Trading loss: cash held as bank stock-in-trade lost to dacoity is incidental to banking and deductible under tax law.

Whether loss of cash by dacoity is a trading loss under section 10(1) was decided by treating cash held in branch premises as the bank's stock-in-trade; retention of ready cash is integral to banking operations. The Court applied the principle that a loss is deductible only if it arises out of and is incidental to the carrying on of business, and held that losses of stock-in-trade sustained in the course of business (including robbery or dacoity) meet that test. Outcome: the cash loss by dacoity was incidental to banking and deductible, and the appeal was dismissed.

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Issues: Whether loss of cash by dacoity sustained by a banking company is an admissible deduction as a trading loss under section 10(1) of the Income-tax Act, 1922.

Analysis: The Court examined the nature of banking business and held that cash maintained in bank premises constitutes the stock-in-trade of a banking company; retention of cash on the premises is an integral part of banking operations. Applying established principles, a loss is deductible under section 10(1) only if it arises out of and is incidental to the carrying on of the business. The Court reviewed authorities holding that losses of stock-in-trade caused in the course of business operations (including robbery or destruction) are trading losses, and it considered distinctions drawn in earlier decisions concerning money-lenders and other traders. The Court accepted that the relevant inquiry is whether the loss has a sufficient nexus to the operations that produce the assessable income, not the frequency or antecedent likelihood of the risk. On the facts, keeping ready cash in the branch was a necessary operation of banking and carried with it the ordinary risk of theft, dacoity or embezzlement; therefore the loss by dacoity was incidental to the banking business.

Conclusion: The loss of cash by dacoity sustained by the bank is a trading loss deductible under section 10(1) of the Income-tax Act, 1922; the order of the High Court upholding the claim is correct and the appeal is dismissed.

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