Revenue expenditure on bond borrowing and gratuity deduction allowed where approval remained pending and unrefused

Commission and guarantee fees paid to raise funds through bonds were treated as revenue expenditure because the borrowing was for a limited period and did not permanently augment the capital base; the deduction was allowed subject to verification of the correct amount. A contribution to a gratuity fund was also allowed as a deduction where the approval application had remained pending for a long period and had not been expressly refused, with the contrary authorities distinguished on facts. The entertainment-expense issue was remitted for fresh consideration.

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Issues: (i) Whether commission and guarantee fees paid for raising funds through bonds constituted capital expenditure or revenue expenditure. (ii) Whether the amount contributed towards gratuity was allowable as a deduction where approval of the gratuity fund had not been expressly refused.

Issue (i): Whether commission and guarantee fees paid for raising funds through bonds constituted capital expenditure or revenue expenditure.

Analysis: The expenditure was incurred for obtaining funds through bonds, which were treated as loans of limited duration and not as permanent augmentation of the capital base. The distinction drawn in the cited authorities between raising share capital and raising borrowed funds was material. Expenses incurred for securing a loan are not necessarily capital in nature, and the object for which the funds are used does not change the character of the outgoing where the borrowing is only for a limited period.

Conclusion: The expenditure was held to be revenue in nature and allowable, subject to verification of the correct amount.

Issue (ii): Whether the amount contributed towards gratuity was allowable as a deduction where approval of the gratuity fund had not been expressly refused.

Analysis: The contribution was made to a gratuity fund for employees, and the application for approval had remained pending for a long period without rejection. The authorities relied on cases denying deduction where the statutory conditions were not met, but those decisions were distinguished on facts. On the record, the pending application and the absence of any refusal were treated as supporting the assessee's claim that the fund stood approved for deduction purposes.

Conclusion: The deduction was held allowable and the disallowance was deleted.

Final Conclusion: The appeal succeeded on the principal questions relating to bond-related borrowing expenditure and gratuity contribution, while the entertainment-expense issue was sent back for fresh consideration.

Ratio Decidendi: Expenditure incurred to secure borrowing for a limited period is revenue expenditure, whereas a contribution to a gratuity fund is deductible when the factual and statutory conditions for approval are treated as satisfied on the record.

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