Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1997-98 - Commission paid by diagnostic center to private doctors for referring patients for diagnosis could not be allowed as a business expenditure [In favour of revenue] 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 cannot 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. The assessee-company, doing the business of CT scan, ultra sound and X-rays, it had debited certain amount to the profit and loss account as expenditure on account of commission paid to the practicing doctors who referred the patients to the assessee for various tests. The Assessing Officer disallowed the claim of such commission but the Commissioner (Appeals) as well as the Tribunal allowed the same. Held that the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 provide that no physician shall give, solicit, receive, or offer to give, solicit or receive, any gift, gratuity, commission or bonus in consideration of a return for referring any patient for medical treatment. 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 could not, by any stretch of imagination, be accepted to be legal or as per public policy. Undoubtedly, it was not a fair practice and had to be termed as against the public policy. Thus, commission paid to private doctors for referring patients for diagnosis could not be allowed as a business expenditure. CASE REVIEW Dr. T.A. Quereshi v. CIT[2006] 287 ITR 547 (SC)distinguished. CASES REFERRED TO CIT v. Bank of Punjab…

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