1960 (12) TMI 96 - HC - Income Tax

Banking Business Loss Due to Dacoity Allowed as Deductible Expense under Income-tax Act

The court allowed the deduction of the loss of Rs. 1,06,000 by dacoity as a deductible expense under section 10(1) of the Income-tax Act in computing the ... - Issues Involved:1. Whether the loss of cash by dacoity is admissible as a deduction under section 10(1) of the Income-tax Act in computing the assessee's income from banking business.Issue-wise Detailed Analysis:1. Admissibility of Loss of Cash by Dacoity as Deduction under Section 10(1) of the Income-tax Act:The primary issue in this case is whether the loss of Rs. 1,06,000 by dacoity can be deducted under section 10(1) of the Income-tax Act while computing the assessee's income from banking business. The assessee, a public limited company engaged in banking, claimed the loss as a deduction for the assessment year 1952-53. The Income-tax Officer and the Appellate Assistant Commissioner disallowed this deduction, asserting that the loss was not incidental to the business of the bank. The Tribunal, however, recognized the cash as the stock-in-trade of the bank.The assessee argued that:(a) The cash is the stock-in-trade of the banking company, and its loss should be deductible regardless of the circumstances.(b) The loss of cash was incidental to the banking business and should be admissible as a commercial loss.The Tribunal's order confirmed that the cash lost in the dacoity was indeed the stock-in-trade of the bank, referencing established precedents like Arunachalam Chettiar v. Commissioner of Income-tax and Commissioner of Income-tax v. Subramanya Pillai, which affirm that money is the stock-in-trade and circulating capital in banking and money-lending businesses.The court examined the principles laid down in Badridas Daga v. Commissioner of Income-tax, which stated that a loss must directly arise from the business and be incidental to it to be deductible. The court noted that while Badridas Daga dealt with embezzlement, it also discussed theft, emphasizing that a loss must spring directly from the business operations and not merely be connected to it.The court also considered the case of Motipur Sugar Factory Ltd. v. Commissioner of Income-tax, where the loss of money during statutory-required cash dispatches was deemed incidental to the business and deductible. The court found this case analogous to the present one, as maintaining cash reserves is essential for banking operations under statutory requirements like section 24 of the Banking Companies Act, 1949.The court distinguished the present case from Ramaswami Chettiar v. Commissioner of Income-tax, where the loss was considered non-deductible as it was seen as a personal loss rather than a business loss. The court reasoned that for a public bank, the cash held is part of the circulating capital, not personal funds.The court also referenced Pohoomal Bros. v. Commissioner of Income-tax, where the loss of stock-in-trade due to enemy action was deemed a trading loss and deductible.Ultimately, the court concluded that the loss by dacoity, although not frequent, is incidental to the banking business due to the inherent risks of handling large sums of cash. Thus, the loss should be deductible under section 10(1) of the Income-tax Act.Separate Judgment:Upadhya J.:Upadhya J. concurred with the analysis, emphasizing that the loss was suffered in due course of business and pertained to the stock-in-trade of the bank. Ignoring such a loss would be against commercial propriety and common sense. Therefore, the deduction should be allowed to determine the true profits of the assessee.Conclusion:The court answered the referred question in the affirmative, allowing the loss of Rs. 1,06,000 by dacoity as a deductible expense under section 10(1) of the Income-tax Act in computing the assessee's income from banking business.