1992 (12) TMI 80 - AT - Income Tax

Summary

Issues Involved:
1. Allowability of "Rasta Kharch" expenses as business expenditure.
2. Legality and morality of payments made to police personnel.
3. Conflict of judicial opinions between Madras High Court and Andhra Pradesh High Court on the issue.

Detailed Analysis:

1. Allowability of "Rasta Kharch" Expenses as Business Expenditure:
The assessee, engaged in the transport business, claimed expenses under "Rasta Kharch" for the assessment years 1985-86 to 1989-90, which were disallowed by the Income Tax Officer (ITO). The Tribunal directed the ITO to re-examine the evidence and consider the allowability of the expenditure in light of Supreme Court and High Court decisions. Upon re-examination, the ITO concluded that the seized records did not sufficiently support the claim that the payments were borne by the assessee and not the drivers. The ITO also determined that payments to police personnel were against public policy and constituted bribes, which are not allowable as business expenditure.

2. Legality and Morality of Payments Made to Police Personnel:
The ITO's decision was based on the principle that payments to police personnel, being government servants, are tantamount to bribes and are against public policy. The ITO cited various judicial decisions, including those of the Supreme Court, to support the disallowance of such expenses. The DC (Appeals), however, deleted the additions by relying on the Madras High Court decision in the case of CIT v. Coimbatore Salem Transport (P.) Ltd., which allowed similar expenses as inevitable for running the business.

3. Conflict of Judicial Opinions:
The Tribunal noted a conflict between the Madras High Court and the Andhra Pradesh High Court on the issue. The Madras High Court, in CIT v. Coimbatore Salem Transport (P.) Ltd., allowed deductions for tips and mamools paid to facilitate business operations, considering them inevitable and not necessarily illegal. The Andhra Pradesh High Court, in CIT v. Kodandarama & Co., held that payments made in contravention of public policy, such as bribes, are not allowable as business expenditure. The Andhra Pradesh High Court emphasized that such payments are opposed to public policy and should be discouraged.

Tribunal's Conclusion:
The Tribunal concluded that payments to police personnel for facilitating business operations are in contravention of the Indian Penal Code and public policy. Such payments are not a normal incident of business and thus disqualified as allowable business expenditure. The Tribunal vacated the DC (Appeals)'s orders and restored the ITO's orders, disallowing the claimed expenses.

Final Judgment:
The orders of the DC (Appeals) were vacated, the ITO's orders were restored, and all appeals by Revenue were allowed.