HC: Baksheesh is official spend
Shibu Thomas | TNN
Mumbai: "Saab, baksheesh.'' The Persian word for tip used by
everyone from the MTNL linesman to the postman at Diwali has now
been accorded legal sanctity.
In an important judgment that will doubtless gladden the hearts
of the baksheesh giver as well as the receiver, a division bench
comprising 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 division bench, upholding payments to
the tune of Rs Rs 2.73 lakh doled out as baksheesh by a Jalnabased
sugar factory to labourers and entered into the books as a business
expenditure.
The high 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.
A `gift' from Persian
The word `baksheesh' owes its origin to the Persian word for
gift. It made it to the English language in the middle of the 15th
century, according to the Oxford English Dictionary. Wikipedia says
that baksheesh is a term used to describe tipping, charitable giving
and certain forms of political corruption and bribery in the Middle
East and South Asia. The word travelled to Europe and is used in
Serbia and Bulgaria to mean tip, while in Greece, it also means
gift. Baksheesh an incentive for labourers High court
Mumbai: The Bombay high court has ruled that baksheesh is a valid
business expense. It gave its order in a case relating to Jalna's
Samarth Sahakari Sakhar Karkhana Ltd paying Rs 2.73 lakh as
baksheesh to labourers.
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, to labourers 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 high court.
Advocate B M Chatterji, counsel for the IT 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 to labourers
employed by the contractor was the general practice of most sugar
factories in Maharashtra. These expenses had been considered as
valid expenses until now, the advocate said.
The high court agreed with the view of the Karkhana that an
advance was paid to ensure that the contractors supplied harvested
sugar-cane promptly and efficiently 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 incentivise 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 IT department argued that if the
claim is allowed it may open the floodgates and other sugar
factories may divert entire profits by way of baksheesh. The court
rejected the contention saying such an argument had "no basis''.
"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.
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