Trading loss on destroyed stock-in-trade was deductible under commercial profit computation principles.

Loss of stock-in-trade destroyed by enemy bombing was treated as an allowable deduction in computing business profits under the Indian Income-tax Act, 1922. The court applied the ordinary commercial method of profit computation, under which opening stock, purchases, receipts and closing stock are taken into account to determine true trading results. On that approach, destruction of stock-in-trade is reflected in the profit calculation and is not confined to the narrower test used for losses of money by theft, embezzlement or dacoity. The authorities supporting deduction of trading loss for destroyed stock were accepted as stating the correct principle, and the reference was answered in favour of the assessee.

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Issues: Whether loss of stock-in-trade destroyed by enemy bombing was an allowable deduction in computing business profits under section 10 of the Indian Income-tax Act, 1922.

Analysis: The reference concerned goods forming part of the assessee's stock-in-trade, not a loss of money. For such stock, the proper approach is the ordinary commercial method of computing business profits, under which opening stock, purchases, receipts, and closing stock are taken into account to arrive at true profits or losses. A destruction of stock-in-trade is reflected in that computation and is not to be tested only by asking whether the loss was incidental to business in the same sense as losses of money by theft, embezzlement, or dacoity. The authorities supporting deduction of trading loss for destroyed stock were held to state the correct principle.

Conclusion: The loss was allowable as a deduction and the answer to the reference was in the affirmative, in favour of the assessee.

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