Reassessment and betterment tax disallowance upheld, but bank guarantee commission for instalment finance treated as revenue expenditure.

Reassessment under section 147(b) was upheld because the assessment record showed escapement of income relating to the betterment tax item, so the reopening was within jurisdiction. The betterment tax disallowance of Rs. 3,344 was sustained, the Tribunal following the controlling decision cited on that issue. Bank guarantee commission paid for financial accommodation and use of banking facilities in meeting instalment payments for machinery already acquired was held to be revenue expenditure, not part of the machinery cost, and was therefore allowable as a business deduction.

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Issues: (i) Whether the reassessment under section 147(b) was valid on the ground of escapement of income in respect of the betterment tax item; (ii) Whether the sum of Rs. 3,344 representing betterment tax was rightly disallowed; (iii) Whether the bank guarantee commission of Rs. 7,194 was allowable as revenue expenditure or was required to be capitalised as part of the cost of machinery.

Issue (i): Whether the reassessment under section 147(b) was valid on the ground of escapement of income in respect of the betterment tax item.

Analysis: The reopening was founded on the omission of the betterment tax amount from the original assessment. On the facts, the assessment record showed escapement of the sum in question, and the reassessment could not be said to be without jurisdiction.

Conclusion: The reopening under section 147(b) was upheld.

Issue (ii): Whether the sum of Rs. 3,344 representing betterment tax was rightly disallowed.

Analysis: The betterment tax item stood covered against the assessee by the controlling decision referred to by the Tribunal. No contrary basis was shown to displace that position.

Conclusion: The disallowance of Rs. 3,344 was sustained.

Issue (iii): Whether the bank guarantee commission of Rs. 7,194 was allowable as revenue expenditure or was required to be capitalised as part of the cost of machinery.

Analysis: The machinery had already passed to the assessee and the price was thereafter discharged in instalments through bank-facilitated usance bills. The commission was paid for financial assistance and for the banking facility enabling payment, rather than for acquiring the machinery itself. In the circumstances, the expenditure was connected with the running of the business and not with the creation of a capital asset.

Conclusion: The bank guarantee commission was held to be allowable as revenue expenditure.

Final Conclusion: The reassessment and the betterment tax addition were maintained, but the bank guarantee commission was allowed as a deductible business expenditure, resulting in a partial success for the assessee.

Ratio Decidendi: Where a banking charge is incurred for financial accommodation in meeting instalment payments of an already acquired asset, and not for acquiring the asset itself, the expenditure is revenue in nature rather than capital expenditure.

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