TaxTMI 
TaxTMI 
2008 (2) TMI 423
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.... Income Tax (Appeal) allowed payment made to private Doctors/Vaids but disallowed a sum of Rs. 1,08,678/- as business expenditure claimed to have been paid to Government Doctors. The assessee claimed that payment of said commission was a business necessity and was followed by him over the years. The Tribunal upheld the contention of assessee 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. 3. The contention on behalf of the Revenue is that the amount paid as commission 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'). 4. On the contrary, Sri Shakil Ahmad, learned counsel appearing for the assessee, placing reliance on the Apex Court's decision....
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....s it clear that such an expenditure shall not be treated to be a business or professional expenditure. It is not in dispute between the parties and the learned counsel for the assessee also did not dispute that a Government Servant is not entitled to receive any amount in consideration of discharge of his official duty unless provided/permitted by the rules and regulations applicable to his conditions of service. The Government Doctors were not entitled to realise such amount for the purpose of prescribing medicines of the petitioner and thereby promoting his business interest. The amount paid to the Government Doctors by the assessee clearly comes within the category of "illegal gratification" or "bribe". It is also not in dispute that an illegal gratification or bribe is an offence under Prevention of Corruption Act, 1988. Earlier it was an offence under Section 161 of the Indian Penal Code The conduct rules applicable to Government Servants also prohibits such realization of money by the Government Servant and any amount, if so received by such Government Servant, is a serious misconduct. Without going to the question as to whether the payment paid as 'commission' to Government ....
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....taken by the High Court, said that when the Income Tax Authority found that the assessee was carrying on business of smuggling and the income derived from such business was liable to income tax and on that basis his income was taxable, then in such case, if any loss is incurred in undertaking an activity which is an essential part of the smuggling operation, the same was liable to be given due benefit. It further held that if the activity of smuggling can be regarded as a business, then those who are carrying on that business must be deemed to be aware that a necessary incident involved in the business is detention by the customs authorities and, consequently, confiscation of currency notes. It is an incident as predictable in the course of carrying on the activity as any other feature of it. Therefore, confiscation of currency notes is a loss occasioned in perusing the business; it is a loss in much the same way as if the currency notes had been stolen or dropped on the way while carrying on the business. It is a loss which springs directly from the carrying on the business and is incidental to it. The Apex Court also considered an important aspect and held that a "business loss" ....
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....of the assessee and he was engaged in manufacture and selling of heroin. Once the said finding of fact has arrived at, then seizure and confiscation of heroin being a natural consequence of such business, the confiscation of heroin resulting in loss was liable to be deducted as held in Piara Singh (supra) and, therefore, in Dr. T.A. Quereshi [2006] 287 ITR 547, the Court also held that the value of heroin was liable to be deducted as "business loss" in view of the finding of fact recorded by the Tribunal. It is in this context, the Apex Court held that when an assessee is being taxed under the Income-tax Act, the question has not be decided on the basis of emotions or moral approach but on legal approach. It is true that the assessee was committing a wholly immoral act in illegally manufacturing and selling heroin, but if the said activity of the assessee was taxable under the Act, then all necessary and integral activities would also be liable to be given due credit on ordinary commercial principles. 11. Coming to the next judgment i.e. of Hon'ble Bombay High Court in CIT v. Samarth Sahakari Sakhar Karkhana Ltd. [2007] 294 ITR 540, we find that it was not a case of illegal grat....