Deductible loss from confiscation in illegal business: loss incidental to smuggling was allowed in computing taxable profits.

Currency confiscated in the course of a smuggling business was treated as a loss incidental to that business and therefore deductible in computing taxable profits under section 10(1) of the Indian Income-tax Act, 1922. The Court reasoned that where a loss springs directly from the carrying on of an illegal business and is a foreseeable incident of that activity, true profits cannot be computed without allowing it. The deduction was therefore allowed, and the issue was decided in favour of the assessee.

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Issues: Whether confiscation of currency notes used in smuggling operations gave rise to a deductible loss under section 10(1) of the Indian Income-tax Act, 1922.

Analysis: The assessee was found to be carrying on the business of smuggling, and the currency notes taken across the border were the means for acquiring gold in Pakistan for resale in India. Confiscation by customs was treated as a foreseeable and integral incident of that business. A loss which springs directly from the carrying on of such business and is incidental to it is deductible in computing taxable profits, following the principle that true profits cannot be computed without allowing losses properly attributable to the business, even where the business is illegal.

Conclusion: The confiscation loss was deductible under section 10(1), and the answer was in favour of the assessee.

Ratio Decidendi: A loss directly arising from and incidental to the carrying on of an illegal business is deductible in computing taxable profits under section 10(1) of the Indian Income-tax Act, 1922.

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