1. ' S. RAJENDRA BABU, J.---In this reference arising under section 256(1) of the Income Tax Act, 1961 (for short the "Act"), the following two questions are referred for our opinion: "(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the amount received by the assessee from the MMTC cannot be considered as income of the assessee?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the guarantee commission paid by the assessee is an admissible revenue expenditure?
2. ' So far as the first question is concerned, we have already answered the same in an identical matter in I.T.R.C. Nos.160 and 161 of 1993--CIT v. Gogte Minerals (1996) 222 ITR 245 (Kar.), disposed of just now and we answer the first question referred for our opinion in the affirmative and against the Revenue.
3. ' So far as the second question referred for our opinion is concerned, the facts relating to the same are as follows: ' The assessee had purchased a machinery on a deferred payment scheme and had furnished a guarantee agreement executed with the Bank. The guarantee had been accepted by the bank at the instance of the assessee to ensure the vendor of due payment of the installments. The assessee had paid guarantee commission to the bank and that amount was claimed as an allowable revenue expenditure. The Assessing Officer disallowed the claim and held the same to be capital in nature. On appeal, the Commissioner of Income-tax (Appeals) allowed the claim.
4. When the matter was carried to the Tribunal by the Department the view of the appellate authority was upheld following the decisions in Addl. CIT v. Akkamba Textiles Ltd. (1979) 117 ITR 294 (AP), Sivakami Mills Ltd. v. CIT (1979) 120 ITR 211 (Mad.) and CIT v. Rukmani Mills Ltd. (1982) 133 ITR 154 (Mad.). Aggrieved by the view of the Tribunal, the Department has come up by this reference.
5. ' Learned standing counsel for the Department relied on the decisions in CIT v. Vallabh Glass Works Ltd. (1982) 137 ITR 389 (Guj.) and CIT v. Mihir Textiles Ltd. (1994) 206 ITR 112 (Guj.), to content that the decisions in Akkamba Textile (1979) 117 ITR 294 (AP), Sivakami Mills (1979) 120 ITR 211 (Mad.) and Rukmani Mills (1982) 133 ITR 154 (Mad), do not correctly lay down the law on the matter and the right view to be taken is available in the aforesaid two decisions relied upon by him. The proposition put forth by him is that all expenditure including one incurred in connection with the acquisition of a capital asset should be necessarily treated as capital expenditure. Any expenditure incurred in acquiring a capital asset should necessarily be treated as capital in nature, even expenditure of a revenue nature may, under set of circumstances, but the converse would not be correct and submitted that in the present case the guarantee had to be furnished in order to obtain a loan or the benefit of the deferred payment scheme and under that scheme machinery had been acquired by the assessee and, therefore, the commission paid towards the guarantee must be treated as capital in nature.
6. ' The law on the matter should be ascertained by reference to the decision of the Supreme Court in Challapalli Sugars Ltd. v. CIT (1975) 98 ITR 167. The Supreme Court stated that the accepted accountancy rule for determining the cost of fixed assets is to include all expenditure necessary to bring such assets into existence and to put them in working condition. It is pointed out that in case money is borrowed by a newly started company, which is in the process of constructing and erecting its plant, the interest incurred before its commencement of production on such borrowed money can be capitalised and added to the cost of the fixed assets which has resulted in such expenditure. Thus, what would determine as capital expenditure is the expenditure incurred for bringing into existence the asset in question and such expenditure alone can be treated as capital nature and no other expenses.
7. ' In the present case, the assessee purchased machinery on deferred payment scheme. The payments made under the scheme should certainly be treated as capital in nature. The guarantee agreement has been entered not for the purpose of acquiring the asset as such, but for securing a loan facility to pay the amount of deferred payment basis. Such an arrangement would only be a financial arrangement entered into by the assessee and if any commission had been paid towards the guarantee arising thereto, it would be revenue in nature because in the course of conduct of business such financial arrangement had been entered into. In that view of the matter, we do not think the view adopted by the Gujarat High Court in CIT v. Vallabh Glass Works Ltd. (1982) 137 ITR 389 or CIT v. Mihir Textiles (1994) 206 ITR 112 could be followed by us. We would rather prefer to adopt the view expressed in Sivakami Mills' case (1979) 120 ITR 211 (Mad.) and Akkamba Textiles' case (1979) 117 ITR 294 (AP).
8. ' Thus, we answer the second question referred for our opinion in the affirmative and against the Revenue.
9. ' Reference is answered accordingly.