Business loss deduction denied where theft of cash carried personally was held not to arise directly from business operations.

A loss from theft of cash carried by an assessee after encashing business receipts was held not to be a trade loss deductible in computing business profits. A deduction is available only where the loss springs directly from, and is inseparable from, the carrying on of the business; a merely remote connection is insufficient. On the facts, cashing the cheque and carrying the money on the person was not itself part of the business, so the theft did not arise out of business operations. Cases involving embezzlement or defalcation by agents or employees were distinguished because those losses arose from persons entrusted with business management. The loss was therefore not an allowable deduction.

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Issues: Whether the loss of money occasioned by theft while the assessee was carrying cash after encashing business receipts was a trade loss incidental to the assessee's business and therefore deductible in computing profits.

Analysis: A loss is deductible only if it springs directly from the carrying on of the business and is inseparable from it. A mere remote connection between the loss and the business is not enough. On the facts, it could not be said that it was part of the assessee's business to cash the cheque and carry the money on his person, so the theft did not arise out of the business. Decisions allowing deduction for losses caused by embezzlement or defalcation by an agent or employee acting within business authority were distinguished, as those losses arose directly from the conduct of the business through persons entrusted with its management.

Conclusion: The loss was not incidental to the business and was not an allowable deduction under section 10(2) of the Income-tax Act, 1922. The reference was answered in favour of the Revenue.

Ratio Decidendi: For a loss to be deductible as incidental to business, it must arise directly and inseparably from the carrying on of the business, and not merely bear a remote or incidental connection with it.

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