Can bakshish, the money given as an inducement or reward for good work, be held as necessary business expenditure for tax purposes?

The Bombay high court in an order said bakshish can be considered as business expenditure. Observing that paying over and above the contractual amount to sugarcane harvesting workers was "necessary incidence of business," the division bench of Justices F I Rebello and J P Deodhar upheld a decision of Income Tax Appellate Tribunal in this regard.

Samarth Sahkari Sakhar Karkhana in Jalna district had claimed deduction of Rs 2,73,000 from its profit as bakshish money paid to harvesting and transportation workers.

It had also claimed deduction for advance paid to H and T contractor. This advance had been paid out of money borrowed by the factory itself, but at a lower interest rate. So it claimed differential interest as business's expenditure in income tax assessment.

Rates of H and T workers -- who cut and transport surgarcane from field to the sugar factory -- are fixed through a contract between factory, H and T contractor and the government.

Income tax commissioner refused to allow the bakshish money given to H and T workers as business expenses, saying that it was paid at factory's "sweet will", and factory was not obliged to pay these amounts.

Similarly, the commissioner also disallowed differential interest for amount advanced to H and T contractor, again on the ground that it was not an obligatory payment.