may be intended to be used for the purchase of the raw material when it is negotiated, but the company may after taking the loan changes its mind and spends it on securing capital assets. The purpose, for which the new loan was required, wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be considered as an asset or an advantage of enduring nature. The fact that the loan was obtained for purchasing capital asset would not effect this position. In fact, that is not a relevant consideration. In that view of the matter the ratio of the decision of the Supreme Court in India Cements Ltd. (supra) clearly applies and guarantee commission in the instant case has to be treated as a revenue expenditure. We have also perused the decisions of the High Courts of Andhra Pradesh, Madras, Karnataka and Calcutta referred to above. The Andhra Pradesh High Court, in Addl. CIT v. Akkamba Textiles Ltd. (supra) has held that the guarantee commission paid by the assessee in connection with the purchase of machinery was a revenue expenditure and not a capital expenditure. While arriving at this conclusion, the High Court followed the decision of the Supreme Court in India Cements Ltd. (supra). In Sivakashi Mills Ltd. v. CIT (supra) the Madras High Court also held that guarantee commission paid to a bank for obtaining a loan for acquisition of machinery was a revenue expenditure. While saying so, the High Court summed up the reasoning in support of its conclusion as follows : "T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear decision of the Supreme Court in India Cements Ltd. (supra), we find it difficult to agree with the reasoning and conclusion of the Gujarat High Court in the above decision. In the light of the foregoing discussion, we are of the clear opinion that the bank guarantee commission paid by the assessee for securing timely repayment of the deferred credit facility for buying machinery in its running business is a revenue expenditure and not a capital expenditure. The Tribunal, in our opinion, committed a manifest error of law in holding it to be a capital expenditure. We accordingly answer the question referred to us in the negative, i.e., in favour of the assessee and against the Revenue." 14. In the present case, we do not find that any of the tests laid down by the Supreme Court in India Cements Ltd. (supra) are absent to treat the expenses as capital expense. The 'take out assistance fees' computed @ 1.6% per annum of the respective amount to take out obligation of both the entities were by way of guarantees on an exit option, independent of the financial position of the assessee company. The fees covers the event, in which the assessee-company may not have sufficient cash f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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