Trading loss on stock destroyed by accidental fire is deductible in computing business profits.

A loss of stock-in-trade destroyed by accidental fire was a trading loss, not a capital loss, and was deductible in computing business profits under ordinary commercial principles unless barred by statute. The court treated fire as a business risk reflected in the trading account, noting that insurance on stock and insurance recoveries form part of the computation of real profits. The deduction was therefore allowable, and the issue was decided in favour of the assessee.

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Issues: Whether the value of stock-in-trade destroyed by accidental fire was allowable as a deduction in computing the assessee's business profits under the Indian Income-tax Act, 1922.

Analysis: The loss related to stock-in-trade, not capital assets. Profits and gains are to be computed on ordinary commercial principles, and a trader's trading account must reflect losses that are inherent in the business, subject to any statutory prohibition. The allowance of insurance premium on stock and the treatment of insurance recoveries as part of the trading account show that fire is a business risk to be taken into account in computing real profits. A loss of stock-in-trade by fire is therefore a trading loss, and it does not become non-deductible merely because the fire was accidental or because an insurance recovery is involved.

Conclusion: The deduction was allowable and the question was answered in the affirmative in favour of the assessee.

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