Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1966-67 - Assessee-company took over business of proprietary concern of 'F' - There was an existing arrangement between proprietary concern and bank for overdraft facilities - Overdraft was transferred to account of assessee company on giving personal guarantee by 'F' who, become managing director in assessee-company - Assessee-company paid guarantee commission to managing director at 21/2 per cent on limit of overdraft - Tribunal held entire guarantee commission as business expenditure but it limited guarantee commission for 11/2 months only taking entire amount claimed to be that for one year - Whether Since there was no such stipulation in that guarantee commission payable to managing director was for 12 month and further that by limited at rate of 2½ per cent on overdraft limit, finding of Tribunal taking guarantee commission claimed as for 12 months and limiting deductible amount to 1½ per cent was without any material on record - Held, yes FACTS The assessee-company took over the proprietary concern of one 'F' on 1-7-1964. There was an existing arrangement between the proprietary concern and the Bank for overdraft facilities. The overdraft was transferred to the account of the company after 21-5-1965 and at this stage it was stipulated that 'F', who become the managing director in assessee-company had to give a personal guarantee in respect of the overdraft. The company paid guarantee commission at 2½ per cent on the limit of the overdraft and claimed deduction for same. The Income-tax Officer considered the claim to be unbelievable in the light of various other benefits granted to 'F' and, therefore, he disallowed the claim of the assessee. The AAC sustained the order of the Income-tax Officer. The Tribunal held that the payment of guarantee commission was business expenditure in the hands of the company, and, it was payment for business consideration of the company and, therefore, it was an allowable deduction under section 37. The Tribunal, however, observed that since the bank sanctioned the cash credit in May, 1969, and, before that the company was…

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