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TMI Blog2012 (10) TMI 841X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the ITAT correctly interpreted the language of 37(1) in deleting the addition made by the AO." 3. The assessee-company is engaged in the business of development to establish, construct, operate and maintain a bridge across the river Yamuna connecting Delhi and Noida under the "Build-own-operate-transfer" (BOOT) basis. The Delhi-Noida Link Bridge comprises and includes adjoining roads and other related facilities and the Ashram fly over which has been constructed at the landfall of the Delhi-Noida link bridge. 4. A return declaring a loss of Rs. 54, 05, 37, 910/- was filed by respondent-assessee on 2.12.2003. It was processed under Section 143(1) on 25.3.2004. The case was considered for scrutiny by issuing notice under Section 143(2) of the Income Tax Act, 1961 (the Act) dated 14.10.2004. The notice along with a questionnaire was issued to the assessee, in response to which the Chartered Accountant of the assessee attended the proceedings and filed necessary details. 5. The respondent-assessee claimed the finance charges of an amount of Rs. 1, 18, 01, 923/- in the profit and loss account, as a part of other finances. The assessee was asked to give details of these charges c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fee is being paid for redemption of bonds and is directly related to the fixed capital of the appellant. The capital is altered every time a bond is redeemed and consequently the expenses of take out assistance fee is directly linked to the transaction. 8. The Income Tax Appellate Tribunal, Delhi Bench 'E' decided this question in favour of the assessee and against the revenue. The reasoning given by the Tribunal in paragraphs 7 and 8 is quoted as below:- "7. We have heard both the parties. We have also examined facts and circumstances of the case. There is no dispute that assessee obtained the loan by issuing DDBs. The loan obtained and expenditure incurred for obtaining such loan or the interest paid thereon are revenue deductions, as loan can by no means be held to be an asset. This was authoritatively laid down by their Lordship of Supreme Court in the case of India Cement Ltd. (supra). The above decision has all along been followed and applied and there can be no dispute on this legal position. The assessee, in order to make obtaining of loan easier, gave option to the bond holders to redeem bond on completion of 5th and 9th year of the bond period. However, not being sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is covered by the decision of Hon'ble Bombay High Court in the case of CIT v. Kinetic Engineering Ltd. 233 ITR 762 which has followed India Cement Ltd. (supra) and several other decisions on the issue. Relevant extract of the above decision has already been noted." 9. It is submitted by Shri Dhananjai Awasthi appearing for the revenue that the reasoning given by the Tribunal is not sustainable as it has not examined the fact that every time the bond is released, the capital of the assessee is altered, hence the expense of taking out assistance fee is capital in nature. The reasoning that loans cannot be of an asset is subjective. The expenses incurred in servicing and maintaining the loan is directly related to the capital and gives enduring benefit for indefinite future. He relies on Gujarat Mineral Development Corpn. Ltd. (supra) and Indian Ginning & Pressing Co. Ltd. (supra), to support the argument. 10. In Gujarat Mineral Development Corpn. Ltd. (supra) the Gujarat High Court held that if an expenditure is incurred to ward off competition with a view to deriving an advantage of an enduring nature, the expenditure incurred is on capital account and not on revenue ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was required, was irrelevant to the consideration of the question whether the expenditure for obtaining the loan was revenue expenditure or the capital expenditure. The expression "for the purpose of the business" in Section 10(2)(xv) is wider in scope than the expression "for the purpose of earning profits". Its range is wide. It may take in not only the day to day running of a business but also the rationalisation of its administration and modernization of its machinery. It may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title. It may also comprehend payment of statutory dues and taxes as a precondition to commence or for carrying on of a business. It may comprehend many other acts incidental to the carrying on of business. 12. The Supreme Court in India Cements Ltd. (supra) relied on the reasoning in Dharamvir Dhir v. CIT [1961] 42 ITR 7, in which it was held that the payment of interest and a sum equivalent to 11/16th of the profits of the business of the assessee in pursuance to an agreement for obtaining loan from the lender were in a commercial sense ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollows : "The expenditure incurred for the purchase of the machinery was undoubtedly 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 instalment 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". 12. To the same effect is the decision of the Karnataka High Court in CIT v. Gogte Minerals (supra). In that case also, the assessee purchased machinery on deferred payment scheme. The controversy was whether the guarantee commission paid by the assessee for securing the loan facility was a revenue expenditure. It was observed : "In the present case, the assessee purchased machinery on deferred payment scheme. Payments made under the scheme should certainly be treated as capital in nature. The guarantee agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h flow at the time of premature redemption of the DDBs after the end of the 5th and 9th year respectively at a pre-determined price. The guarantee fee was by way of assistance from financial institution; it was not an asset or advantage of an enduring nature. The expenditure was made for securing the DDBs, in the event the subscribers exercise their option of premature redemption at the end of 5th and 9th year, under the conditions of the bond. The Tribunal is correct in observing, relying upon Nagpur Electric Light & Power Co. Ltd. v. CIT [1931] 6 ITC 28 (Nag.), that the purpose for loan is irrelevant. It is the advantage of obtaining the guarantee which was relevant. 15. We are of the opinion, that the question is covered by the judgment in India Cements Ltd. (supra). In Kinetic Engg. Ltd. (supra) the Bombay High Court considered almost the same question and held that the bank guarantee commission paid by the assessee for securing timely repayment of the deferred credit facilities for buying machinery for its running business is a revenue expenditure and not capital expenditure. 16. The Tribunal in our opinion did not commit any error of law in holding that the take out assista ..... X X X X Extracts X X X X X X X X Extracts X X X X
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