Income Tax Ordinance (XXXI of 1979)---

----S. 23(1)(xviii)---Deduction---"Commercial expediency"---Connotation-- Commercial bribery---Test---Custom or usage---Nature---Maxim "crimen omnia ex se nata vitiat"--- Application---Expression "there was no morality about a tax"---Usage---Assessee, deriving income from supply of various items to an autonomous body---Amounts paid to manipulate procedures for taking undue advantage against a competitor or for shortening of prescribed rules amounting to illegal gratification, could not in any form or shape be taken as an expense laid out wholly and exclusively for the purpose of business or profession.

Where an assessee makes a claim for such allowance, the burden is upon him to prove that the expenditure was incurred only for the purpose of business of the assessee. Such burden can be discharged by producing evidence to establish that the money claimed as allowance was spent solely for business expediency, commercial exigency and entirely for running, maintaining or developing the business. In the present case, the assessee had used soft words for the alleged payments and described them as "fact of life". However, the fact remains that the alleged payments were illegal gratification which neither the officials were entitled to receive nor the assessee was liable to pay. By way of the alleged claim an illegality was being sought to be protected and perpetuated. An act which was against law, public policy and other accepted moral standards of society could not be connived at only on account of its existence or frequent happening Law and morality, at times, may have no relevancy to each other yet where both join in disapproving an incidence nothing remains to discard it from serious consideration.

The phrase "commercial expediency" cannot be stretched to include the payments of illegal gratification. It has to be distinguished from "commercial bribery" which "may assume any form of corruption in which an employee is induced to betray his employer or to compete unfairly with a competitor. An assessee willingly walking to the net of corruption or the one who is dragged to the trap of dishonesty would not stand at any different footing as far the claim of deduction under section 23 of the Income Tax Act was concerned. Both persons, a willing privy to such transaction or an adamant payer of bribe were constituents of the arrangement and were equally guilty. Both facilitate manipulation of settled standards of doing or refraining from the doing of a job. None of them could, therefore, plead force or necessity for giving or taking bribe even if on factual plane they may have their justifications to do the wrong. Raising of such defense or allowing a plea to justify the intentional commission of an illegal Act were equally prohibited. The residue subsection (1)(xviii) of section 23 which was parallel to subsection (2)(xvi) of section 10 of the Late Act of 1922 could in any eventuality be pressed into service for the claim of the kind. These provisions expressly exclude expenditure which is of capital or of personal nature. All payments made, gifts presented and things of value doled out to persons in position were at best personal expenses although the motive or purpose behind them may have been some kind of past, existing or future business requirement. The direct aim of the payer was to influence the behaviour of the recipient in position. Such expenditure in both cases whether it does or does not bring a benefit to the business of the assessee is not an allowable expense. One test in such-.like claims could be to see if an action at law could be laid against the assessee if he had not made the impugned payment or conversely, whether it could sue for the return of the amount if the purpose for which it was expended had not been carried out by the receiver. A payment made or expenses incurred on account of commercial expediency which does not stand this test will not be taken as an amount expended "wholly and exclusively for the purpose of such business or profession". Also a privy to an illegal Act will not be allowed a premium for its participation in the deal which is per se offensive irrespective of any benefit brought about to its present previous or expected business interest.

The payments were neither legal nor these could be described as customary in the line of business. A custom or usage in existence for a long time in history may assume the force of law when it is not illegal nor offends the recognized moral standards of a society. Corruption fulfils only the first requirement of being continuously in existence since time immemorial yet it lacks in legality and morality. Therefore, no claim can be based upon it for recognition by law.

Amounts paid to manipulate procedures for taking undue advantage against a competitor or for shortening of prescribed Rules amounting to illegal gratification could in any form or shape be taken as an expense laid out wholly and exclusively for the purpose of business or profession.

The phrase "there is no morality about a tax" refers only to the legislative power to impose tax on any and every kind of business or income generating activity. However, it does not at all mean that immoral and illegal acts of a person will be baptised only in order to give effect to a levy. Although our system does not maintain a distinction between misdemeanour and felony yet there should be no hesitation in saying that giving and taking bribe is an "infamous crime". The legal maxim reads "crimen omnia ex se nata vitiat" crime vitiates everything which springs from it.

Assessee, having not made a secret of the nature of the payments and the same being neither legal nor customary in the line of its business, expenses claimed were disallowed in circumstances.

Hashrpi Can Company Limited v. C.I.T. 1989 PTD 570; Black's Law Dictionary, 5th Edn.,pp.245,1350 rel.

(1961) 3 Tax (Trib.) 141; CIT, Kerala v. Malayalam Plantations Limited (1964) 53 ITR 140; Calcutta Landing & Shipping Company Limited v. CIT (1967) 65 ITR 1; CIT, Bombay City-I v. Jagannath Kisonlal (1956) 30 ITR 654; Badridas Daga v. CIT (1958) 34 ITR 10; CIT, Baroda v. Navsari Cotton & Silk Mills Limited (1982) 135 ITR 546; Jamshedpur Motor Accessories Stores v. CIT, Bihar and Orissa (1974) 95 ITR 664; CIT, Madras v. Coimbatore Salem Transport Pvt. Limited (1966) 61 ITR 480; CIT, Tamil Nadu v. Arumugham Chettiar (1980) 125 ITR 753 and CIT, Madras v. Ramakrishna Mills Limited (1974) 93 ITR 49 distinguished.

Poibani Dolls v. CIT 1995 PTD 1128 and CIT, Central Karachi v. Alpha Insurance Company PLD 1981 SC 293 ref.

Siraj-ud-Din Khalid for Appellant.

Mrs. Fiza Muzaffar, D.R. for Respondent

Date of hearing: 23rd October, 1997.

ORDER

NASIM SIKANDAR (JUDICIAL MEMBER).--The assessee in this further appeal for the year 1990-91 is a registered firm and derives income from supply of various items to WAPDA. The assessing officer though accepted the returned supplies yet subjected them to a rate of 12.5 % . Also a number of profit and loss account disallowances were made to compute total income for the year at Rs.27,44,692 as against disclosed at Rs.10,00,000.

2. One of the items of profit and loss account claim was headed as "Misc" and shown at Rs.4,22,107. In reply to the notice of the assessing officer as to the nature and detail of the expense the assessee replied: "The other P & L expenses are partly unvouched but entirely in connection with business activities of the firm. These expenses include Rs.4,22,107. The details of which cannot be produced for the reason that these expenses are incurred in connection with receiving contract and payments from the different office of WAPDA. These expenses are unavoidable in the society. The quantum is reasonable keeping in view the quantum of supplies". The assessing officer, however, was not impressed as the explanation was found unsatisfactory. Accordingly the claim was disallowed by a sum of Rs.4,00,000.

3. Learned First Appellate Authority CIT(A) Zone-I, Lahore by way of its order dated 30-10-1991 maintained the treatment extended to the assessee. It was also noted that in the immediate preceding year a claim of Rs.58,402 was made under this head and that the appellant could not give an acceptable reason regarding increase in the expense. Also that since it was totally unverifiably the add back made by the assessing officer was justified.

4. Although the assessee has agitated against a number of disallowances in profit and loss account under various heads yet at the time of arguments learned counsel for the assessee has pressed his grievance only against the aforesaid expenses claimed under the head "miscellaneous" and partly disallowed by the assessing officer as stated above.

5. Parties have been heard. Mr. Siraj-ud-din-Khalid, learned counsel for the assessee vehemently contends that the Revenue was not justified in disallowing the expense which the assessee spent to keep going his business profitably. It is stated that the assessee is engaged in execution of supplies to WAPDA Authorities at various stations throughout Pakistan. Also that he has to travel to these stations on a number of occasions from submission of tender documents to the receipt of final payment. It is stated that the expenses claimed under the aforesaid head included the amounts which the assessee was obliged to spend in order to facilitate award of contracts as also to get the running as well as the final payments of Contracts expedited. In the view of the learned counsel expenditure of such a kind is a "fact of life" and no living member of this society can deny the reality that such payments are factually incurred in such kind of business. The learned counsel is also of the view that if the claimed expenses had not been incurred assessee would have been obliged to make additional trips to various stations in order to facilitate the award of contracts as well as the subsequent receipt of payments. For him this fact alone was sufficient to entitle the assessee to the allowance of the claim. He would like to describe the reason for incurring the expense or the making of the payments as "commercial expediency". Also that various tests given in law and established by judicial precedent permit the allowance of similar expenses and that an expense was not invariably required to be established through vouchers or documentary evidence. Here he suggests that where proper accounts are not maintained or an expense is not supported by documentary evidence a reasonable portion may be allowed keeping in view the total turnover or the income declared should be made basis for the allowance. Lastly that an infringement of law is not per se a valid ground to disallow an expense which was incurred for the "purpose" of business.

6. In support of the first claim that the expense was incurred on account to commercial expediency reliance is placed upon a reported judgment of this Tribunal cited as (1961) 3 Tax 141 (Trib.). In that case the assessee compensated one of its employees an Engineer, for loss of his baggage in transit while he was proceeding to Lahore on transfer. The payment was made on compassionate grounds as a good gesture towards the employees generally. The Revenue disallowed the same but the Tribunal accepted the contention. It was remarked that for an expenditure to be allowed under section 10(2)(xvi) of the late Act of 1922 it was not necessary to establish that it was incurred of necessity. Also that what was required to be shown was that expense was wholly or exclusively for the purpose of business and was such as a prudent businessman would be expected to consider expedient in the larger interest of his business. According to the learned Benchers such kind of payments, as the one in question was bound to promote goodwill among the employees and ensure better cooperation. It was, therefore, admitted to deduction. .

7. The second case relied upon on the subject is reported as (1964) 53 ITR 140 re: CIT, Kerala v. Malayalam Plantations Limited. In that case their lordships of the Indian Supreme Court discussed the expression "for the purpose of business" and found the phrase to have a wider scope than the expression "for the purpose of earning profit". According to their lordships in its wide range the expression will take in not only, the day to day running of a business but also the rationalization of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of st:4tutory dues and taxes imposed as a precondition to commence or for the carrying on of a business and that it may comprehend many other acts incidental to the carrying on of the business.

8. In the third case (1967) 65 ITR 1 re: Calcutta Landing and Shipping Company Limited v. CIT, West Bengal the Board of Directors of the assessee company whose employee was murdered while on the company's business, sanctioned payment of pension to his widow at graded rates for a number of years. The Revenue refused to allow the amount of pension as an expense and the assessee remained unsuccessful uptill second appeal. Their lordships of the Calcutta High Court on reference held that payment of pension to wife of the deceased employee was an expenditure solely laid out for the purpose of business and, therefore, allowable. During the course of judgment it was remarked that the expression "commercial expediency" was an expression of wide import and expenditure in commercial expediency included such expenditure as a prudent man may incur for the purpose of his business. An expenditure which was entirely gratuitous and had no connection with the business did not come within the meaning of section 10(2)(xvi) of the Act. Their lordships also saw the proposition as well-settled that expression "expenditure laid out or expended wholly and exclusively for the purpose of such business" included expenditure voluntarily incurred for commercial expediency and in order indirectly to facilitate business.

9. The next case relied on the proposition of commercial expediency being (1956) 30 ITR 654 re: CIT, Bombay City-I v. Jagannath Kisonlal. In that case the assessee being unable to obtain a loan joined hands with another person to borrow Rs.1,00,000 from a bank on their joint and several liability. Out of the total amount they shared Rs.50,000 each. The other person became insolvent and the assessee had to pay the whole amount to the bank. Finally he received a part of the amount in the insolvency proceedings and claimed the balance as an allowable deduction in computing the profits of his business under section 10(2)(xv) of the late Income-tax Act, 1922. Their lordships of the Bombay High Court repeated their consistent view:

(i) That the amounts spent by a businessman for commercial expediency are permissible deduction;

(ii) that it is not for the department to tell a businessman how to conduct his business, that must be left to the businessman himself;

(iii) that when a claim is made under section 10(2)(xv) all the department was concerned with was to test every expenditure and determine whether it was incurred for the furtherance of the business, and

(iv) that any money spent in the interest of the business or any money spent in the course of the business and which is incidental to the business are allowable under section 10(2)(xv).

10. To support his contention that the claim in question fulfilled the legal requirements for an allowable claim under section 23(1)(xviii) of the Income Tax Ordinance, learned counsel further places reliance upon (1958) 34 ITR 10 re: Badridas Daga v. CIT. In that case the appellant carried on business as a money-lender, dealer in shares and bullion through an agent who held a power of attorney which conferred on him large powers of management including authority to operate on bank accounts. The agent withdrew a large sum of money from the bank account and applied the same towards the satisfaction of his personal debts. On being informed the assessee cancelled the power of attorney and called upon the agent to pay the amounts withdrawn by him. The appellant later filed a suit against the agent for recovery of the amount but could recover only a very small portion of the total amount. Therefore, he wrote off the balance as irrecoverable. One of the questions which arose for their lordship's decision being whether that amount was an admissible deduction in computing the profits of the assessee from business. Their Lordships held that ordinarily loss sustained by a business by reason of embezzlement by an employee or agent was not an admissible deduction under section 10(2)(xi) of the late Act. However, their Lordships concluded, loss resulting from embezzlement by an employee or agent in a business is, admissible as a deduction under section 10(1) of the late Income-tax Act, if it arises out of the carrying on of the business and is incidental to it". While holding for the assessee their lordships also found that the theory that once moneys were put into the bank they had "got home" and their subsequent withdrawal from the bank would be dehors (out of) the business was inapplicable to a business such as banking or money-lending.

11. In the second case on the subject re: CIT, Baroda v. Navsari Cotton & Silk Mills Limited (1982) 135 ITR 546 a Division Bench of the Calcutta High Court laid down a number of positive as well as negative tests to find if an expense could be allowed as business expenditure. The factory managed by the assessee-company in that case discharged an effluent causing health hazard as the drain in which the same was being discharged, used to over flow. The citizens and agriculturists affected thereby strongly protested. The assessee apprehended a spade of suits by the citizens to prevent the alleged nuisance which endangered their health and safety. The Local Municipality could not remedy the situation with its own resources and if the company was injected from operating its mills even for a short duration it would have suffered huge financial losses. Also assessee ran the risk of losing its market, customers and goodwill. Therefore, it made a contribution to the municipality for providing an underground pipeline through the municipal land for the disposal of effluent discharge so as to guard against health hazards to the citizens of the area. The amount so contributed was claimed as business expenditure under section 37 of the Indian Income Tax Act, 1961. Their Lordships of the Gujarat High Court while finding for the assessee as aforesaid laid down some positive as well as negative tests to judge the allow ability of an expense. One of the negative tests as found by their lordships at Serial No.(iv) being "if the expenditure was incurred for illegal, immoral or corrupt purposes or by any such means or for any such reasons". Another negative test according to their lordships given at Serial No.(v) being if the expenditure was incurred mainly "in order to oblige a relative or an official".

12. Admitting the fact that the assessee had not been able to substantiate by any documentary evidence the aforesaid expense the learned counsel relies upon a number of cases to contend that vouchers or other documents of the nature are not invariably required to establish an expense and that where no accounts are maintained a portion of the expense can be disallowed. The first case is cited as (1974) 95 ITR 664 re: Jamshedpur Motor Accessories Stores v. CIT, Bihar and Orissa. In that case the assessee had taken an advance from two individuals when he started business. The condition for loan being that he would, pay 12-1 /2 % of the net profit to each of the two creditors who were not to charge any interest on it. The assessing officer finding that the share of profit paid to the above lenders far exceeded the usual rate of interest of 6% and that there did not appear any business necessity to borrow at such higher rate or for the payment of such a large share of the profits proceeded to disallow the same. An objection with regard to absence of any written agreement for such payment was also raised by the assessing officer. Their Lordships of the Patna High Court held that when a claim for allowance under section 10(2)(xvi) of the Act was made the Income-tax Authorities had to decide whether an expenditure was incurred voluntarily 'and on grounds of commercial expediency and in order to facilitate the carrying on of the business. Further-that in applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for purposes of the business, reasonableness of the expenditure had to be adjudged from the point of view of the business and not of the revenue.

13. In the next case re: CIT, Madras v. Coimbatore Salem Transport (Pvt.) Limited cited as (1966) 61 ITR 480 the assessee-company operated fleet of buses through its drivers and conductors who incurred certain wayside expenses and made payment of "Mamool" which were in the nature of tips or presents to odd people on the bus routes. The Board of Directors in their meeting resolved that in view of the faithful services rendered by the manager and cashier, thenceforward the commissions, rebates and sale proceeds will be received by the manager who was also to incur the wayside expenses and make payments of Mamool, and the surplus would be shared by him with the cashier. The departmental authorities added the receipts on the ground that the company could not give away part of its profits to its employees by merely passing a resolution and disallowed the expenditure on account of Mamool and wayside expenses since the assessee failed to prove the expenditure claimed to be deducted. The Tribunal found that the expenditure was inevitable if the assessee had to run its business as these were "greases to run the bus business smoothly". On reference by the Department the Madras High Court found that though generally the onus of proving the incurring of the expense and purpose was on the assessee yet in the instant case the Tribunal was not wrong in its view that in the very nature of the expenditure there could not be any documentary evidence to prove it. Secondly, that though tips may be improper yet they were not illegal and in view of finding of the Tribunal that the expenditure sought to be deducted was inevitable if the assessee had to carry on its business and did not pertain to anything illegal or improper, the Tribunal was right in allowing the deduction.

14. The last case cited on the subject is reported as (1980) 125 ITR 753 re: CIT Tamil Nadu v. Arumugham Chettiar. In that case the assessee was a registered firm and carried on business as stevedoring contractors to some companies at the Madras Port. It made payments of commission or Mamool to the crew of the various ships calling at the port. It was stated before the Revenue Authorities that payments of Mamool in that line of business were inevitable as the Captain of the ship had to issue a no damage certificate before it could claim the bill from the companies. The assessing officer did not dispute their genuineness but treated the expenditure as entertainment expenses and limited the amount to some extent. The treatment was maintained by the first appellate authority. The Tribunal on further appeal, however, held that payments were in nature of general business expenditure and that in absence of details the entire amount claimed could not be allowed and disallowed 15 % of the payments and allowed the balance. On reference the Madras High Court noting that the assessing officer had not disputed the genuineness of the payment found them not to be illegal and also it was not possible to obtain proof for such payment. Therefore, they held that the Tribunal was right in holding that the commission payments were incurred wholly and exclusively for the purpose of its business. The disallowance of part of the expense on account of their being unverifiable was also not disturbed.

15. In support

of his last contention that an expense incurred for the purpose of business of an assessee could not be disallowed only account of its being violative of some law the learned counsel relies upon (1974) 93 ITR 49 re: CIT, Madras v. Ramakrishna Mills Limited. In that case the assessee company employed a partner of its Managing Agency firm as a manager and sought to deduct the salary paid to him as a manager under section 10(2)(xvi) of the Income-tax Act, 1922. The Revenue Authorities disallowed the claim while the Tribunal accepted the same. On reference their lordships of the Madras High Court found that even if there was an infringement of section 348 of the Companies Act in making payment to partner of the managing agency in his capacity as manager, it will not disentitle the assessee-company to claim deduction under section 10(2)(xvi) of the late Income-tax Act, 1922.

16. Learned D.R. supports the orders of the authorities below for the reasons stated therein. Further states that the assessee as claimed is an Income-tax payee since 1980 but no such kind of expense was ever claimed in earlier years. From this she concludes that if the assessee could run the business without having been made to pay the kind of payments alleged to have been dolled out to the officials of the WAPDA Authorities, it could very well carry on its business in the year under review as well.

17. After considering the contentions of the parties we are not persuaded to agree with the proposition being advanced at the bar for the assessee. In 1989 PTD 570 re: Hashmi Can Company Limited v. CIT their lordships of the Karachi High Court found that "where an assessee makes a claim for such allowance, the burden is upon him to prove that the expenditure was incurred only for the purpose of the business of the assessee. Such burden can be discharged by producing evidence to establish that the money claimed as allowance was spent solely for business expediency, commercial expediency and entirely for running, maintaining or developing the business. Learned counsel for the assessee has used soft words for the alleged payments and described them as "fact of life". However, the fact remains that the alleged payments were illegal gratification which neither the WAPDA officials were entitled to receive nor the assessee was liable to pay. By way of the alleged claim an illegality is being sought to be protected and perpetuated. An act which is against law, public policy and other accepted moral standards of society cannot be connived only on account of its existence or frequent happening. Law and morality, at times, may have no relevancy to each other yet where both join in disapproving an incidence nothing remains to discard it from serious consideration.

18. The cases relied upon by the learned counsel have been mentioned in sufficient details to make it clear that no support for the proposition is available from any of them. In the first four cases the term "commercial expediency" has been discussed as a general proposition in the light of the words of the statute that an expense to be allowable has to be "laid out or expenses wholly and exclusively for the purpose of such business or profession." The negative test as laid down and discussed in re: Navsari Cotton and Silk Mills Ltd. (supra) rather negates the contention of the assessee. The ratio settled in re: Jamshedpur Motor Accessories Stores (supra) is again not directly relevant to the issue in hand. The last-cited two cases where "Mamool" payments were held allowable in certain proportion in absence of complete record are also clearly distinguishable. In both cases re: Coimbatore Salem Transport Private Limited (supra) re: Arumughan Chettiar (supra) their Lordships proceeded on the premises that these payments in the form of "Mamool" or tips were firstly not illegal and secondly, were customary in the line of the business of the assessee.

19. The phrase "commercial expediency" cannot be stretched to include the payments of the kind before us. It has to be distinguished from "commercial bribery" which according to Black's Law Dictionary, 5th Edition at page 245 "May assume any form of corruption in which an employee is induced to betray his employer or to compete unfairly with a competitor". An assessee willingly walking to the net of corruption or the one who is dragged to the trap of dishonesty do not stand at any different footing as far the claim of deduction under section 23 of the Income Tax Act is concerned. Both persons, a willing privy to such transaction or an adamant payer of bribe are constituents of the arrangement and are equally guilty. Both facilitate manipulation of settled standards of doing or refraining from the doing of a job. None of them can, therefore, plead force or necessity for giving or taking bribe even if on factual plane they may have their own justifications to do the wrong Raising of such defense or allowing a plea to justify the intentional commission of an illegal act are equally prohibited. The residue subsection (1)(xviii) of section 23 which is parallel to subsection (2)(xvi) of section 10 of the late Act of 1922 cannot in any eventuality be pressed into service for the claim of the kind. These provisions expressly exclude expenditure which is of capital or of personal nature. To us it appears that all payments made, gifts presented and things of value doled out to persons in position are, at, best personal expenses although the motive or purpose behind them may have been some kind of past, existing or future business requirement. It will be noted that the direct aim of the payer is to influence the behaviour of the recipient in position. Such expenditure in both cases whether it does or does not bring a benefit to the business of the assessee is not an allowable expense. One test in such-like claims could be to see if an action at law laid against the assessee if he had not made the impugned payment or conversely, it could sue for the return of the amount if the purpose for whirr it was expended had not been carried out by the receiver. A payment made or expenses incurred on account of commercial expediency which does not stand this test will not be taken as an amount expensed "wholly and exclusively for the purpose of such business or profession". Also a privy to an illegal act will not be allowed a premium for its participation in the deal which is per se offensive irrespective of any benefit brought about to its present, previous or expected business interest.

20. It is repeated that in the cases relied upon by the assessee the claimed expenses where allowed were never held or found to be illegal. These were also found customary in the line of business of the assessee and, therefore, the Courts allowed their deduction. The payments before us, on the other hand, are neither legal nor these could be described as customary in the line of business. A custom or usage in existence for a long time in history made assume the force of law when it is not illegal nor offends the recognized moral standards of a society. Corruption fulfils only the first requirement of being continuously in existence since time immemorial yet it lacks in legality and morality. Therefore, no claim can be based upon it for recognition at law.

21. A tip has been described in Black's Law Dictionary, 5th Edition at page 1330 as "A sum of money given, as to a servant, waiter, bell man or the like, for services rendered with the amount commonly varying upon the quality of such service". The claimed expenses before us can neither be described as a Mamool or a tip to make it an allowable deduction nor it can be held to be customary in the line of the business of the assessee.

22. Learned counsel for the assessee has cited the above-reported judgment of the Madras High Court in re: Ramakrishna Mills Limited to say that the payments made in violation of any law would still be allowable if it were. incurred wholly and exclusively for the purpose of business of the assessee. However, he is overlooking the distinction between a crime and a mere infraction of some regulatory provision provided in various laws such as the Companies Act in the case referred. A criminal offence has an intrinsic relation and direct connection with a human being. In most of them accepted norms and moral standards of the society are affected one way or the other. These are abhorred on account of their being against the delicate sense, morals based upon beliefs and good conscience. A violation of a duty not directly owed towards the person property and reputation of other fellow beings is far less odious. There the law does not directly address to the existence and welfare of the human life as such. Instead it relates more to activities which have bearance on social and commercial well being. Every jurisprudence has its own classification of crimes in relation to the disequilibrium which is brought to the society. Even if broader common law classification of criminal wrongs into misdemeanour and felony is not accepted for any reason, it cannot be disputed that bribe or the kind of payments claimed before us would not fall into any another category except the one which the common law describes as "in famous crimes". Such an act or "infamous crime" cannot be equated with penalty provisions provided for non-compliance of companies regulation or import and export manual etc. One important distinction is that in certain situations the payment of these kind of fines could be held to be an allowable expense and one for such situation has been explained in re: Ramakrishna Mills Limited- (supra 1. Somewhat similar facts came up for adjudication in re: Poibani Dolls v. CIT 1995 PTD 1128 wherein their lordships set aside the disallowance made by the assessing officer out of claimed sales promotion expenses made on the ground that these were in excess of 5 % of the limit prescribed under Rule 33 of Drugs (Licensing, Registration and Advertising) Rules, 1976. To reach the conclusion their lordships relied upon a known decision of the Supreme Court of Pakistan in re: CIT, Central Karachi v. Alpha Insurance Company PLD 1981 SC 293 wherein the Court by referring to section 10(2)(xvi) and section 10(7) of the Income-tax Act of 1922 ruled that management expenses incurred in excess of the prescribed limit under Rule 40 of the Insurance Rules, 1938 were a permissible deduction.

23. From none of these cases or those referred at the bar we have found any authority for the proposition that amounts paid to manipulate procedures for taking undue advantage against a competitor or for shortening of prescribed rules amounting to illegal gratification could, in any form or shape, be taken as an expense laid out wholly and exclusively for the purpose of business or profession. On the other hand we have noted that in 1986 PTD 52 = PLD 1985 SC 387 re: General Tyres and Rubber Company v. CIT, Central Karachi, a Division Bench of the Karachi High Court refused to allow as an expense a penalty paid by assessee which though was not of personal nature but was imposed on goods which were imported in-connection with and for the purpose of assessee's business. Their lordships concluded that incurring of such expenses was not necessitated by the business of the assessee but by his personal conduct as he had imported goods without licence and, therefore, such expenditure could not be treated as expenditure "wholly" and "exclusively" for the purpose of business. It was accordingly held to be beyond the purview of section 10(2)(xvi) of the late Act of 1922. In re: Hashmi Can Company Limited v. CIT, Karachi (supra) again a Division Bench of that Court maintained refusal of the expenditure allegedly paid as remuneration to a Lady Director. The assessee had claimed that the said Director had been arranging finance and had helped the sale promotion but no document and no instance of arranging the finances or promoting sale was produced on record. Their lordships also observed that expenditure incurred indirectly and remotely connected with the business was not allowable under section 10(2)(xvi) of the late Act.

24. The phrase "there is no morality about a tax" refers only to the legislative power to impose tax on any and every kind of business or income generating activity. However, it does not at all mean that immoral and illegal acts of a person will be baptised only in order to give effect to a levy. As noted earlier although our system does not maintain a distinction between misdemeanour and felony yet there should be no hesitation in saying that giving and taking bribe is an "infamous crime". The legal maxim reads crimen omnia ex se nata vitiat: crime vitiates everything which springs from it.

25. Lastly it needs to be repeated that the two cases relied upon by the learned counsel re: Coimbatore Salem (supra) and re: Arumughah Chettiar (supra) in which payments of Mamool were allowed as deduction are clearly distinguishable. A tip as the aforesaid definition goes is necessarily paid for some petty service rendered and, therefore, is not considered illegal though at times it may be called improper. In the aforesaid two judgments their lordships found for the assessee only for the reason that the Revenue had not raised its eyebrow on their legality. Also both were found customary in the line of business of the assessee. In the second case again the incurring of the expense was not doubted and it was rather treated as entertainment. Therefore, their lordships found that the Tribunal was right in holding them as "commission payments" incurred wholly and exclusively for the purpose of business of the assessee.

26. Since the assessee before us has not made a secret of the nature of the payments and the same being neither legal nor customary in the line of its business, we will not hesitate in refusing to allow the claim.

27. Appeal rejected.

M.B.A./470/Trib.Appeal dismissed.