While kidnapping is an offense, paying ransom is not; Ransom can not be disallowed under Explanation 1 to s. 37(1)

Commissioner of Income Tax Vs M/s Khemchand Motilal Jain (Madhya Pradesh High Court)- In the present case, Sukhnandan Jain was on business tour and was staying at Govt. Rest House, Sagar from where he was kidnapped. As he was on business tour, to get him released, if the aforesaid amount was paid to the dacoits as ransom money and because of this, Sukhnandan Jain was released, the petitioner claimed it a business expenditure and the authorities namely, Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal have allowed the aforesaid expenditure as business expenditure, no fault is found.

Sukhnandan Jain remained in custody of kidnappers for a period of near about 20 days. The police were also informed and after waiting 20 days for the police action, If the respondents to save his life paid the aforesaid amount, then the aforesaid amount cannot be treated as an action which prohibited under the law. No provision could be brought to our notice that payment of ransom is an offence. In absence of which, the contention of the petitioner that it is prohibited under explanation of Section 37 (1) of the Income tax Act has no substance.The entire tour of Sukhnandan Jain was for purchase of tendu leaves of quality and for this purpose,he was on business tour and during his business tour, he was kidnapped and for his release the aforesaid amount was paid. In these circumstances, we affirm the reasoning of Commissioner of Income-tax and the Income Tax Appellate Tribunal allowing the aforesaid expenditure as business expenditure.

THE HIGH COURT OF MADHYA PRADESH: PRINCIPAL SEAT AT JABALPUR.

ITR No. 42/1998

Commissioner of Income-tax, Jabalpur
Vs

M/s Khemchand Motilal Jain, Tobacco Products(P) Ltd., Sagar.

ORDER ( 23.08.2011 )