INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Allowability - Guarantee fee to Government in consideration of guarantee issued by it for repayment of unsecured loan -

Assessee paid guarantee fee to the Government in consideration of guarantee issued by it for repayment of unsecured loan. AO did not accept the explanation of assessee on ground that the assessee did not furnish the details of the purpose for which the loans were taken for which the guarantee fees were claimed. Further, if the fees paid for loans facility in respect of fixed assets, nature of assets, the date of put-to-use has not been submitted. Held: High Court in case of CIT v. Metalising Equipment Co.Pvt.Ltd. (2008) 8 DTR 12 (Raj) : 2008 TaxPub(DT) 1986 (Raj-HC), held that the payment of commission for guaranteeing repayment of loan was allowable as revenue expense. In the instant case, the loan was guaranteed by the Government of State. Hence, it would be unrealistic to say that assessee could derive any undue advantage or collateral benefit by making such payment to Government. Therefore, AO was not justified in treating the payment of guarantee commission as capital in nature.

REFERRED : CIT v. Metalising Equipment Co. Pvt. Ltd. (2008) 8 DTR 12 (Raj) : 2008 TaxPub(DT) 1986 (Raj-HC), Gujarat Energy Transmission Corporation Ltd. v. ACIT [ITA No. 704/Ahd/2012 and ITA No. 761/Ahd/2012, dt. 12-6-2015]

FAVOUR : In assessee's favour

A.Y. :

INCOME TAX ACT, 1961

Section 37(1)

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