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2016 (10) TMI 325 - PUNJAB AND HARYANA HIGH COURT

2016 (10) TMI 325 - PUNJAB AND HARYANA HIGH COURT - [2016] 388 ITR 253 - Guarantee Fee - allowable expenditure u/s 37 - Held that:- Interest on deferred payment and Guarantee commission paid to the bank are revenue expenditure and hence allowable as deduction. See Commissioner of Income-Tax Versus Sivakami Mills Limited [1997 (2) TMI 13 - SUPREME Court ] - Disallowance u/s 40(a)(ia) when the same expenses have been paid by the appellant - Held that:- The assessee, however, alleges to have di .....

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encing the payment of the tax deducted at source in the government treasury. All that was required was to direct the authorities to examine whether the challan was genuine and whether the amount was paid into the government treasury or not in accordance with law. The ends of justice certainly required the same. Even if the assessee had contended before the Assessing Officer and the CIT (Appeals) that the amount was not payable, it would make no difference, if, in fact, the amount had been paid. .....

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(O&M) - Dated:- 29-9-2016 - MR. S.J. VAZIFDAR AND MR. DEEPAK SIBAL, JJ. For The Appellant : Mr. Salil Kapoor, Advocate, Mr. Rishabh Kapoor, Advocate, Mr. Saurabh Kapoor, Advocate, and Mr. Sumit Lalchandani, Advocate For The Respondent : Mr. Yogesh Putney, Advocate S.J. VAZIFDAR, C.J. (ORAL) This is an appeal against the order of the Tribunal dated 16.10.2015 in respect of the assessment year 2010-2011 confirming the order of the CIT (Appeals) which in turn had confirmed the disallowance of cert .....

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nt s request in favour of the Housing Urban Development Corporation Limited (HUDCO). 4. The Assessing Officer disallowed the expenditure treating the same as capital expenditure. The Assessing Officer also disallowed an amount of Rs. 4,03,129/- under Section 40(a)(ia) on the ground that the appellant/assessee had failed to deduct tax at source in respect of certain payments. 5. The appeal is admitted on the following substantial questions of law:- (a) Whether Guarantee Fee can be allowed deducti .....

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commission paid in respect of a guarantee is on revenue account or on capital account. In our view, this question is to be answered in favour of the assessee in view of a judgement of the Supreme Court upholding the judgement of the Madras High Court on this issue. 8. In Sivakami Mills Ltd. Vs Commissioner of Income Tax, [1979] 120 ITR 211, the Madras High Court held:- The expenditure incurred for the purchase of the machinery was undoutedly capital expenditure; for it brought in an asset of en .....

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chinery could be regarded as capital payments. (emphasis supplied) 9. The Supreme Court in Commissioner of Income Tax Vs Sivakami Mills Ltd. [1997] 227 ITR 465 held:- Civil Appeal No. 6488 of 1983 1. Heard learned counsel for the parties. 2. The short question that arises for our consideration in this appeal is whether the guarantee commission paid by the assessee is a revenue expenditure and hence allowable as deduction in computing the total income in the Assessment Year 1968-69. The High Cour .....

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s dismissed by this Court. In view of the aforesaid decision we see no force in this appeal. Accordingly, this appeal is dismissed. There will be no order as to costs. Civil Appeal No. 9542 of 1995 4. The question is regarding the deduction of interest on deferred payment and guarantee commission paid to the Bank. The High Court followed its earlier decision in Sivakami Mills Ltd. v. CIT and answered the question in favour of the assessee. It was held that both the payments are of revenue nature .....

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High Court came to the conclusion that the purchase of machinery was a capital expenditure, but the guarantee commission stands on a different footing. We will assume that in the case before us also the guarantee was issued in respect of loans taken for acquiring capital assets. In view of the judgement of the Supreme Court, it would make no difference as far as the guarantee commission is concerned. As we mentioned earlier, the guarantee was issued by the State of Haryana at the assessee s req .....

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ating to the bank guarantee commission on the ground that it was a capital expense. Mr. Putney relied upon the following observations of the Division Bench of the Patna High Court:- At first, I would like to deal with the disallowance of the bank guarantee commission. Admittedly, this commission was paid to the Bank of Baroda in respect of its cost for securing their guarantee to the manufacturers of vanaspati plant. Therefore, the incurring of this expenditure is solely attributable to the acqu .....

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egral part of its cost. Learned counsel for the company has placed reliance on a decision of the Madras High Court in the case of Sivakami Mills Ltd. v. CIT [1979] 120 ITR 211 in support of his contention that the bank guarantee commission is a revenue expenditure. In this case, the assessee-company had purchased some machinery on deferred payment terms and had obtained a guarantee from a bank in favour of the sellers of the machinery, in lieu whereof the bank charged certain commission. The Hig .....

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an integral part of the conduct of the business, and (iv) the guarantee commission per se does not itself bring into existence any asset of enduring nature. With respect, I find myself unable to agree with this view. In view of the law laid down by the Supreme Court in Challapalli's case [1975] 98 ITR 167, laying down the mode of determining the cost of a capital asset, it is now no more open to evolve new principles in this regard. Once it has been authoritatively held that all expenditure .....

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capital asset are always related to the conduct of the business, nonetheless such expenses are capital in nature. In the present case, the bank guarantee commission was paid as an unavoidable incidence of bringing into existence the plant in question; therefore, this is necessarily an integral part of the cost of the capital asset in question. A similar view has been taken by the Gujarat High Court in the case of CIT v. Vallabh Glass Works Ltd. [1982] 137 ITR 389. With respect, I entirely agree .....

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