Illegal gratification to Government doctors is not deductible business expenditure under Section 37.

Commission paid to Government doctors for prescribing an assessee's medicines was held not to be deductible under Section 37 of the Income-tax Act, 1961, because the payment was treated as illegal gratification or a bribe. Expenditure incurred for a purpose that is an offence or prohibited by law falls outside the statutory allowance for business expenditure. Authorities dealing with business loss were held inapplicable, as the claim concerned expenditure, not loss. The decisive distinction was between lawful commercial outgoings and payments made in breach of law, and the deduction was therefore disallowed.

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Issues: Whether commission paid to Government doctors for prescribing the assessee's medicines was an allowable business expenditure under Section 37 of the Income-tax Act, 1961.

Analysis: Section 37 allows deduction only of expenditure laid out wholly and exclusively for business or profession, and its Explanation excludes any expenditure incurred for a purpose which is an offence or prohibited by law. Payment to Government doctors for prescribing medicines was treated as illegal gratification or bribe, which is not legally receivable by a Government servant and constitutes an offence in law. The authorities relied on by the assessee concerned business loss, not business expenditure, and therefore did not apply to a claim under Section 37. The distinction between lawful commercial outgoings and expenditure incurred in infraction of law was decisive.

Conclusion: The commission paid to Government doctors was not allowable as business expenditure and the claim was rightly disallowed.

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