Redemption fine for unlawful possession of gold is not deductible as business expenditure under income tax law.

Redemption fine paid in lieu of confiscation of gold under the Gold (Control) Act, 1968 was held to be connected with an infraction of law and not a compensatory business outlay. Because the gold was found in unauthorised possession and the option to pay fine arose only after contravention of the Act, the payment could not qualify as an allowable deduction under section 37(1) of the Income-tax Act, 1961. The disallowance was therefore upheld.

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Issues: Whether the redemption fine of Rs. 1,50,000 paid in lieu of confiscation of gold under the Gold (Control) Act, 1968 was an allowable deduction under section 37(1) of the Income-tax Act, 1961.

Analysis: The payment had to be examined with reference to the scheme of the Gold (Control) Act, 1968. Section 71 provides for confiscation of gold where there is contravention of the Act or the rules, and section 73 empowers the adjudicating officer to give an option to pay a fine in lieu of confiscation. On the facts, the gold was found in unauthorised possession and the option exercised by the assessee arose because of contravention of law. The fine was therefore connected with an infraction of law and could not be treated as a compensatory business expenditure.

Conclusion: The redemption fine was not an allowable deduction under section 37(1) and the disallowance was upheld.

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