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TMI Blog2014 (9) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... al was guided more, by the manner in which the Guarantee Commission came to be paid - it gained an impression that the then Managing Director of the appellant had volunteered to pay the commission with a view to avoid payment of income tax - This can be blushed aside, if one takes into account, the fact that the amount was brought into the fund through a G.O., to be kept at the exclusive disposal of Corporation for payment of dividends, whenever profits are not posted, a different impression becomes possible – thus, the order disallowing the Guarantee Commission paid to the State Government as allowable deduction is set aside and the amount is deductible u/s 37 – Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... obligation to provide guarantee under Section 7 of the SFC Act for the loans borrowed by the appellant and it was not supposed, much less entitled in law, to levy guarantee commission. He contends that for a period of about two decades, ever since the appellant came into existence, no such commission was paid and only from the year 1985, almost an inducement was made for making of payments and claiming deductions with the objective of evading income tax. He submits that the Tribunal recorded a finding of fact to the effect that the deductions were not bona fide in nature and the fact that the amount so deducted is constituted into a separate fund, does not make any difference. Learned Senior Counsel relied upon the judgments of the Delhi High Court in Siddho Mal & Sons v. Income Tax Officer, New Delhi and Bombay High Court in Voltas Limited v. Commissioner of Income Tax . The subject-matter of the judgment in Siddho Mals case (1 supra) is not any deduction referable to SFC Act. A general observation was made to the effect that any deduction sought under that Act, must be examined from the point of view of commercial expediency. Having said that, their Lordships proceeded to obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may, on the recommendation of the Board based on the advice of the Reserve Bank fix. (remaining part of Section is not treated as relevant for the purpose of this judgment) The record is not clear as to, for how many years the appellant has borrowed amounts, to create additional capital or whether the State Government had offered guarantee under Section 7 of the SFC Act, and if so, the conditions therefor. It was only from the year 1995 onwards, that the deductions were made in the form of the Guarantee Commission, paid to the State Government for its offering guarantee for repayment of amounts referable to Section 7 of the SFC Act. For the assessment years 1990-91 and 1991-92, the ITO did not allow the deduction. The reason therefor is that no amount in the form of Guarantee Commission, in fact, was paid in cash, or otherwise. This conclusion was arrived at, by making reference to G.O.Ms.No.180, dated 12.04.1989. The G.O. is to the effect that the amount received by the State Government towards guarantee commission is made part of the Fund. The purpose for which the fund was created is to ensure that the dividends are paid to the shareholders in any year, during which, profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets. The impact thereof would certainly be felt, in the context of repayment of the loans borrowed by the appellant from other agencies, be it in the form of dividends or bonds or otherwise. It is in this context, that a reliable guarantee is warranted. By offering itself as guarantor for repayment of the amounts covered by the bonds and dividends raised by the appellant, the State Government would be certainly exposed to the liability. Almost in the form of an insurance premium, the State Government has levied the guarantee commission, to cover the risk. The transaction is in the form of an agreement between the State Government, on the one hand, and the appellant, on the other. The Tribunal, however, took the view that Section 7 of the SFC Act, does not provide for such payments. It is too well-known that a principal legislation would provide only for the broad features on the subject-matter of the Legislation and all details are required to be supplemented through the subordination legislation or even the executive instructions or arrangement between the stakeholders. As long as such steps are not found to be contrary to the provisions of the SFC Act, they cannot be treate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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