TaxTMI 
TaxTMI 
2011 (8) TMI 70
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....d sale of bidis. Sukhnandan Jain was a whole time Director of the assessee company. He was looking after the purchase, sales and manufacturing of bidis. 3. On 5.8.1987 Sukhnandan Jain had gone to Sagar for purchase of tendu leaves. On the same day, he was kidnapped for ransom by a dacoit gang headed by Raju Bhatnagar. Immediately complaint and FIR were lodged with Sagar Police. The assessee awaited the action of the police. The police were unsuccessful to recover Sukhnandan Jain from the clutches of dacoit. Ultimately a sum of Rs.5,50,000 was paid by way of ransom for the release of Sukhnandan Jain on 27.8.1987. On 28.7.1987 itself Sukhnandan Jain was released by the dacoits. 4. The assessee claimed this amount of Rs.5,50,000 under the head of 'General Expenses' and claimed deduction thereof. The Assessing Officer disallowed the claim of the assessee on the ground that the ransom money paid to the kidnappers was not an expenditure incidental to business. On appeal, the C.I.T.(A) allowed the claim of the assessee.The department preferred second appeal before the I.T.A.T. The I.T.A.T confirmed the finding of the C.I.T.(A) and dismissed the appeal of the Department....
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....ng in para 19. We quote paras 13,14,15 and 19 of the order which reads as under: " 13. Ground nos.8,9 and 10 relate to a disallowance of a claim for deduction of Rs.5,50,000/- On page 2 of the assessment order, the Ld. Assessing officer has observed that under the head " general charges" the assessee debited Rs.5,92,274/- While scrutinizing the details of these expenditure, the Ld. Assessing officer found that a sum of Rs.5,50,000/- was spent through a voucher no.1190 dated 24 August, 1987. This amount was ransom money paid to the kidnaper of Shri Sukhnandan Jain, a Director of the company. In the assessment proceedings, assessee submitted that Shri Sukhnandan Jain was kidnapped on 5th August, 1987 by one Raju Bhatnagar and members of his gang from Sagar Rest House. Total ransom money of Rs.30 lacs was originally demanded by the kidnapper. It was, however, reduced to the sum of Rs.5,50,000/- after a protracted negotiation and discussion. The assessee claimed the deduction of this amount under Section 37 of the Incometax Act. It was urged that the expenditure was for commercial expediency. The Ld. Counsel of the appellant, at the time of assessment proceedings, relied on t....
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....d counsel, during the accounting year, relevant for the assessement years 1987-88, Shri Bihari Lal supplied the company tendu leaves worth Rs. 8.25 lakhs approximate. At that material point of time, Bihari lal was acquainted with different source of tendu leaves traders. According to the Ld counsel when Bihari Lal fixed up an appointment for meeting, Shri Sukhnandan Jain was duty bound to meet him in the interest of the business of the appellant company. As regards the observation of the Ld assessing officer that the toursim establishment was not a place of business, the Ld counsel averred that for the purpose of conduct of business, the appellant company or its dirrectors need not always be sitting in their offices. If the business need required a director to meet somebody at a particular place, anywhere in the country or outside the country,it is for the compan or its directors to decide whether to go to that place or not. Coming to the observations of the Ld. Assessing officer that the kidnap took place at night, which was beyond business hours, the Ld counsel stated that there is no fixed time for conduct of business. 19. I have carefully considered the assessment ord....
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.... by any specific provision of Income Tax Act, such expenditure has to be allowed. The only point is that the assessee has to establish that the expenditure was incurred for the purpose of business. In this particular case, the assessee has been able to establish that dictum. Accordingly, I am of the opinion that the amount of Rs.5,50,000 was spent for the commercial necessity of the company and that it is an allowable expenditure under section 37 of the Income tax Act. As a result, the disallowance of Rs.5,50,000 is deleted, Grounds nos.8,9 and 10 are thus allowed in full." 9. The Tribunal has also considered this aspect in para 6 of the order and for ready reference we quote it thus:- 6. "We have heard the parties.We are of the opinion that the order of the CIT(Appeals) deserves to be confirmed. From the facts brought out above, it is clear that Shri Sukhnandan Jain in his capacity as a Director of the Company and incharge of purchases and quality control had to move to the forest areas and other areas of Bundelkhand which were and are infested by dacoits and kidnappers. The company assigned the particular work of purchase and quality control to Shri Sukhnandan....
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....subsection (1)of Section 37, such expenditure could not have been allowed. We find it appropriate to refer Section 37(1) and Explanation to it for ready reference which reads as under: The Explanation provides 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. To ascertain whether any expenditure incurred by the assessee for any purpose which is an offence or prohibited by law is to be seen. Kidnapping for ransom is an offence under Section 364 A of the I.P.C which reads as under: 364 A. Whoever kidnaps or abducts any person or keeps a person in detention after such kidnapping or abduction and threatens to cause death or hurt to such person, or by his conduct gives rise to a reasonable apprehension that such person may be put to death or hurt or causes hurt or death to such person in order to compel the Government or any foreign State or international inter-Governmental organisation or any other person) to do or abstain from doing any act or to pay a ransom, shall be punishable with death, or imprisonment for life and shall....
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....f the Calcutta High Court considering the question of death of Chairman while he was on business tour held that the expenditure incurred to have his body flown back by Airways is incidental to business and an allowable deduction under Section 37(1) of the Income Tax. 16. 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. 17. Sukhnandan Jain remained in custody for a period of nearabout 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....