Expenses incurred for payment of foreclosure premium of loan is allowable as business expenditure U/S 37(1): Madras High Court

 

M/s. EIH Associated Hotels Limited (T.C.A.No.1249 of 2010)

Facts:

1.  The assessee sought to restructure its finances by foreclosing an existing loan and replacing it with a fresh loan at a lower interest rate.

2.  The assessee incurred a foreclosure premium, which it claimed as a deductible business expenditure under Section 37(1) of the Income Tax Act.

3.  The Assessing Officer (AO) allowed this deduction, but the Commissioner invoked Section 263 of the Income Tax Act, arguing the expense was capital in nature and prejudicial to the Revenue’s interest.

Hon Madras HC held as below:

1.  The foreclosure premium was directly linked to reducing the company’s financial burden and improving profitability, making it a legitimate business expense.

2.  The premium did not create any enduring benefit or acquisition of a capital asset.

3.  Thus, the foreclosure premium was deductible as a business expense under Section 37(1).

The copy of the order is as under:

eih-associated-hotels-571526