Business loss on dacoity of banking cash held deductible because circulating capital was used for banking operations.

Cash kept as circulating capital for banking operations and lost in a dacoity was treated as a business loss incidental to the carrying on of banking business, rather than a loss suffered merely in the capacity of owner of funds. The loss was held deductible in computing true business profits because a bank must maintain liquid funds for withdrawals and statutory reserve requirements, and the robbery of such operational cash was sufficiently connected with the business. The principle stated is that, unless expressly excluded by the Act, a loss of circulating capital used in the effective conduct of banking operations is allowable under section 10(1).

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Issues: Whether cash lost by dacoity from a banking company's branch constituted an allowable deduction in computing business income under section 10(1).

Analysis: The cash held by the bank formed part of its circulating capital and stock-in-trade. The question was whether the loss sprang directly from the carrying on of the banking business and was incidental to it. Banking business requires the maintenance of liquid funds to meet withdrawals and statutory reserve requirements under the Banking Companies Act, 1949. Applying accepted commercial principles and the approach approved for business losses, the loss caused by robbery of funds kept for banking operations was treated as a loss connected with the business and not as a mere loss suffered in the capacity of owner of funds.

Conclusion: The loss was deductible as a business loss under section 10(1), and the answer to the referred question was in the affirmative, in favour of the assessee.

Final Conclusion: The assessee was entitled to take the dacoity loss into account in computing the true profits of its banking business.

Ratio Decidendi: A loss of cash kept as circulating capital for the effective carrying on of a banking business, when occasioned by dacoity or similar robbery, is an incidental business loss deductible in arriving at the true profits, provided it is not expressly excluded by the Act.

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