1990 (12) TMI 38 - HC - Income Tax

Summary

Issues Involved:
The judgment involves the following issues:
1. Deduction of bank guarantee commission and office maintenance expenses.
2. Addition of interest on fixed deposit.

Issue 1: Deduction of Bank Guarantee Commission and Office Maintenance Expenses:
The assessee-company, incorporated under the Companies Act, 1956, entered into agreements for a vanaspati plant and coal agency. The company incurred expenses for bank guarantee commission, maintaining offices at Durgawati and Varanasi, and earned commission income from the coal agency. The Income-tax Officer disallowed these expenses as capital expenses. The company contended that the expenses were wrongly disallowed due to unity of control in the ventures. The court held that the bank guarantee commission was a capital expenditure as it was necessary for acquiring the plant, following the principle that all expenses to bring assets into existence are part of the asset's cost. The court disagreed with the view that the commission was a revenue expenditure, emphasizing the capital nature of expenses related to asset acquisition. Regarding office expenses, the court allowed them, considering the interconnection and unity between the ventures, leading to the conclusion that the expenses were revenue expenses.

Issue 2: Addition of Interest on Fixed Deposit:
The Tribunal added accrued interest on a deposit with Bank of Baroda as income, although the period of deposit and interest calculation were uncertain. The court held that since the interest amount was not determinable during the relevant periods, the addition of accrued interest as income was incorrect. The court ruled in favor of the assessee on this issue.

In conclusion, the court decided in favor of the Department regarding the bank guarantee commission but against the Department concerning the office expenses. The court ruled in favor of the assessee regarding the addition of interest on the fixed deposit. The judgment was delivered by G. G. Sohani and Gopichand Bharuka, and no costs were awarded.