Trading loss deduction for employee embezzlement where loss directly arose from and was incidental to business operations.

Loss caused by a cashier's embezzlement in the course of a money-lending business was treated as a trading loss where the misappropriation arose directly from the business and was incidental to it under ordinary commercial principles. The court noted that employing a cashier and entrusting cash to him were normal incidents of such business, and the loss was sustained in the year of account. The amount was therefore deductible in computing business income, and the question was answered in favour of the assessee.

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Issues: Whether the loss caused by embezzlement by a cashier, in the course of a money-lending business, was a trading loss deductible in computing the assessee's business income.

Analysis: The misappropriation by the cashier was accepted as having occurred and the loss as having been sustained in the year of account. The governing test was whether the loss sprang directly from the carrying on of the business and was incidental to it, judged by ordinary commercial principles. In a money-lending business, employment of a cashier and entrustment of cash to him were normal incidents of the business, and a loss caused by his embezzlement was therefore incidental to that employment and to the business itself.

Conclusion: The loss was a trading loss allowable in computation of business profits, and the question was answered in the negative, in favour of the assessee.

Ratio Decidendi: A loss caused by an employee's embezzlement is deductible as a trading loss if, applying commercial principles, it directly arises from and is incidental to the carrying on of the business.

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