The Bombay High Court in Bajaj Tempo Ltd. Pune v. CIT, held that the guarantee commission paid to the bankers for securing timely repayment of credit facility and loan from Financial Institutions for the purposes of machinery and equipments, would constitute revenue expenditure for the purpose of Income Tax Act, 1961.
As part of expanding its business, assesse purchased equipments and machinery by obtaining foreign exchange loan from financial institutions and deferred credit facilities under IDBI Bills discounting scheme. It treated the entire guarantee commission paid to the bankers for securing timely repayment of credit facility and loan from Financial Institutions for the above purpose as revenue expenditure.
On appeal, ITAT held that the same constitute capital expenditure.
The bench comprising Justices Gangapurwala and G.S Kulkarni noted that the act of borrowing money was incidentally to carrying on business.
It noticed the decision in the case of Kinetic Engineering Ltd wherein the Court decided the same issue in favour of the assesse. “In the said case, the Assessee had to pay guarantee commission for securing timely repayment of credit facility obtained for the purpose of machinery and equipments required for running business. This Court considering various judgments of the Apex Court categorically came to the conclusion that the expenditure incurred for payment of guarantee commission is revenue expenditure.”
Read the full text of the Order below.
