TMI Blog2012 (6) TMI 620X X X X Extracts X X X X X X X X Extracts X X X X ..... olved therein. For brevity, the facts are being extracted from I. T. A. No. 445 of 2006. 2. I. T. A. No. 445 of 2006 has been filed by the Revenue under section 260A of the Income-tax Act, 1961 (in short "the Act") against the order of the Income-tax Appellate Tribunal, Amritsar 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the assessee. 5. Learned counsel for the assessee has raised three fold submissions. 6. Firstly, that the question of admissibility regarding the aforesaid deduc- tion under section 37(1) was never raised before the Tribunal and, there- fore, the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. The argument, thus, does not carry any weight. 11. Adverting to the second and third arguments, the payment of commission to the private doctors for having referred the business for diagnosis to its centre requires examination with reference 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 sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness expenditure. It is well decided that unlawful expenditure is not an allowable deduction in computation of income. 20.2 This amendment will take effect retrospectively from 1st April, 1962, and will, 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or material for diagnostic purposes or other study/ work. Nothing in this section, however, shall prohibit payment of salaries by a qualified physician to other duly qualified person rendering 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 agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat was not a case of business expenditure. Since the present case is not a case of business loss but of business expenditure, that judgment is distinguishable 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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