03 October, 2007

Baksheesh is official expense: HC

3 Oct 2007 0020 hrsISTShibu ThomasTNNTheTimes of India

MUMBAI: " Saab, baksheesh ." The Persian word for tip used by everyone from MTNL linesman to the postman has been accorded official sanctity to the tradition of baksheesh .

In an important judgment that will doubtless gladden the hearts of the baksheesh giver as well as the receiver, a division bench of Justice F I Rebello and Justice J P Devadhar recently held that baksheesh is a valid business expense and can be shown as such in income tax returns.

"The finding of the Income-Tax Tribunal that baksheesh is a necessary incidence of the assessee's business cannot be faulted," ruled the bench, upholding the payments to the tune of Rs 2.73 lakh paid as baksheesh by a Jalna-based sugar factory to labourers. The court dismissed the appeal filed by the Commissioner of Income Tax challenging the finding of the tribunal.

Before you start looking for the baksheesh column in the income-tax form or demanding vouchers from your maid, legal experts caution that this judgment may apply to large businesses but not to individuals.

In the Jalna case, the assessment record dates back to over a decade. The assessing officer disallowed the claim on account of baksheesh paid by the sugar factory, Samarth Sahakari Sakhar Karkhana Ltd during the assessment year 1995-1996. The officer had also rejected the claim of the amount the company had given its contractors as advance payment. The Income-Tax Appellate Tribunal in 2006, set aside both these decisions and said that they were valid business expenditure. The Commissioner of Income-Tax then moved the HC.

Advocate B M Chatterji, counsel for the I-T department, argued that the sugar cooperative had paid the baksheesh on its "own sweet will" and not because of any legal obligations. "Expenditure incurred arbitrarily without any contractual obligation cannot be allowed as business expenditure," the advocate contended.

The Karkhana's counsel S N Inamdar, however, said that making an advance payment to the contractors and giving baksheesh was the general practice of most sugar factories in Maharashtra. These expenses had been considered as valid expenses until now, the advocate said.

The HC agreed with the view of the Karkhana that an advance was paid to ensure that the contractors supplied harvested sugar cane promptly and this was "in the business interest" of the assessee. With regard to the baksheesh, the court agreed with the tribunal's finding, that to incentives labourers to work hard during the harvest season that falls in the harsh summer months, baksheesh is paid.

"The baksheesh claim made is reasonable and the said expenditure has been rightly held by the tribunal allowable as business expenditure," said the judges. As a last-ditch effort, the I-T department argued that if the claim is allowed other sugar factories may divert entire profits by way of baksheesh . The court rejected the contention.

"Wherever it is found that the amounts paid as baksheesh are exorbitant and unreasonable or wholly unconnected to the business, then, in such cases, it will be open to the assessing officer to disallow the claim," said the court.

http://timesofindia.indiatimes.com/India/Baksheesh_is_official_expense_HC/articleshow/2423189.cms

With Thanks from The Times of India

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