2016 (10) TMI 325

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.... the CIT (Appeals) which in turn had confirmed the disallowance of certain deductions. 2. The assessee filed its return on 15.10.2010 declaring a loss and a revised return on 25.03.2011 declaring the same income. The assessment was completed under Section 143(3) of the Income Tax Act, 1961 (for short the Act) after issuing the necessary notices. 3. The assessee claimed an amount of Rs.  96,91,000/- as a deduction under Section 37 of the Act being the commission paid by it to the State of Haryana in respect of a guarantee issued by the State of Haryana at the appellant's request in favour of the Housing Urban Development Corporation Limited (HUDCO). 4. The Assessing Officer disallowed the expenditure treating the same as capita....

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....nce any asset of an enduring nature; nor did it bring in any other advantage of an enduring benefit. The acquisition of the machinery on installment terms was only a business exigency. If interest paid on a credit purchase of machinery could be held to be revenue expenditure, we fail to see how guarantee commission paid to a bank for obtaining easy terms for acquisition of the machinery could be regarded as capital payments." (emphasis supplied) 9. The Supreme Court in Commissioner of Income Tax Vs Sivakami Mills Ltd. [1997] 227 ITR 465 held:- "Civil Appeal No. 6488 of 1983 1. Heard learned counsel for the parties. 2. The short question that arises for our consideration in this appeal is whether the guarante....

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....rantee commission paid by an assessee is a revenue expense and, therefore, allowable as a deduction in computing the total income. It is important to note that even in that case, the Madras High Court came to the conclusion that the purchase of machinery was a capital expenditure, but the guarantee commission stands on a different footing. We will assume that in the case before us also the guarantee was issued in respect of loans taken for acquiring capital assets. In view of the judgement of the Supreme Court, it would make no difference as far as the guarantee commission is concerned. As we mentioned earlier, the guarantee was issued by the State of Haryana at the assessee's request in favour of HUDCO. 11. Mr. Putney, however, relied u....

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.... counsel for the company has placed reliance on a decision of the Madras High Court in the case of Sivakami Mills Ltd. v. CIT [1979] 120 ITR 211 in support of his contention that the bank guarantee commission is a revenue expenditure. In this case, the assessee-company had purchased some machinery on deferred payment terms and had obtained a guarantee from a bank in favour of the sellers of the machinery, in lieu whereof the bank charged certain commission. The High Court took the view that the payment of guarantee commission was a revenue expenditure. The reasons assigned are, (i) it is the option of the assessee to evolve the mode of capitalising the cost of the capital asset, (ii) the rule of determining the cost of the capital assets la....

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....e, this is necessarily an integral part of the cost of the capital asset in question. A similar view has been taken by the Gujarat High Court in the case of CIT v. Vallabh Glass Works Ltd. [1982] 137 ITR 389. With respect, I entirely agree with this view. Consequently, I hold that the instant bank guarantee commission is a capital expenditure and is not admissible under section 37(1) of the Act." The Patna High Court, therefore, disagreed with the view taken by the Madras High Court in Sivakami Mills Ltd. Vs Commissioner of Income Tax. However, thereafter, the Supreme Court upheld the view taken by the Madras High Court in Commissioner of Income Tax Vs Sivakami Mills Ltd. We are bound by the view taken by the Supreme Court in Commissione....