The ruling by the Income-Tax Appellate Tribunal (ITAT) that the protection money paid by a builder was an allowable expenditure has far reaching implications and should be widely welcomed in a situation where manufacturers and businessmen find it expedient to pay protection money rather than suffer heavy losses.While this, obviously, is an indictment of the law and order machinery generally, surrendering to the harsh ground realities in this manner is to be preferred to the kind of embarrassment the tea industry in Assam has been subjected to for long years and on a smaller and less worrying scale the entire business community in different parts of the country.
The tribunal deserves kudos for taking a practical view of the problems facing members of the community instead of refusing to recognise that such problems even existed. Effectively, what the government and the tax collector did not want to take notice of the tribunal has not only made public but has also set right.
This is truly remarkableconsidering that as of now while illegal expenses incurred in the pursuit of illegal business are allowable expenditure, as per a ruling of the Mumbai high court in regard to a legal business any expenditure that amounts to infraction of the law is not permissible. The law on what is allowable expenditure and what is not allowable is clearly laid down and the Supreme Court in the case CIT versus Pyara Singh ruled that in respect of an illegal business any expenditure incurred or laid out wholly and solely for the purpose of business is deductible and the Mumbai high court for its part has confirmed that such a facility was not open to a legal business operation.
It is in this context that the tribunal's clarification becomes very significant. However, one must wait and see if this is endorsed by the courts and manufacturers and members of the business community generally are allowed to claim deduction under the Income Tax Act for liabilities by way of extortion that are run up in the course of businessactivities that are perfectly legitimate and are not in violation of the law of the land.
The Tribunal itself has a record of being assessor-friendly and not being too conscious of the constraints facing corporate, business or other assessees. For the business community generally to derive the benefit of the ruling, it would be necessary for the ruling to be endorsed by one of the high courts or the Supreme Court. May be, the apex bodies of industry and commerce should pursue this in the interests of the business community at large.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
