TaxTMI 
TaxTMI 
2012 (6) TMI 620
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.... Bench, Amritsar dated December 8, 2005, passed in I. T. A. No. 408(ASR)/2004 for the assessment year 1997-98 claiming the following substantial question of law : "Whether, on the facts and in the circumstances of the case and in law, the Income-tax Appellate Tribunal was right in holding that the commission paid by the assessee to the doctors was allowable as it was in keeping with a trade practice and thus ignoring the fact that it was an illegal payment not allowable as per the Explanation to sec- tion 37(1) of the Act ?" 3. Briefly stated the facts for adjudication as narrated in the appeal are that the assessee is a private limited company doing the business of CT scan, ultra sound and X-rays. It filed its return on Nov....
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....e same cannot be raised before this court for the first time. He relied upon a judgment of this court in CIT v. Bank of Punjab Ltd. [2006] 286 ITR 630 (P&H) in support of the said submission. 7. Secondly, that giving of commission to the private doctors referring the patients for various medical tests was a trade practice which could not be termed to be illegal and, therefore, the same cannot be disallowed under section 37(1) of the Act even after insertion of the Explanation to the said section by the Finance Act, 1998, with effect from April 1, 1962. He cited the judgment in CIT v. Pt. Vishwanath Sharma [2009] 316 ITR 419 (All) to support the submission that payment of commission for soliciting patients for diagnosis in case of pr....
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.... to section 37 of the Act. 12. Section 37 is a residuary provision. An assessee is entitled to deduction of all expenditure which is wholly and exclusively laid out or expended for the purposes of the business which has not been expressly covered by any other specific provision of the Act. 13. In order to be eligible for an allowance under this residuary provision, the following conditions are required to be fulfilled : "(i) The expenditure must not be governed by the provisions of sections 30 to 36. (ii) The expenditure must have been laid out wholly and exclusively for the purposes of the business of the assessee. (iii) The expenditure must not be personal in nature. (iv) The expenditure mus....
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....ill, accordingly, apply in relation to the assessment year 1962-63 and subsequent years." 16. It, thus, emerges that an assessee would not be entitled to deduction of payments made in contravention of law. Similarly, payments which are opposed to public policy being in the nature of unlawful consideration can- not equally be recognized. It cannot be held that businessmen are entitled to conduct their business even contrary to law and claim deductions of payments as business expenditure, notwithstanding that such payments are illegal or opposed to public policy or have pernicious consequences to the society as a whole. 17. Now, we proceed to examine whether soliciting of business by the assessee by paying commission to the private d....
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....ng medical care under his supervision." 19. If demanding of such commission was bad, paying it was equally bad. Both were privies to a wrong. Therefore, such commission paid to private doctors was opposed to public policy and should be discouraged. The payment of commission by the assessee for referring patients to it cannot by any stretch of imagination be accepted to be legal or as per public policy. Undoubtedly, it is not a fair practice and has to be termed as against the public policy. 20. Further, section 23 of the Contract Act equates an agreement or contract opposed to public policy, with an agreement or contract forbidden by law. Section 23 of the Contract Act reads thus : "23. What consideration and objects are la....
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....able and does not help the assessee. 22. The issue with regard to the amount illegally paid to the police authorities for running their business came up for consideration before the Madhya Pradesh High Court in Gwalior Road Lines v. CIT [1998] 234 ITR 230 (MP) wherein it was held that after insertion of the Explanation to section 37(1) by the Finance Act, 1998, with effect from April 1, 1962, the assessee could not claim such payment as expended for commercial exigency and, therefore, the same was not an allowable deduction. 23. The Allahabad High Court in Pt. Vishwanath Sharma's case [2009] 316 ITR 419 (All) while considering the issue relating to commission paid to Government doctors for prescribing the assessee's medicine....