Court rules commission to Government Doctors for prescriptions not tax-deductible under Income-tax Act

The court held that the commission paid to Government Doctors for prescribing medicines constituted illegal gratification or bribe, prohibited by law, and therefore could not be treated as allowable business expenditure under Section 37 of the Income-tax Act. The court ruled in favor of the Revenue and against the assessee, disallowing the deduction for such payments.

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Issues Involved:
1. Whether commission paid to Government Doctors constitutes allowable business expenditure under Section 37 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Legality of Commission Paid to Government Doctors:
The primary issue is whether the expenditure on commission paid to Government Doctors by the assessee, who deals in Ayurvedic medicines, can be considered as allowable business expenditure under Section 37 of the Income-tax Act, 1961. The Assessing Officer disallowed the amount, but the Commissioner of Income Tax (Appeal) allowed the payment to private doctors while disallowing the payment to Government Doctors. The Tribunal upheld the assessee's claim, considering it a business necessity. However, the court held that the commission paid to Government Doctors is illegal gratification or bribe, prohibited by law, and thus cannot be treated as business expenditure under Section 37.

2. Explanation to Section 37 of the Income-tax Act:
Section 37(1) allows for the deduction of any expenditure incurred wholly and exclusively for business purposes, except those described in Sections 30 to 36, capital expenditures, or personal expenses. The explanation to Section 37 disallows any expenditure incurred for purposes that are an offense or prohibited by law. The court emphasized that the payment to Government Doctors falls under illegal gratification or bribe, which is an offense under the Prevention of Corruption Act, 1988, and thus, such expenditure cannot be allowed as a business expense.

3. Distinction Between Business Expenditure and Business Loss:
The court distinguished between "business expenditure" and "business loss." The cited cases of Piara Singh and Dr. T.A. Quereshi involved business losses, not business expenditures. In Piara Singh, the loss due to confiscation of currency notes in smuggling was allowed as business loss under the Indian Income Tax Act, 1922. Similarly, in Dr. T.A. Quereshi, the loss due to confiscation of heroin was allowed as business loss. However, these cases were not applicable to the present case, which involved business expenditure rather than business loss.

4. Applicability of Judgments Cited by the Assessee:
The court found that the judgments cited by the assessee did not apply to the present case. The Piara Singh case dealt with business loss, not business expenditure. Similarly, Dr. T.A. Quereshi's case was about business loss under Section 36, not business expenditure under Section 37. The Bombay High Court's decision in CIT v. Samarth Sahakari Sakhar Karkhana Ltd. involved 'bakshish' payments to workers, which were not illegal or an offense, unlike the commission paid to Government Doctors in the present case.

5. Infraction of Law and Business Expenditure:
The court reiterated that infraction of law is not a normal incident of business. Expenditure incurred in violation of the law cannot be regarded as incidental to business or necessitated for carrying on business. The payment of commission to Government Doctors for prescribing medicines constitutes an offense and cannot be allowed as business expenditure under the Act.

Conclusion:
The court concluded that the commission paid to Government Doctors for prescribing the assessee's medicines cannot be considered as business expenditure and no deduction can be allowed under the Income-tax Act. The question was answered in favor of the Revenue and against the assessee.

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