(Civil Appeal No.6488 of 1983 was from the judgment and order, dated February 27, 1979, of the Madras High Court in T.C. No.410 of 1975).

(a) Income-tax---

----Business expenditure---Purchase of machinery by assessee on deferred payment basis---Guarantee executed by Bank for assuring due payment of instalments by assessee---Is allowable as revenue expenditure---Indian Income Tax Act, 1961, S.37.

(b) Income-tax---

----Business expenditure---Purchase of machinery on deferred payment basis---Interest on deferred payment---Revenue expenditure---Indian Income Tax Act, 1961, S.37.

The assessee-company purchased from abroad for the purpose of its business some items of machinery on deferred payment terms under which an immediate payment had to be made and the balance was to be paid in instalments. For assuring the due payment of the instalments, the assessee obtained a guarantee executed by a bank in favour of the sellers of the machinery and the bank charged a commission at a percentage of the amount guaranteed. The assessee's claim for deduction of the amount of commission calculated at one per cent. on the outstanding balance and also of the commission on the additional liability guaranteed consequent on the devaluation of the Indian rupee during the year ending December 31, 1967, relevant for the assessment year 1968-69 was negatived by the Income-tax Officer on the ground that it was capital in nature. The Appellate Assistant Commissioner allowed the claim on the ground that though the expenditure for the purchase of the assets was undoubtedly capital, the expenditure for discharging the liability in instalments could not be regarded as capital expenditure. The Tribunal, however, held that the disallowance made by the Income-tax Officer was correct in the view that the payment of guarantee commission was concerned with an expenditure incurred by the assessee in connection with the purchase of the machinery and it went to increase the actual cost of the assessee of the machinery and hence was capital in nature. On a reference at the instance of the assessee, the High Court held that the payment of guarantee commission was unrelated to the working out of the cost of acquisition of any depreciable machinery, plant or other asset but was an expenditure which was incurred in the course of carrying on the business and not prior to the commencement of the business, that the payment was so closely related to the business that it could be viewed as an integral part of the conduct of the business and would be a revenue expenditure, that it did not bring into existence any asset of an enduring nature did it bring in any other advantage of an enduring benefit, that the acquisition of the machinery on instalment terms was only a business exigency and that the very nature of the expenditure and the time at which it had been incurred would justify the claim of the expenditure as revenue expenditure. On appeal to the Supreme Court:

Held, affirming the decision of the High Court., that the guarantee commission paid to the bank was revenue expenditure and hence was an allowable deduction in computing the total income of the assessee in the assessment year 1968-69.

Sivakrami Mills Ltd. v. CIT (1979) 120 ITR211 affirmed.

Addl. CIT v. Akkamamba Textiles Ltd. (1997) 227 ITR 464 (SC) fol.

Against the decision of the Madras High Court holding that interest on deferred payment for purchase of machinery was revenue expenditure, the Department filed an appeal to the Supreme Court. The Supreme Court dismissed the appeal.

B. Krishna Prasad, Advocate for Appellant.

Mrs. Janaki Ramachandran, Advocate for Respondent.

JUDGMENT

Heard learned counsel for the parties.

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The short question that arises for our consideration in this appeal is whether the guarantee commission paid by the assessee is a revenue expenditure and hence allowable as deduction in computing the total income in the assessment year 1968-69. The High Court answered the question in favour of the assessee (see (1979) 120 ITR 211). It was held that the guarantee commission paid by the assessee was a revenue expenditure and hence allowable as a deduction in computing the total income. The Revenue has come in appeal.

A similar question arose before the Andhra Pradesh High in Addl. CIT v. Akkamba Textiles Ltd. (1979) 117 ITR 294. The Court held that the expenditure incurred is revenue in nature and so allowable as deduction. Civil Appeal No.2832 of 1977 preferred against the said decision was dismissed by this Court (see (1997) 227 ITR 464). In view of the aforesaid decision we see no force in this appeal. Accordingly, this appeal is dismissed. There will be no order as to costs.

CIVIL APPEAL N0.9542 OF 1995:

The question is regarding the deduction of interest on deferred payment and guarantee commission paid to the bank. The High Court followed its earlier decision in Sivakami Mills Ltd. v. CIT (1979) 120 ITR 211 and answered the question in favour of the assessee. It was held that both the payments are of revenue nature. We have dismissed the appeal preferred against the decision of the High Court rendered in Sivakrami Mills Ltd. (1979) 120 ITR 221 in Civil Appeal No.6488 of 1983. In view of the said decision, this appeal is also dismissed. There will be no order as to costs.

M.B.A./1498/FC ??????????????????????????????????????????????????????????????????? Appeal dismissed.