Guarantee commission as business deduction under income-tax law for machinery acquisition and stay of disputed sales tax

Guarantee commission paid in connection with acquiring machinery and for obtaining a stay of disputed sales tax was treated as deductible business expenditure under section 37 of the Income-tax Act, 1961. The commission linked to machinery acquisition was regarded as connected with business outlay, and the payment made to secure stay of sales tax recovery was viewed as having a stronger claim to deduction because sales tax is a revenue liability and the commission was paid to satisfy the condition for stay pending appeal. The note states that such guarantee commission was allowable as a deduction under section 37.

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Issues: Whether guarantee commission paid for acquiring machinery and for obtaining stay of sales tax was an admissible deduction under section 37 of the Income-tax Act, 1961.

Analysis: The commission attributable to the acquisition of machinery had already been treated as deductible on the footing that it was connected with the business expenditure. The amount paid for guarantee to obtain stay of disputed sales tax was held to stand on a stronger footing, since sales tax is a revenue liability and the commission was paid to secure compliance with the condition for stay of collection pending appellate proceedings.

Conclusion: The guarantee commission was held to be an allowable deduction under section 37 of the Income-tax Act, 1961.

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