SUDHIR Agarwal, J. - (1.) In this Income Tax Reference, we are re quired to answer the following question: "whether on the facts and in the circumstances of the case, the learned I. T. A. T. was justified and correct in law in holding the expenditure on account of commission paid to Government Doctors incurred by the assessee in con travention of the Public Policy, as allowable expenditure. "
(2.) THE assessee is dealing in Ayurvedic medicines. For the assessment year 1989-1990, he claims that he spent Rs. 2,46,254 as business expenditure by paying commission to various Doctors at the rate of 25 who were prescribing his -medicines to the patients. THE said Doctors/vaids were both private as well as Government Doctors. THE Assessing Officer disallowed the aforesaid amount as business expenditure, but Commissioner, Income Tax (Appeal) allowed payment made to private Doctors/vaids but disallowed a sum of Rs. 1,08,678 as busi ness expenditure claimed to have been paid to Government Doctors. THE asses see claimed that payment of said commission was a business necessity and was followed by him over the years. THE Tribunal upheld the contention of asses see with respect to claim of Rs. 1,08,678 to be treated as business expenditure observing that the payment was not disputed by the Revenue, and since it was evident that such amount was paid over the years, it was a business necessity and was allowable as business expenditure. The contention on behalf of the Revenue is that the amount paid as com mission to Government Doctors is nothing, but an illegal gratification/bribe. No such payment in a legal manner was permissible to any Government Servant and, therefore, a payment made illegally, which amounts to an offence under the Statute, cannot be treated to be a business expenditure under Section 37 of the Income-tax Act, 1961 (hereinafter referred to as the Act). On the contrary, Sri Shakil Ahmad, learned Counsel appearing for the assessee, placing reliance on the Apex Court's decision in C. I. T. v. Piara Singh, 1980 (124) ITR 40 and Dr. T. A. Quereshi v. CIT, 2006 (287) ITR 547 contended that even if payment to Government Servant as commission is illegal or an of fence, the same cannot be disallowed as business expenditure since the matter is to be decided not on morality, but on the basis of law. He also placed reliance on a decision of Bombay High Court in C. I. T. v. Samarth Sahakari Sakhar Karkhana Ltd. , 2007 (294) ITR 540 and contended that the practice of payment of commis sion to Government doctors was prevalent for years together and hence it cannot be said to be an illegal payment particularly when genuineness of payment is not doubted.
(3.) HAVING heard learned Counsel for the parties and considering the record as well as the various authorities cited at the bar, we are of the view that the sum of Rs. 1,08,678 paid as commission to Government Doctors/vaids cannot be al lowed as business expenditure under the Act and, therefore, the question has to be answered in favour of the Revenue and against the assessee. Our reasons for such conclusion are as under: The alleged expenditure in question is sought to be deducted under Sec tion 37 of the Act. The relevant provision for the purpose of the present case, is reproduced as under: "37. (1) Any expenditure (not being expenditure of the nature described in Section 30 to 36 and not being in the nature of capital expenditure or per sonal expenses of the assessee, laid out or expended wholly and exclusively for the purpose of the business or profession shall be allowed in computing the income chargeable under the head "profits and gains of business or pro fession. " 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 purposes of business or profession and no deductions or allowance shall be made in respect of such expenditure.";