JUDGMENT N. Kumar, J.—The Revenue has preferred this appeal challenging the order passed by the Tribunal holding that the Commission paid to the Managing Director of the assessee Company is allowable as expenditure under Section 37 of the Income Tax Act, 1961. The assessee M/s. United Breweries Ltd., is a public Company, carrying on business in Indian Made Foreign Liquor. The assessee filed the return of income on 31-12-1990 declaring the total income of Rs. 1,32,34,452/-. The return of income was processed under Section 143(1)(a) of the Income-tax Act 1961 (hereinafter referred to as 'the Act' for short). An intimation dated 30-4-1991 was issued to the assessee. Thereafter the assessment was taken up under Section 143(3) of the Act by issuing a notice dated 30-4-1991, under Section 143(2) of the Act. A questionnaire dated 29-6-1992 was issued. The assessee was represented by his Tax Consultants who furnished the required information. The dispute which is the subject matter of the proceedings is guarantee commission paid to Sri Vijaya Mallya. He was the Chairman of the assessee Company. He has been paid guarantee commission of Rs. 13,96,580/- for the year ending 31st March, 1990 by the assessee. This guarantee commission was worked out on the personal guarantee given by Sri Vijaya Mallya, to various bankers with which the assessee enjoys the credit facilities. The enquiry revealed the personal guarantee of Sri Vijaya Mallya are nothing but mere signatures on documents and not backed by any specific assets. In fact, the same is the position as regards the guarantees extended by him to other bankers with whom the credit facilities have been enjoyed by the Company under his management namely, M/s. Mc Dowell & Company Ltd., and M/s. Kissan Products Ltd. The total of such guarantees given to the bankers of all the Companies under his management works out to Rs. 115.32 Crores. On the above guarantees he has earned a Commission of Rs. 1,15,32,059/- at the rate of 1%. It is seen that the net wealth declared by Sri Vijaya Mallya, on the valuation dated 31-3-1990 is Rs. 70,47,200/- only, the guarantee commission receivable is excluded from the net wealth. Therefore, the assessing authority was of the view that there was no scientific basis for these bank guarantees, but only an innovative method of diverting the incomes from the Companies under his management. 70,47,200/- only, the guarantee commission receivable is excluded from the net wealth. Therefore, the assessing authority was of the view that there was no scientific basis for these bank guarantees, but only an innovative method of diverting the incomes from the Companies under his management. The material collected by the assessing authority also discloses that while sanctioning the amounts and credit facilities the banks have primarily secured the loans by various methods such as obtaining promissory notes, hypothecation of machineries, equitable mortgage on the loans and buildings, counter indemnities, security in the form of book debts etc. Some of these guarantees have been executed long back in 1984-85 etc. Some or the limits sanctioned have undergone changes necessitating the renewal of these guarantees. However, there does not appear to be any renewal of these guarantees. Perhaps the credit worthiness of the assessee is not in doubt and the securities offered in the form of assets of the Company are sufficient to cover the risk element involved. The assessee Company has not ascertained the requirements of these guarantees, but has been paying repeated commissions year after year to its Chairman. The assessee Company contended that there is an element of risk undertaken by Sri Vijaya Mallya, the Chairman by extending these bank guarantees to the bankers. The assessing authority found, that the security offered in the form of assets of the Company adequately covered the risk element and there is no evidence to suggest that the bankers insisted on the personal guarantees of its Chairman. He was also of the view that there was no genuine business necessity of continuing with these guarantees. That they have not been renewed periodically in the light of the actual utilisation of the credit facilities. Therefore, the personal guarantee is a mere signature given long back. Therefore, he concluded by holding that there is no genuine service rendered to the Company. It is commensurate with the payment of commission made. It is an unwarranted benefit bestowed upon the Chairman of the assessee Company which is wholly excessive and unreasonable. Keeping in view the legitimate business needs of the assessee the entire guarantee commission amounting to Rs. 13,96,580/- was disallowed. He also took note of the fact that the necessary permission from the RBI as required under FERA was not obtained and Commission to any person residing outside India cannot be made. Keeping in view the legitimate business needs of the assessee the entire guarantee commission amounting to Rs. 13,96,580/- was disallowed. He also took note of the fact that the necessary permission from the RBI as required under FERA was not obtained and Commission to any person residing outside India cannot be made. The amount in question has not accrued or crystallised into income but they are in the process of accrual. The amount in question has not become due and payable. Therefore, the payment of guarantee commission cannot be called as accrued liability and at best can be termed as a contingent liability which would become payable only on granting permission by RBI and therefore it does not require any provisions in the Accounts. However, the assessee has debited guarantee commission even much before the liability has accrued. Therefore he disallowed the said expenditure. Aggrieved by the said order the assessee preferred an appeal to the Commissioner of Income-Tax(Appeals-II) Bangalore. The Appellate Commissioner discussed all these questions in his order as under:- The ground number 1 regarding allowance of the guarantee commission payable to Shri Vijay Mallya and ground number 2 regarding application of section 49(c) of the Act are assuredly covered by the appellate order of the Commissioner of Income Tax (Appeals)-II, Bangalore in her ITA No. 30/CC-II/CIT(A)II/93-94 dated 2.2.1994 for the assessment year 1990-91 in the name of M/s McDowell and Company Limited, Bangalore. I therefore confirm the action of the Assessing Officer in this regard. Aggrieved by the said order, the assessee preferred an appeal to the Tribunal. The Tribunal has extracted in its order the order of the assessing authority and summarised the respective contentions also by setting out the various decisions on which reliance is placed. By extracting the relevant portions, it came to the conclusion that it is an undisputed fact that many banking institutions are insisting for personal guarantee as an additional security for granting loans. In the instant case, Mr. Mallya, stood guarantee for the credit facility availed by the assessee Company for which Mr. Mallya, had insisted guarantee commission. It is for the Bank to assess whether Mr. Mallya is owning all his personal assets and the assessee Company has nothing to do if Mr. Mallya stood guarantee for the assessee Company at the instance of the Company. None of the Companies have questioned the capability of Mr. Mallya, had insisted guarantee commission. It is for the Bank to assess whether Mr. Mallya is owning all his personal assets and the assessee Company has nothing to do if Mr. Mallya stood guarantee for the assessee Company at the instance of the Company. None of the Companies have questioned the capability of Mr. Mallya, whether he can repay the loan amount, in case of any default on the part of the assessee Company. Most of the advances, loans, credit facilities to the assessee Company ware by Nationalised Banks, governed by Rules & Regulations. When such whooping loans were extended by the Banks to the assessee Company, it is but quite natural to assume that sufficient care should have been taken by them before acceding to the assessee's request. If not, the deficiency would be at the doorstep of the Bank and not with the assessee Company. It was the Revenue's contention that there was no scientific basis for the payment of guarantee commission and it was only an innovative method of diverting the income from the Companies to M/s. Mc Dowell management. If so, the Revenue should have come up with documentary evidence to drive home its assumption. But nothing is forthcoming. On the other hand, in the General Body Meeting the shareholders who are the back bone of any industry for approving the payment of guarantee commission which is in fact being paid for the years. The Company Law Board has also reiterated that the payment of guarantee commission is not a remuneration under Section 309 of the Companies Act. Therefore the Tribunal was of the view that guarantee commission paid to Mr. Vijaya Mallya for the assessment years 1990-91, 1992-93 are allowable expenditure under Section 37(1) of the Act. Aggrieved by the said order, the Revenue is in appeal. 2. The learned counsel appearing for the Revenue assailing the impugned order contends that the undisputed material on record discloses that Mr. Mallya is a Non-Resident Indian. His net wealth is Rs. 70,47,200/-. The Group of Companies which he represents have borrowed a sum of Rs. 115.32 Crores from various financial institutions. Mr. Vijaya Mallya has been paid Rs. 1.15 Crores as guarantee commission, as against the net wealth as on 31-3-1990 of a sum of Rs. 70,47,200/-. Therefore it is a ploy to divert the income under his management and it is a colourable devise. 115.32 Crores from various financial institutions. Mr. Vijaya Mallya has been paid Rs. 1.15 Crores as guarantee commission, as against the net wealth as on 31-3-1990 of a sum of Rs. 70,47,200/-. Therefore it is a ploy to divert the income under his management and it is a colourable devise. Admittedly, it is not a remuneration paid to the Managing Director. Therefore, the payment made is not lawful and would not fall within the mischief of Section 37 of the Act. The appellate Commissioner as well as the Tribunal in order to appreciate these undisputed facts have erroneously held that the assessee is entitled to the said expenditure. Therefore, he submits that a case for interference is made out. 3. Per contra, the learned counsel appearing for the assessee supported the impugned order. The appeal is admitted to consider the following substantial question of law. Whether the finding of the Tribunal that the guarantee commission payment paid in favour of the Chairman of the assessee Company for extending guarantee to the financial institutions is allowable deduction under Section 37(1) of the Act and not diversion of income is perverse, arbitrary and contrary to law? 4. Section 37 of the Act reads as under:- 37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 [****] and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession." Explanation.--For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. (2) [****] (2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party. (2) [****] (2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party. (3) [****] (4) Notwithstanding anything contained in sub-section (1) or sub-section (3), - (i) no allowance shall be made in respect of any expenditure incurred by the assessee after the 28th day of February, 1970, on the maintenance of any residential accommodation in the nature of a guest-house (such residential accommodation being hereafter in this sub-section referred to as "guest-house"); (ii) in relation to the assessment year commencing on the 1st day of April, 1971, or any subsequent assessment year, no allowance shall be made in respect of depreciation of any building used as a guest-house or depreciation of any assets in a guest-house: Provided that the aggregate of the expenditure referred to in clause (i) and the amount of any depreciation referred to in clause (ii) shall, for the purposes of this sub-section, be reduced by the amount, if any, received from persons using the guest house: Provided further that nothing in this sub-section shall apply in relation to any guest-house maintained as a holiday home if such guest-house- (a) is maintained by an assessee who has throughout the previous year employed not less than one hundred whole-time employees in a business or profession carried on by him; and (b) is intended for the exclusive use of such employees while on leave. Explanation.--For the purposes of this sub-section,- (i) residential accommodation in the nature of a guest-house shall include accommodation hired or reserved by the assessee in a hotel for a period exceeding one hundred and eighty-two days during the previous year; and (ii) the expenditure incurred on the maintenance of a guest-house shall, in a case where the residential accommodation has been hired by the assessee, include also the rent paid in respect of such accommodation'. A perusal of the aforesaid provision makes it very clear that any expenditure allowed or expended wholly and exclusively for the purpose of business shall be allowed in computing the Income chargeable under the head profits and gains of business or profession. A perusal of the aforesaid provision makes it very clear that any expenditure allowed or expended wholly and exclusively for the purpose of business shall be allowed in computing the Income chargeable under the head profits and gains of business or profession. This Explanation is in addition to various Explanations which are provided under Sections 30 to 36 of the Act It is not in dispute that the expenditure incurred by way of commission to the Managing Director for having stood as guarantee for the loans borrowed by the assessee is not one of the expenditure which fall within Sections 30 to 36. Therefore it has to fall within Section 37, The first appellate authority set aside the assessment orders on the ground that the case is covered by a Judgment of the Tribunal in M/s. Mc Dowell Company Ltd., Bangalore, where the very Mr. Mallya, was paid guarantee commission. The said Judgment is extracted in the Tribunal's order at para 4.6 which reads as under:- ...We deem it appropriate not to answer the question of law and remand the matter for reconsideration to the Tribunal in accordance with law. While considering, the Tribunal may also bear-in mind the earlier order with reference to the present set of facts and also dictum reported in 2011 ITR 256 in the case United Breweries Ltd. v. Assistant Commissioner of Income-tax & others and thereafter proceed to pass the order in accordance with law. A reading of the aforesaid Judgment makes it clear that in M/s. Mc Dowell's case nothing is decided. On the contrary it is expressly stated that they are not answering the question of law and therefore that Judgment is of no assistance. The appellate Commissioner committed a serious error in setting aside the order passed by the appellate authority relying on the said Judgment which decided nothing. 5. The assessee placed reliance on the Judgment in the case of very same assessee in ITA No. 32/2001 disposed off on 2nd April, 2007, The second substantial question of law which is framed is as under:- (ii) Whether the Tribunal was right in allowing guarantee commission paid to the Chairman of the Assessee Company, when he was not even competent to afford such guarantee? It is answered as under:- This question is fully covered by the Judgment rendered in ITA 105/2009 dated 20.7.2006. It is answered as under:- This question is fully covered by the Judgment rendered in ITA 105/2009 dated 20.7.2006. Following the said judgment, the question No. (ii) is answered in favour of the assessee. In ITA No. 105/1999 the substantial question of law which arose for consideration is as under:- Whether the tribunal was right in holding deletion of guarantee commission paid to the chairman in the light of Sec. 40C and in the light of Sec. 40-A(2) of the Income Tax Act in the given circumstances? The answer to the said question of law is as under: We in somewhat identical circumstances, in the case of this very assessee have chosen to accept the deletion in the order dtd. 8-6-2006 passed in ITRC No. 839-841/1998. The said judgment would equally apply with regard to the finding in respect of assessment year 1988-89. Therefore it is clear that in neither case this Court has answered the said issue. Reliance is placed on the Judgment of Delhi High Court in the case of Suessen Textile Bearings Ltd. v. Union of India [1984] 55 Comp. Cas. 492 (Delhi) where the question for consideration was Guarantee commission paid by a company to its Director for standing surety for loans and credit facilities taken by the company from financial institutions is not remuneration for services rendered within the meaning of Section 309 of the Companies Act, 1956, and approval of the Central Government or the Company Law Board is not necessary. Answering the said question it was held that The payment in consideration of the pledging of the credit or assuming the financial liability would not be remuneration paid for services rendered within the meaning of s. 309. A Director by entering into a contract of guarantee does not do any manual, clerical, technical, supervisory or administrative work, He gets the commission for the pledge of his credit and not for any services rendered. The guarantee commission payable to a director, therefore, is not remuneration for the services rendered and, consequently, no approval of the Board was required. 6. In the case of CIT v. Metalizing Equipment Co. (P.) Ltd. [2008] 220 CTR 366 (Raj.) the question which arose for consideration was whether the bank guarantee commission paid to the directors and relatives is allowable as deduction under Section 35(1)(4) of the Act. 6. In the case of CIT v. Metalizing Equipment Co. (P.) Ltd. [2008] 220 CTR 366 (Raj.) the question which arose for consideration was whether the bank guarantee commission paid to the directors and relatives is allowable as deduction under Section 35(1)(4) of the Act. The said question was answered by the Rajasthan High Court holding that this aspect of the controversy stands already covered by a decision in Commissioner of Income Tax Vs. Ayurvedic Sevashram (P.) Ltd., (1986) 159 ITR 112 Raj "wherein on facts also, the assessee Company had paid guarantee commission to the relatives of the Directors, who had secured finances for the Company and it was found that the deduction had resulted in remuneration to the relatives of the Directors of the Company. The guarantee commission paid for securing the finances, and thus deduction was upheld." In Ayurvedic Sevasharam (P.) Ltd.'s case (supra) the question for consideration was whether the guarantee commission paid to the relatives of Directors for securing finances to the assessee, is it in the nature of remuneration for services rendered and is covered under Section 40(1). It was held that Section 40(c) apply to the payments in so far as the relatives of the Directors. Section 40A(2), Clause (b)(ii), refers to an expenditure incurred by an assessee which is a company in respect of which payment has been or is to be made to any director or a relative of such director. This clause, thus, would apparently be applicable to the payments of guarantee commission to the relatives of the directors appearing in the list mentioned above. But the proviso to Section 40A(2) which controls it lays down that the provisions under the section shall not apply in the case of an assessee which is a company in respect of an expenditure to which Section 40(c)(i) applies. It follows that if the expenditure falls under cl.(i) of Section 40(c), that expenditure cannot be brought under Section 40A(2) of the Act. Section 40(c)(i) of the Act is applicable where the expenditure results in the provision of remuneration to a relative of the director of the Company. A close examination of Section 40A(2) and Section 40(c)(1) shows that they are not applicable to the persons who are not relatives within the meaning of Section 2(41) of the Act. Section 40(c)(i) of the Act is applicable where the expenditure results in the provision of remuneration to a relative of the director of the Company. A close examination of Section 40A(2) and Section 40(c)(1) shows that they are not applicable to the persons who are not relatives within the meaning of Section 2(41) of the Act. Therefore this judgment rendered under Section 40(c) of the Act, the said provision is no more in the Statute book as it has been deleted with effect from 1-4-1989. 7. Then we have the Judgment of Gauhati High Court in the case of (A) Pheros & Co. (P.) Ltd. v. CIT [1980] 124 ITR 188, wherein the question for consideration was whether the guarantee commission at the rate of 2 1/2% paid by the Company to the Managing Director for his personal guarantee is deductible under Section 37. 8. We have gone through the entire Judgment. No law is laid down therein. They have simply affirmed the order of the Tribunal which has permitted deduction. 9. A perusal of the impugned order shows that this Court set aside the earlier order passed by the Tribunal, formulated the issues for consideration and remanded the matter back to the Tribunal for fresh consideration. The issues on which the Tribunal was called upon to record its finding as contained in Para 2 of the impugned order are as under: Assessment year 90-91: (a) Whether the Tribunal was right in allowing guarantee commission paid to the Chairman of the assessee company, when he was not even competent to afford such guarantee? Assessment year 91-92: (b) Whether the Tribunal was right in allowing guarantee commission paid to the Chairman of the assessee company, when he was not even competent to afford such guarantee? (c) Whether the Tribunal was justified in deleting the disallowance of 50% of expenditure reimbursed to M/s. Mc Dowell & Company in regard to aircraft maintenance? (d) Whether the Tribunal was right in allowing the interest on loans taken by the respondent assessee to set up an entirely new unit (Pharma Division), without giving a factual finding that such activity constituted an extension of the business of the respondent assessee? Assessment year 92-93: (e) Whether the Tribunal was right in allowing guarantee commission paid to the Chairman of the assessee company, when he was not even competent to afford such guarantee? Assessment year 92-93: (e) Whether the Tribunal was right in allowing guarantee commission paid to the Chairman of the assessee company, when he was not even competent to afford such guarantee? (f) Whether the Tribunal was justified in deleting the disallowance of 50% of expenditure reimbursed to M/s. McDwell & Company in regard to aircraft maintenance? (g) Whether the Tribunal was right in allowing the interest on loans taken by the respondent/assessee to set up a new unit without giving a factual finding that such activity constituted an extension of the business of the respondent/assessee? Insofar as guarantee commission paid to the chairman is concerned, in the impugned order they have set out the facts of the case, they have summarized the contention of both the parties, they have also summarized the contents of the annexures on which reliance is placed. They have also set out the orders/judgments on which reliance is placed and recorded the following reasons: It is an undisputed fact that many banking institutions are insisting for a personal guarantee as an additional security for granting loans. In the instant case, Mr. Mallya stood guarantee for the credit facility availed by the assessee company for which Mr. Mallya had insisted for guarantee commission, As averred by the learned Advocate for the revenue it is for the banker to assess whether Mr. Mallya is backed up by his personal assets and the assessee company has got nothing to do. After referring to the general form of guarantee of Bank of Baroda, it is observed that Mr. Mallya stood guarantee for the assessee company on the insistence of the Bank. None of the banks have questioned the capability of Mr. Mallya whether he could repay the loan amount in case of any default on the part of the assessee company. Most of the banks, lent loan/credit facilities to the assessee company, were nationalized banks governed by rules and regulations. When such whopping loans were extended by the banks to the assessee company, it is nothing but quite natural to assume that sufficient care could have been taken by them before acceding to the assessee's request. If not, the deficiency would be at the doorstep of the Banks and not with that of the assessee company. When such whopping loans were extended by the banks to the assessee company, it is nothing but quite natural to assume that sufficient care could have been taken by them before acceding to the assessee's request. If not, the deficiency would be at the doorstep of the Banks and not with that of the assessee company. It was the revenue's apprehension that there was no scientific basis for the payment of guarantee commission and it was only an innovative method of diverting the income from the companies under Mr. Mallya's management. If so, the revenue should have come up with documentary evidence to drive home its assumption. However, nothing is forth coming. On the other hand, in the General Body Meeting, the shareholders (who are the back-bones of any industry) have approved the payment of guarantee commission which is in fact being paid for years. The Company Law Board has also reiterated that the payment of guarantee commission is not a remuneration u/s 309 of the Companies Act. Therefore, the Tribunal proceeded to hold that in the overall consideration of the facts and circumstances of the issue and also respectfully following the decisions of the Hon'ble High Courts of Gauhati and Calcutta referred supra, they are of the considered view that the Guarantee Commissions paid to Mr. Vijaya Mallya for the assessment years 1990-91, 1991-92 and 1992-93 are allowable expenditure u/s 37(1) of the Act. 10. The very order of the Tribunal reveals that the Assessing Authority had recorded the statements of the Managers of Citi Bank, Bank of Baroda and Corporation Bank and a gist of their say is as under: (i) None of the bankers had obtained the details of assets and liabilities of Mr. Mallya in India and outside India; (ii) Guarantees executed originally during 1983-1985 were not renewed thereafter. In the case of Citi Bank, the credit facilities were reviewed from time to time and the maximum credit allowable was reduced. Mallya in India and outside India; (ii) Guarantees executed originally during 1983-1985 were not renewed thereafter. In the case of Citi Bank, the credit facilities were reviewed from time to time and the maximum credit allowable was reduced. However, in the case of M/s. McDowell & Co., the same GC from the beginning was paid even though credit facility was lowered; (iii) None of the banker had obtained the details of assets and liabilities of the guarantor in India; (iv) As per the Circulars of RBI dated 29/7/90 and in June, 86, the banks were required to ensure that the practice of giving guarantees was not used by the Directors as a source of remuneration from the borrowing Co. and the banks were also advised to obtain such an undertaking from the borrowing company; (v) As per the exchange Control Manual, prior permission of RBI was required to accept the guarantees of NRIs; and (vi) In view of changed status of Mr. Mallya from Resident to NRI, the bankers were not able to state as to whether the guarantee could be enforced against Mr. Mallya in the event of default. 11. Again at Para 4.7, the Tribunal has summarized the contents annexed to the appellate order as under: Shri Vijay Mallya, Chairman of various companies including M/s. Mc Dowell & Co., U.B. Ltd was in respect of guarantee commission (GC) for the assessment year to the tune of Rs. 67.97 lakhs The AO on verification of documents with bankers came to the conclusion that the GC paid cannot be treated as an allowable expenditure u/s 37(1) of the Act. The credit facilities availed by the companies were secured by the assets of the respective companies. Total guarantee amounts received from the bankers were Rs. 115.32 crores on which Mr. Mallya got Rs. 1.15 crores as CC From 1/5/88 to 31/3/90 against his net wealth as on 31.3.90 of Rs. 70.47 lakhs. Hence, the AO was of the view there was no scientific basis for payment of GC and it was a ploy to divert the income of the companies under his management. The banks had extended loans and credit facilities based on promissory notes, hypothecation of machineries, mortgaging of lands/buildings, counter indemnities etc., Guarantee documents were executed during 1984-85 but not renewed consequent to upward limits of loans sanctioned. The banks had extended loans and credit facilities based on promissory notes, hypothecation of machineries, mortgaging of lands/buildings, counter indemnities etc., Guarantee documents were executed during 1984-85 but not renewed consequent to upward limits of loans sanctioned. The AO had countered the assessee's contention for the allowability of GC to Mr. Mallya for an element of risk undertaken by him by extending guarantees to the banks, the security offered in the form of assets of the companies have adequately covered and no proof to suggest that the banks have insisted for personal guarantee of its chairman and hence disallowed the payments u/s 37(1) of the Act. From the aforesaid undisputed material on record, it is clear that the assessee has paid his Chairman Mr. Vijaya Mallya guarantee commission on the basis of the loan which they have obtained from the Banks. The aforesaid material also discloses that none of the bankers had obtained the details of the assets and liabilities of Mr. Mallya in India and outside India. His net wealth on 31.03.1990 is Rs. 70.47 lakhs. He has stood as a guarantor in respect of his companies and the total amounts borrowed from the bankers is Rs. 115.32 crores. He has been paid in all a sum of Rs. 1.15 crores as guarantee commission from 01.05.1988 to 31.03.1990. The Circular of RBI dated 29.7.1990 and in June, 1986 mandates that the banks were required to ensure that the practice of giving guarantees was not used by the Directors as a source of remuneration from the borrowing company and the banks were also advised to obtain such an undertaking from the borrowing company. In fact as per the exchange Control Manual, prior permission of RBI was required to accept the guarantees of NRI's. The position of Mr. Mallya has changed from the status of a resident to NRI. The payment of guarantee commission is not a remuneration under Section 309 of the Companies Act. 12. In the light of the aforesaid observations the assessee has chosen to pay its Managing Director the commission on the pretext of his standing as a guarantor in respect of the loans borrowed by the assessee from various banks. In this context, the question that would arise for our consideration is, (i) Whether the guarantee commission paid to the Managing Director of a Company is allowable as an expenditure under Section 37 of the Act? In this context, the question that would arise for our consideration is, (i) Whether the guarantee commission paid to the Managing Director of a Company is allowable as an expenditure under Section 37 of the Act? (ii) Even if it is allowable, in the facts of the case it warrants such allowance? 13. In the instant case, we do not propose to go into the first question as we could dispose of the second question from the undisputed facts. 14. What is paid to the Chairman of the Company is a guarantee commission. The total amount borrowed from his group companies is to the extent of Rs. 115.32 crores and the guarantee commission paid is Rs. 1.15 crores i.e., 1% of the total borrowing. His net wealth as on 31.03.1990 is hardly Rs. 70.47 lakhs. It is a clear case, as rightly pointed out by the Assessing Authority; a ploy to divert the income of the companies under his management. As the circular of the RBI apprehended remuneration being paid to the Directors on the basis of the guarantee offered by them and when the banks were advised to obtain an undertaking from the borrowing company that they will not pay remuneration as a consideration for the Directors standing as guarantee who siphon out the amount of the company, the phrase used is 'Guarantee Commission'. 15. This Court had an occasion to consider the meaning of the word 'Expenditure' used in Section 37 in the case of J.K. Panthaki & Co. v. ITO in IT Appeal Nos. 213 and 214/2010 and held as under: 9. "Expenditure" is equal to "expense" and "expense" is money laid out by calculation and intention. But the idea of "spending" in the sense of "paying out or away" money is the primary meaning. "Expenditure" is thus what is "paid out or away" and is something which is gone irretrievably. To be an allowance within clause XV, the money paid out or away must be (a) paid out wholly and exclusively for the purpose of the business and further (b) must not be (i) capital expenditure, (ii) personal expense or (iii) an allowance of the character described in clauses (i) to (xiv). But whatever the character of the expenditure, it must be a paying out away. But whatever the character of the expenditure, it must be a paying out away. It is not enough that the disbursements are made in the course of or arise out of or are concerned with or made out of the profits of the business, but they must also be for the purpose of earning the profits of the business. It must be a commercial loss and in its nature must be contemplable as such. The mere fact that the assessee establishes the existence of an agreement between him and his agents and the fact of actual payment, the discretion of the Income-tax officer to consider whether the expenditure was made exclusively for the purpose of the business is not taken away. 10. The expenditure incurred must be for commercial expediency. In applying the test of commercial expediency for determining whether an expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of the business man and not of the revenue. The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure, if it was incurred on grounds of commercial expediency. The word "Commission" also fall for consideration in the said judgment and after referring to dictionary meaning it was held as under: 16. The word "Commission" is used occasionally to mean 'discount'. What is called 'commission', is a percentage deducted in the case of goods which are consigned the ordinary invoice price. It is in the nature of compensation paid to a person who has rendered service instead of paying remuneration. He has been paid compensation on percentage basis or on a price basis. The word "Commission" has some what different connotation and is used differently in different contexts. 16. In this background, if we look into the facts of this case, though the Chairman has stood as a guarantor in his personal capacity, the Banks have lent money not on the personal guarantee but on the assets of the Company which are offered as a security to the Bank. 16. In this background, if we look into the facts of this case, though the Chairman has stood as a guarantor in his personal capacity, the Banks have lent money not on the personal guarantee but on the assets of the Company which are offered as a security to the Bank. This personal guarantee is adopted as a means to pay remuneration to the Managing Director for which he was otherwise not entitled to. It is to overcome the directions issued by the RBI. It is to overcome the statutory provision contained in Section 309 of the Companies Act. This payment is characterized as a guarantee commission and the amount is paid. It is not a lawful payment in the facts of the case and therefore, the Assessing Authority was fully justified in disallowing the said expenditure under Section 37 of the Act. The said expenditure incurred is not for the purpose of earning profits of the business. Merely because the banks insisted on such guarantee and the Managing Director agreed to stand as a guarantor on payment of such commission, the commission is actually paid. That would not constitute a lawful expenditure so as to claim deduction under Section 37 of the Act. In that view of the matter, the order passed by the Tribunal is contrary to the material on record. There is no application of mind. The order is vitiated because of not appreciating the facts of this case in a proper perspective and thus, it is not sustainable, hence, we pass the following order: The substantial questions of law is answered in favour of the Revenue and against the Assessee. (i) Appeal is allowed. (ii) The order passed by the Appellate Tribunal is set aside and the order passed by the Assessing Authority as well as the Appellate Commissioner is restored. 17. Parties to bear their own costs.