Madhya Pradesh High Court
Commissioner Of Income-Tax vs Dr. T.A. Qureshi on 29 November, 2004
Equivalent citations: (2005)197CTR(MP)683, [2005]275ITR352(MP)
Author: A.M. Sapre
Bench: A.M. Sapre
JUDGMENT
A.M. Sapre J.
1. This is an appeal filed by the Revenue (Commissioner of Income-tax) under Section 260A of the Income-tax Act, 1961 against an order, dated October 14, 1998, passed by the Income-tax Appellate Tribunal, Indore, in I. T. A. No. 552/Ind of 1990. The facts in brief are these.
2. The respondent is an assessee. He is a doctor by profession at a place called "Garoth" in District Mandsour.
3. On July 18, 1985, CBI sleuths arrested the respondent while transporting a huge quantity of contraband article--narcotic drugs--heroin in jeep (Jonga) RSO 3592. This led to further raid in his residential premises. In this raid, one clandestine laboratory to manufacture heroin powder along with several contraband drugs were recovered. All these contraband articles were seized and proceedings under the Narcotic Drugs and Psycho-tropic Substances Act, 1985, were initiated against the assessee. We are not concerned with these proceedings.
4. So far as the proceedings under the income-tax are concerned with which we are concerned, the assessee (respondent) filed his return for the assessment year 1986-87. It is in this assessment, the assessee claimed that the value of the contraband articles (heroin) seized from his possession works out to Rs. 5,50,000. He, therefore, claimed that since heroin seized from him forms part of the stock-in-trade and hence, its loss on account of seizure is an allowable deduction while computing his profits and gains of business/profession. The Assessing Officer by order dated March 28, 1989, did not accept the contention of the assessee and added a sum of Rs. 5,50,000 as an income from undisclosed sources. In appeal, filed by the assessee the Commissioner of Income-tax (Appeals) upheld the order of the Assessing Officer by his order dated February 1, 1990. The assessee then filed second appeal before the Tribunal. However, the Tribunal by the impugned order allowed the appeal and held that the assessee is entitled to claim the benefit of loss. In other words, the Tribunal was of the view that since the seizure has resulted in loss to an assessee to the extent of its value (Rs. 5,50,000) in his stock-in-trade and hence relying upon the law laid down by the Supreme Court in the case of CIT v. Piara Singh [1980] 124 ITR 40, the Tribunal allowed the deduction of Rs. 5,50,000 out of the gross total income of the assessee. It is against this view of the Tribunal, the Revenue has felt aggrieved and filed this appeal which as stated supra was admitted for final hearing on the following substantial questions of law :
"1. Whether possession of heroin in contravention of the provisions of the Narcotic Drugs and Psychotropic Substances Act, 1985, can be treated to be stock-in-trade possessed by a medical practitioner ?
2. Whether such medical practitioner can be permitted to deduct Rs. 2 lakhs from such stock of heroin as loss during the trade ?
3. Whether the order passed by the Income-tax Appellate Tribunal, Indore Bench, in I. T. No. 272 of 1989-90 for the assessment year 1986-87 is perverse and illegal ?"
5. Heard Shri R. L. Jain, learned senior counsel with Ku. V. Mandlik, learned counsel for the Revenue, and Shri D. K. Chhabra, learned counsel for the assessee.
6. Having heard learned counsel for the parties and having perused the record of the case, we are inclined to allow the appeal and set aside the impugned order of the Tribunal by answering the substantial questions in the appellant's (Revenue's) favour.
7. In our opinion, the issue involved in this case squarely falls within the four corners of the Explanation appended to Section 37 of the Act which reads as under :
"Section 37. Explanation.--For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure."
8. The aforesaid Explanation was inserted by the Finance (No. 2) Act, 1998, retrospectively with effect from April 1, 1962. In fact, the need to introduce the Explanation arose on account of the decision rendered by the Supreme Court in the case of Piara Singh [1980] 124 ITR 40.
9. A mere reading of the Explanation quoted supra would clearly indicate that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and that no deduction or allowance shall be made in respect of such expenditure.
10. The assessee in this case was engaged in the profession of doctor. He had nothing to do with the contraband article--heroin for carrying on his profession. It is an admitted fact that the possession of heroin is an offence under the NDPS Act. In this view, the rigour of the Explanation to Section 37 was fully satisfied and hence the question of claiming any deduction for the value of the seized article did not arise nor was the assessee entitled to claim any such deduction who was found indulging in such heinous and illegal business unconnected with his pious professional activity. Indeed, it was a disgrace for the doctor community where one doctor was found indulging in such kind of activities against humanity.
11. In our opinion, the learned members of the Tribunal committed an error of law when they placed reliance on a decision of Piara Singh [1980] 124 ITR 40 (SC) as also the speech of the Finance Minister gave on the floor of the House of Parliament at the time of introduction of the Explanation appended to Section 37. In this case, both these grounds could not be made the basis. Instead, the learned members of the Tribunal should have placed reliance on the Explanation and its plain wording for deciding the issue of deduction. In other words, neither the speech of the Minister had any relevance, or the decision of the Supreme Court which was rendered prior to the introduction of the Explanation on the statute book. Indeed, as observed supra, the need to introduce the Explanation arose due to the decision of the Supreme Court rendered in Piara Singh's case [1980] 124 ITR 40.
12. We, therefore, cannot subscribe to the reasoning of the Tribunal. It is not legally sustainable and hence has to be set aside. It is accordingly set aside. As a consequence, the appeal succeeds and is hereby allowed. Impugned order dated October 14, 1998, passed by the Income-tax Appellate Tribunal in I. T. A. No. 552/Ind of 1990 is set aside.