Trader gets tax benefit for ransom paid to kidnappers

BHOPAL: Holding that paying ransom to save a life is not an offence, the Madhya Pradesh High Court has, in a significant judgement, allowed a businessman to claim reduction in his tax liability for the money he paid for his release from the clutches of kidnappers. “While kidnapping is an offence, nowhere it is provided that to save the life of a person paying a ransom amounts to an offence,” a division bench of the court comprising justices KK Lahoti and Vimla Jain said in its August 23 order.

The judges upheld an Income Tax Appellate Tribunal's decision allowing businessman Sukhnandan Jain to claim tax deduction on the ransom paid for his release from kidnappers. Jain, director of a bidi manufacturing company in Sagar in Madhya Pradesh, was kidnapped by the notorious Raju Bhatnagar gang on August 5, 1987, while on a business trip to purchase tendu leaves. He was released 22 days later after a sum of . 5.5 lakh was paid to the kidnappers .

In his return filed before IT authorities , Jain showed the amount under “general expenses” and claimed income tax deduction. The assessing officer disallowed his claim on the ground that ransom was not an expenditure incidental to business. In his opinion, the counsel for the revenue department, told the IT authorities that such payment was prohibited by law. On appeal, the Commissioner Income Tax (Appeal) CIT(A), however,allowed the claim of the assessee. The department referred the matter to the Income Tax Appellate Tribunal (ITAT) which confirmed the order of the CIT(A) and dismissed the appeal of the department . Following this, the IT department filed an application before ITAT, Jabalpur, for referring the matter to the High Court.