Business deduction principles upheld for guarantee commission and interest on statutory arrears, with disallowance rejected.

Guarantee commission paid to a director for acting as guarantor for a bank loan was treated as allowable business expenditure, so the disallowance could not be sustained on the stated facts. Interest paid on arrears of cane purchase tax was likewise treated as a permissible revenue outgo, and the corresponding disallowance was not justified. The note states that both issues were covered by the governing legal principle on deduction, and the reference was answered in favour of the assessee.

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Issues: (i) Whether guarantee commission paid to a director for standing as guarantor for a bank loan was allowable as a deduction in computing taxable income; (ii) Whether interest paid on arrears of cane purchase tax was allowable as revenue expenditure.

Issue (i): Whether guarantee commission paid to a director for standing as guarantor for a bank loan was allowable as a deduction in computing taxable income.

Analysis: The issue was treated as covered by the binding principle governing allowability of such business expenditure on the facts stated in the reference, and the disallowance could not be sustained.

Conclusion: The question is answered in the negative, in favour of the assessee and against the Revenue.

Issue (ii): Whether interest paid on arrears of cane purchase tax was allowable as revenue expenditure.

Analysis: The issue was treated as covered by the governing legal principle on deduction of interest paid on such statutory arrears as revenue expenditure, and the disallowance was not justified.

Conclusion: The question is answered in the negative, in favour of the assessee and against the Revenue.

Final Conclusion: Both referred questions were answered for the assessee, and the reference was disposed of accordingly.

Ratio Decidendi: Where the governing precedent treats the expenditure as a permissible business deduction or revenue outgo on the stated facts, the corresponding disallowance cannot be sustained.

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