Credit guarantee cost for loan repaying estate duty treated as revenue expenditure and allowed as deduction

Expenditure incurred on a credit guarantee obtained to secure repayment of a loan used to discharge estate duty liability was treated as revenue expenditure and therefore deductible. The Madras HC followed its earlier decision on the same question and held that the guarantee cost was laid out on revenue account, as it was incurred in connection with financing the liability payment rather than acquiring a capital asset. The issue was answered in favour of the assessee, and the deduction was allowed.

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Issues: Whether expenditure incurred on a credit guarantee to secure repayment of a loan taken to discharge estate duty liability was allowable as revenue expenditure.

Analysis: The Court followed its earlier decision on an identical question and treated the expenditure on credit guarantee, incurred for ensuring payment of the loan used to meet estate duty liability, as expenditure laid out on revenue account and therefore deductible.

Conclusion: The question was answered in the affirmative, and the expenditure was held allowable as revenue expenditure, in favour of the assessee.

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