SC okays tax deductions on charges paid to foreign fund agency
Payments made by companies in the form of "charges", "commitment charges", "insurance charges" and "finance charges", even if made to a foreign funding agency, are eligible for income tax deductions, the Supreme Court has ruled.
By PTI |
NEW DELHI: Payments made by companies in the form of "charges", "commitment charges", "insurance charges" and "finance charges", even if made to a foreign funding agency, are eligible for income tax deductions, the Supreme Court has ruled.
Such charges are to be treated as revenue expenditure for the purpose of offering deductions, a bench of Justices S H Kapadia and B Sudershan Reddy said while dismissing an appeal filed by the Income Tax department.
The department had filed the appeal after the appellate tribunal and the Gujarat High Court, in the case of Gujarat Alkalies and Chemicals Limited, had both held that such payments were entitled to deduction.
The company had sought exemption for payment of various expenses in the form of "charges", "commitment charges", "insurance charges" and "finance charges" made to a foreign funding agency COFACE, which had refinanced the Rs 30 crore borrowed by the company from the IDBI.
The Income Tax department had refused to grant the exemption on the plea that the charges were capital expenses, which were not entitled to any such deductions.
Citing a number of its previous rulings, the apex court said that such charges were eligible for deductions under Section 36 (1) (III) of the Income Tax Act.
Such charges are to be treated as revenue expenditure for the purpose of offering deductions, a bench of Justices S H Kapadia and B Sudershan Reddy said while dismissing an appeal filed by the Income Tax department.
The department had filed the appeal after the appellate tribunal and the Gujarat High Court, in the case of Gujarat Alkalies and Chemicals Limited, had both held that such payments were entitled to deduction.
The company had sought exemption for payment of various expenses in the form of "charges", "commitment charges", "insurance charges" and "finance charges" made to a foreign funding agency COFACE, which had refinanced the Rs 30 crore borrowed by the company from the IDBI.
The Income Tax department had refused to grant the exemption on the plea that the charges were capital expenses, which were not entitled to any such deductions.
Citing a number of its previous rulings, the apex court said that such charges were eligible for deductions under Section 36 (1) (III) of the Income Tax Act.
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