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2016 Supreme(P&H) 2010
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
S.J. VAZIFDAR & DEEPAK SIBAL, JJ.
Haryana State Road & Bridges Development Corporation Ltd. - Appellant
Versus
Commissioner of Income Tax, Panchkula and another - Respondents
ITA No. 85 of 2016 (O&M)
Decided On : 29-09-2016
For the Appellant :Mr. Salil Kapoor, Mr. Rishabh Kapoor, Mr. Saurabh Kapoor and Mr. Sumit Lalchandani, Advocates.
For the Respondents:Mr. Yogesh Putney, Advocate.
The main legal point established in the judgment is that guarantee commission is a revenue expense and, therefore, allowable as a deduction in computing the total income under Section 37 of the Income Tax Act, 1961.
Headnote:
Guarantee Fee - Income Tax - Section 37, Section 40(a)(ia) - The court discussed the deduction of guarantee fee under Section 37 and the disallowance of certain payments under Section 40(a)(ia) of the Income Tax Act, 1961. The court referred to the judgments of the Supreme Court and the High Courts to establish that guarantee commission is a revenue expense and, therefore, allowable as a deduction in computing the total income.
Fact of the Case:
The appeal was against the order confirming the disallowance of certain deductions under the Income Tax Act, 1961 for the assessment year 2010-2011. The assessee claimed a deduction under Section 37 for commission paid to the State of Haryana in respect of a guarantee issued by the State of Haryana. The Assessing Officer disallowed the expenditure treating it as capital expenditure and also disallowed an amount under Section 40(a)(ia) for failure to deduct tax at source.
Finding of the Court:
The court found that the guarantee commission paid by the assessee is a revenue expense and, therefore, allowable as a deduction in computing the total income. The court also quashed the order of the Tribunal refusing to allow the appellant to adduce additional evidence regarding the tax deducted at source.
Issues: The substantial questions of law were whether guarantee fee can be allowed as a deduction under Section 37 and whether the disallowance under Section 40(a)(ia) was justified. The court also addressed the issue of producing additional evidence regarding the tax deducted at source.
Ratio Decidendi: The court relied on the judgments of the Supreme Court and the High Courts to establish that guarantee commission is a revenue expense and, therefore, allowable as a deduction in computing the total income. The court also emphasized the importance of examining the challan evidencing the payment of the tax deducted at source to determine the entitlement to deductions.
Final Decision: The appeal was allowed in favor of the assessee with respect to the deduction of guarantee fee under Section 37. The court quashed the order of the Tribunal refusing to allow the appellant to adduce additional evidence regarding the tax deducted at source and directed the Assessing Officer to examine the challan to determine the entitlement to deductions.
S.J. VAZIFDAR, J.
1. This is an appeal against the order of the Tribunal dated 16.10.2015 in respect of the assessment year 2010-2011 confirming the order of 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 capital expenditure. The Assessing Officer also disallowed an amount of Rs. 4,03,129/- under Section 40(a)(ia) on the ground that the appellant/assessee had failed to deduct tax at source in respect of certain payments.
5. The appeal is admitted on the following substantial questions of law:-
“(a) Whether “Guarantee Fee” can be allowed deduction under Section 37 of the Income Tax Act?
(b) Whether in view of the facts and circumstances of the case, the Tribunal has erred in law and on facts in upholding the order of the assessing officer in disallowing Rs. 4,03,129/- u/s 40(a)(ia) of the Act when the same expenses have been paid by the appellant?”
6. The other questions of law raised in the appeal are part of these questions and are dealt with accordingly.
Re: Question (a)
7. The question that falls for consideration is whether the commission paid in respect of a guarantee is on revenue account or on capital account. In our view, this question is to be answered in favour of the assessee in view of a judgement of the Supreme Court upholding the judgement of the Madras High Court on this issue.
8. In Sivakami Mills Ltd. Vs Commissioner of Income Tax, [1979] 120 ITR 211, the Madras High Court held:-
“The expenditure incurred for the purchase of the machinery was undoutedly capital expenditure; for it brought in an asset of enduring advantage. But the guarantee commission stands on a different footing. By itself, it does not bring into existence 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 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. 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.
3. A similar question arose before the Andhra Pradesh High Court in CIT V. Akkamba Textiles Ltd. 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. 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 No. 9542 of 1995
4. The question is regarding the deduction of interest on deferred payment and gua
