Statutory guarantee cannot be converted into deductible guarantee commission where no legal liability to pay commission exists.

Guarantee commission credited to the Dividend Subvention Fund Account was not deductible as business expenditure because the governing statute required the State Government to guarantee the bonds and debentures without authorising any commission. Although the amounts were credited at the Government's instance and were treated as constructive payment, a Government Order could not override the statute or create a valid legal liability to pay commission. The alleged liability was therefore not legally enforceable, and the disallowance of the deduction was upheld.

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Issues: Whether the guarantee commission credited to the Dividend Subvention Fund Account was deductible as business expenditure in the assessee's hands.

Analysis: The amounts were credited to the Dividend Subvention Fund Account at the instance of the State Government, so the entries amounted to constructive payment; however, the governing statute required the State Government to guarantee the bonds and debentures and did not confer any right on the Government to charge commission. A Government Order could not override the statutory position, and no valid, genuine or legal liability to pay guarantee commission arose under the statute.

Conclusion: The deduction was not allowable and the disallowance was upheld against the assessee.

Final Conclusion: The appeals failed because the alleged liability for guarantee commission was held not to be legally enforceable under the governing statute.

Ratio Decidendi: A Government Order cannot create a deductible liability where the parent statute imposes a free statutory guarantee and does not authorise the levy of commission.

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