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I-T - Guarantee commission paid to bankers for securing timely repayment of credit facility & loan from financial institutions, is revenue expenditure

By TIOL News Service

MUMBAI, JULY 03, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether the guarantee commission paid to the bankers for securing timely repayment of credit facility and loan from financial institutions, for the purpose of machinery and equipments, is revenue expenditure. YES is the verdict.

Facts of the case:

The assessee preferred the present appeal challenging the order, whereby the ITAT had held that the entire 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, was not a revenue expenditure.

HC held that,

++ the undisputed facts as has been referred in the reference is that the Assessee is a existing running company engaged in the business of manufacturer of light commercial vehicles. For expansion of its business, it obtained foreign exchange loan from financial institutions and deferred credit facilities under IDBI bills discounting scheme. In the ordinary course of business the company was required to secure by way of guarantee from its bankers timely repayment of the said loan and for the said purpose the company had to pay the guarantee commission. The only question is whether the guarantee commission paid to the bankers for securing timely repayment of credit facility and loan from financial institutions for the purpose of machinery and equipments is revenue expenditure;

++ it is seen that the Division Bench of this Court in case of Kinetic Engineering Ltd was dealing precisely with the said issue, wherein, 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. The act of borrowing money was incidentally to carrying on business. In the light of the above the reference is answered in favour of the Assessee.

(See 2017-TIOL-1231-HC-MUM-IT)


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