Bajaj Tempo Ltd. v. The Commissioner of Income-tax
[Citation -2017-LL-0622-3]

Citation 2017-LL-0622-3
Appellant Name Bajaj Tempo Ltd.
Respondent Name The Commissioner of Income-tax
Court HIGH COURT OF BOMBAY
Relevant Act Income-tax
Date of Order 22/06/2017
Assessment Year 1984-85
Judgment View Judgment
Keyword Tags guarantee commission • capital expenditure • revenue expenditure • existing business • foreign exchange • credit facility • bank guarantee • interest paid • expansion of business • loan transaction
Bot Summary: Whether on the facts and in the circumstances of the case, the Appellant Tribunal was justified in law in holding 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, is not a revenue expenditure. 5 The learned counsel for the Revenue submits that relevant question is whether production had commenced pursuant to 2/6 osk 10 itr 128 2000.odt the acquisition of the said machinery and any expenditure incurred prior to production would be capital expenditure and the same would be in consonance with basic accounting principle. CIT vs. Akkamba Textiles Ltd. has held that the guarantee commission paid by the assessee in connection with the purchase of machinery was a revenue expenditure and not a capital expenditure. The High Court summed up the reasoning in support of its conclusion as follows : The expenditure incurred for the purchase of the machinery was undoubtedly capital expenditure, for it brought in an asset of enduring advantage. 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. In the light of the foregoing discussion, we are of the clear opinion that the bank guarantee commission paid by the assessee for securing timely repayment of the deferred credit facility for buying machinery in its running business is a revenue expenditure and not a capital expenditure. 9 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.


IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX REFERENCE NO. 128 OF 2000 Bajaj Tempo Ltd., Pune Applicant V/s. Commissioner of Income Tax Respondent Mr.Rohan Deshpande for Applicant. Mr.Charanjeet Chanderpal a/w.Ms.Minal Lad and Ms.Namita Shirke for Respondent. CORAM : S.V. GANGAPURWALA AND G.S. KULKARNI, JJ. DATE : 22 JUNE, 2017. PER COURT : 1] matter pertains to Assessment Year 1984 85. 2] Reference is made to this Court on following question. Whether on facts and in circumstances of case, Appellant Tribunal was justified in law in holding that entire guarantee commission paid to bankers for securing timely repayment of credit facility and loan from Financial Institutions for purposes of machinery and equipments, is not revenue expenditure. 1/6 osk 10 itr 128 2000.odt 3] learned counsel for Assessee submits that Assessee is ongoing concern. To expand its existing business equipments and machinery were purchased by obtaining foreign exchange loan from financial institutions and deferred credit facilities under IDBI Bills discounting scheme. company was required to secure by way of guarantee, from its bankers, timely repayment of loan. For these services, it had to pay guarantee commission to banker amounting to Rs.7,52,267/, which was claimed as revenue expenditure. 4] learned counsel relies on judgment of Division Bench of this Court in Kinetic Engineering Ltd. vs. Commissioner of Income Tax, reported in (1998) ITR Vol.233 Page 762. Which has relied on judgment of Apex Court in case of India Cements Ltd. vs. CIT, reported in (1996) 60 ITR 52 (SC). learned counsel also relies on another judgment of Division bench of this Court in Income Tax Reference No.752 of 1998. 5] learned counsel for Revenue submits that relevant question is whether production had commenced pursuant to 2/6 osk 10 itr 128 2000.odt acquisition of said machinery and any expenditure incurred prior to production would be capital expenditure and same would be in consonance with basic accounting principle. 6] We have considered submissions. 7] This Court in Kinetic Engineering Ltd (supra) has observed as under; 11. We have also perused decisions of High Courts of Andhra Pradesh, Madras, Karnataka and Calcutta referred to above. Andhra Pradesh High Court, in Addl. CIT vs. Akkamba Textiles Ltd. (supra) has held that guarantee commission paid by assessee in connection with purchase of machinery was revenue expenditure and not capital expenditure. While arriving at this conclusion, High Court followed decision of Supreme Court in India Cements Ltd. (supra). In Sivakashi Mills Ltd. vs. CIT (supra) Madras High Court also held that guarantee commission paid to bank for obtaining loan for acquisition of machinery was revenue expenditure. While saying so, High Court summed up reasoning in support of its conclusion as follows : "The expenditure incurred for purchase of machinery was undoubtedly capital expenditure, for it brought in asset of enduring advantage. But 3/6 osk 10 itr 128 2000.odt guarantee commission stands on different footing. By itself, it does not bring into existence any asset of enduring nature nor did it bring in any other advantage of enduring benefit. acquisition of machinery on instalment terms was only business exigency. If interest paid on credit purchase of machinery could be held to be revenue expenditure, we fail to see how guarantee commission paid to bank for obtaining easy terms for acquisition of machinery could be regarded as capital payments". 14. In light of foregoing discussion, we are of clear opinion that bank guarantee commission paid by assessee for securing timely repayment of deferred credit facility for buying machinery in its running business is revenue expenditure and not capital expenditure. Tribunal, in our opinion, committed manifest error of law in holding it to be capital expenditure. We accordingly answer question referred to us in negative, i.e., in favour of assessee and against Revenue. 8] undisputed facts as has been referred in reference is that Assessee is existing running company engaged in business of manufacturer of light commercial vehicles. For 4/6 osk 10 itr 128 2000.odt expansion of its business, it obtained foreign exchange loan from financial institutions and deferred credit facilities under IDBI bills discounting scheme. In ordinary course of business company was required to secure by way of guarantee from its bankers timely repayment of said loan and for said purpose company had to pay guarantee commission. 9] only question is whether guarantee commission paid to bankers for securing timely repayment of credit facility and loan from financial institutions for purpose of machinery and equipments is revenue expenditure. 10] Division Bench of this Court in case of Kinetic Engineering Ltd (supra) was dealing precisely with said issue, wherein, in said case, Assessee had to pay guarantee commission for securing timely repayment of credit facility obtained for purpose of machinery and equipments required for running business. This Court considering various judgments of Apex Court categorically came to conclusion that expenditure incurred for payment of guarantee commission is revenue expenditure. act of borrowing money was incidentally to 5/6 osk 10 itr 128 2000.odt carrying on business. 11] question under reference has been adequately dealt with in case of Kinetic Engineering Ltd (supra). facts in said case and present care are identical. 12] In light of above reference is answered in favour of Assessee. Reference is, accordingly, disposed of. No costs. (G.S. KULKARNI, J.) (S.V. GANGAPURWALA, J.) 6/6 BajajTempoLtd. v. TheCommissionerofIncome-tax
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