TMI Blog1992 (12) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... owing manner : " After a detailed discussion and verification of the seized records it has been found that as far as the evidence relating to the expenditure being payment to police is concerned the seized records i.e., bundles of loose papers do contain certain rough notes relating to police expenses. However, the loose papers do not indicate as to whether these payments have been born by the assessee or have been made by the driver out of his own pocket. It is a matter of common knowledge that during the course of journey drivers allow the passengers on the way to travel on their trucks for which fair is charged. This money is never paid to the owner but used by the drivers themselves for their personal expenses and meet other expenses including alleged tips to the policemen. Therefore, the entries made on the loose papers by themselves do not support the claim of the assessee. As regards the allowability of the alleged police expenditure is concerned the position in this regard does not require any detailed arguments. The position in this regard has already been made clear by the Hon'ble Supreme Court and various High Courts. The decisions which have been referred to above c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the manager who was also to incur the wayside expenses and make payments of mamool, and the surplus should be shared by him with the cashier. The departmental authorities added the receipts on the ground that the company could not give away part of its profits to its employees by merely passing a resolution and disallowed the expenditure on account of mamool and wayside. The Tribunal, however, held that the expenditure was inevitable if the assessee had to run its business, that they were " greases to run the bus business smoothly " and since in the very nature of the expenditure there could be no documentary evidence, the amounts claimed to have been expended were reasonable having regard to the large collection and the income returned and hence allowable. With regard to the resolution allowing the manager and cashier to receive the commissions or rebates and sale proceeds of tyres, the Tribunal interpreted the resolutions as one enhancing the salary of the manager and cashier. 7. When the matter came up before the Madras High Court, on reference by Revenue, it was held that : " (i) though generally the onus of proving that the expenditure had been actually incurred for an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : " Here the transport business of the assessee is entirely a lawful one. It does not become illegal by reason only that the assessee paid out moneys by way of tips to certain people on the route. There is no evidence as to what exactly was the nature of the tips and as to whether they were legal or improper. All tips in one sense may be improper but not necessarily so always or are illegal. In the absence of evidence on this matter, we have to go by the factual observations of the Tribunal. As we said the Tribunal has remarked that such expenditures as are sought to be deducted in this case are inevitable if the assessee has to carry on its business. Learned counsel for the revenue addressed arguments to us on the assumption that the expenditures sought to be deducted constituted improper or illegal acts and that expenditures incurred even in a lawful business are not eligible for deduction. One view may be that if profits derived from an illegal business are chargeable to tax, by the same logic the expenditure, be it illegal or improper, incurred in order to make such profits may legitimately be allowed as deduction. If the acts involved in the expenditure are in contravention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heme evolved by the Rice Millers' Association in consultation with the District Collector, however, held that there was no nexus between the payment and the successful fulfilment of the association's scheme, which in turn, resulted in an added advantage to the members and as such the payments satisfied the requirements of section 37(1) of the Act. It further held that the contributions were not opposed to public policy inasmuch as the benefit which was expected by the members of the association was only because of and through the association's role in the organisation of the scheme. 10. When the matter came up before the Hon'ble High Court, on reference by Department, it was held that : "...the finding of the Tribunal, in the instant case that the scheme had been evolved by the Rice Millers' Association and hence payments made by the members could not have been compulsory, was perverse. The payments were made by the assessees only because they were told that they would not get the export permit unless they made the contributions. The regularity and systematic manner in which the contributions were made, showed that contribution to the Welfare Fund was a pre-condition for grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that such payments are illegal or opposed to public, or have pernicious consequences to the nation's life as a whole. Section 23 of the Contract Act equates an agreement or contract opposed to public policy, with an agreement or contract forbidden by law." 11. In arriving at the above conclusions, their Lordships considered a number of English and Indian decisions including those of the Madras High Court and the Supreme Court. Regarding the views of the Madras High Court, as was expressed in Coimbatore Salem Transport (P.) Ltd.'s case and also in other cases on the same point, their Lordships of the Andhra Pradesh High Court observed as under at pages 412 and 413 : " Mr. Anjaneyulu then relied upon the decision in CIT v. Coimbatore Salem Transport (P.) Ltd. case where the Tribunal found that the 'tips' and mamools paid to the transport official were 'greases to run the bus business smoothly' and that they must be allowed as business deductions. The Madras High Court held that though tips may be improper, they were not illegal and in view of the finding of the Tribunal that the said expenditure was inevitable if the assessee had to carry on its business and did not pertain to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even the Government officials have to be kept in good humour. If keeping in good humour means contributing compulsorily to the funds, organisations, societies or individuals, specified by the officials, we must say that we cannot recognise any such proposition. The public officials are expected to discharge their duties dispassionately, and decide on the merits of each case, and not because somebody keeps them in good humour. In other words, either the contribution is a philanthropic one or constitutes either a reason or consideration for the discharge of official duties. in the first eventuality it cannot be said to be an expenditure laid but wholly and exclusively for the purpose of the business ; and, in the second case it would be disqualified as being opposed to public policy. Mr. Anjaneyulu contended that 'where an assessee incurs expenditure in order to promote and advance the interests of the business and shares his prosperity with the society, courts should give up a doctrinaire approach and take a liberal attitude in directing deduction'. We have said enough on this aspect in the preceding paragraphs of our judgment. If 'doctrinaire approach' means adherence to law, we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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