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2015 (10) TMI 535
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....fficer towards the expenses on the guarantee payments made by the assessee to the banks and other parties on behalf of its subsidiary company is allowable as deduction. 2.2. The Id. CIT(A) erred in holding that the bank guarantee was given to the banks on behalf of its subsidiary company, M/s. WS Telesystems Limited on account of commercial expediency and the same is allowable as deduction. 2.3. The Id. CIT(A) failed to appreciate the fact that the guarantee payments made on behalf of the assessee's subsidiary company is not allowable as deduction since such payments were not related to assessee's business in as much as the guarantee were given when the subsidiary company was already sick company before the BIFR. ....
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.... assessee company and claimed as provision for contingent liability under the head "other costs". After careful examination of the assessee's submission, it is clear that the claim made the assessee is not acceptable because it is mere provision for contingent liability. Reliance is placed on ITO Vs EMCO Transformers Ltd. MAT, Mumbai and while considering the issue of provision for guarantee liability in this case, it has observed that, "In fact, taking the principle enunciated by the Supreme Court in the case of Indian Molasses Co. (P.) Ltd. v. CIT (1959] 37 ITR 66 in which it was held that the contingent liability could not be allowed while computing the net income, we are of the opinion that contingent liability, which is not arising....
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....e year for which the same related to. He further argued that the said expenditure of the assessee has not resulted in any earning of income. The learned counsel of the assessee, on the other hand, claimed that expenditure incurred on account of corporate guarantee was a genuine expenditure. He claimed that, when the related advance of over Rs. 6 crores was accepted by the Revenue, he claimed that there was no reason why the amount paid towards discharge of corporate guarantee should not be allowed. He argued that Hon'ble Madras High Court decision cited and relied upon by the learned Commissioner of Income Tax(Appeals) was very much relevant and he relied upon the order of the learned Commissioner of Income Tax (Appeals) and claimed tha....
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....re is no need to examine whether the expenditure or allowance which is permissible must be capable of producing taxable income. 13. We further find that in the Articles and Memorandum of Association of the assessee, it has been clearly mentioned in Clause No. 50 of the Objects, that it was one of the assessee's business to give guarantees - financial or otherwise and / or to provide security to any person either on behalf of the company or on behalf of others on such terms and conditions as the company shall determine. Hence, giving corporate guarantee duly had the sanction of Articles and Memorandum of Association of the Company and as such it was a part of the assessee's business. 14. Moreover, when the transacti....
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....usiness loss in its assessment for 1958-59. The assessee received from the liquidators during the subsequent years 1959-60 to 1962-63 varying sums totaling Rs. 4,85,508.28. The officer held that the loss was not incidental to the business of the assessee and was a capital loss which did not also come under section 12B. The officer also treated the receipts during 1959-60 to 1962-63 as income as a protective measure. The Appellate Assistant Commissioner on appeal held that the loss was not a business loss but held that subsequent receipts could not also be taxed as income. In the further appeals to the Tribunal both by the assessee and the department, the Tribunal held that the assessee had guaranteed the loans in the course of its carrying ....
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....her Hon'ble-Apex Court in the case of Tuticorin Alkali Chemicals and Fertilizers Limited Vs. CIT 227 ITR 172 (SC) had held that principles of accountancy do not override provisions of taxing statute. From the above, it is evident that accounting treatment given by the assessee in the books cannot take precedence over what is mandated by tax laws. 17. We further find that Hon'ble Madras High Court in the case of Devi Films Private Ltd. Vs. CIT 75 ITR 301 has held that, if an expenditure cannot be allowed as a bad debt, allowance of the same is permissible as business loss if the necessary criteria is satisfied. 18. In the background of aforesaid discussion and precedent, it is clear that giving corporate guarantee w....