During year, assessee made payment of guarantee commission and claimed same as expenditure wholly incurred for purpose of business under section 37(1) of the Act.  Assessing Officer held  that assessee ought to have deducted tax at source on guarantee commission paid to Government of Karnataka as per provisions of section 40(a)(iib) of the Act  hence disallowed the expenditure. CIT(A) confirmed the order of the Assessing Officer. On appeal the Tribunal held that since guarantee commission was paid in consideration for State Government agreeing to suffer a detriment in event of assessee not repaying loan guarantee commission was not in nature of a ‘levy’ on a State Government undertaking by State Government and it was purely a contractual payment and did not fall within purview of section 40(a)(iib) of the Act.  (AY. 2014-15)