SIVAKAMI MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Appellate Tribunal has referred the following question under Section 256(1) of the I.T. Act, 1961:

(2.) THE assessee, a company, purchased, for the purpose of its business, some items of machinery on deferred payment terms. Under the terms of purchase, there was to be an immediate payment of 10% or 20% of the cost of the machinery. THE balance was to be paid on a deferred basis in half-yearly or yearly instalments. For assuring the due payment of the instalments, the assessee had to obtain a guarantee executed by a bank in favour of the sellers of the machinery, who were abroad, and the bank charged commission at a percentage of the amount guaranteed. This com- mission totalled to Rs. 33,238.28. It consisted of commission at 1% on the outstanding balance and also of commission guaranteed on the additional liability consequent on devaluation of the Indian rupee. THE assessee claimed the aforesaid amount as deduction in its assessment for the assessment year 1968-69, for which the previous year ended on 31st December, 1967. THE ITO held that the amount of guarantee commission was capital in nature and, therefore, disallowed it.

(3.) CONSEQUENTLY, the entire amount of interest claimed was allowed as deduction.