1971 (3) TMI 22 - HC - Income Tax

Court rules Rs. 30,000 theft loss not deductible under Income-tax Act, 1961

The court ruled that the loss of Rs. 30,000 due to theft was not a permissible deduction as a business loss under the Income-tax Act, 1961. The court ... Loss of money by theft - mere keeping of certain amounts of money in the business premises is not incidental to the business activity - loss was not incidental to the assessee's business - so it is not admissible deduction Issues Involved:1. Whether the loss of Rs. 30,000 incurred by the assessee due to theft is a permissible deduction as a business loss.2. Whether the loss is of a capital nature or incidental to the business of the assessee.Issue-wise Detailed Analysis:1. Permissibility of Deduction as Business Loss:The primary issue is whether the loss of Rs. 30,000 due to theft can be considered a permissible deduction as a business loss under the Income-tax Act, 1961. The court examined whether the loss was incurred in carrying out the operations of the business and whether it had a direct nexus or relationship with the business activities of the assessee. The court noted that for a loss to be deductible under section 28(1) of the Act, it must spring directly from the business or be incidental to it.2. Nature of the Loss - Capital or Business:The court scrutinized whether the loss was of a capital nature or incidental to the business of the assessee. The assessee argued that the loss was incidental to its business activities, which included dealing in gold, silver, gunnies, Government securities, and money-lending. The court noted that the stolen money was intended for the purchase of Government securities, which are considered capital assets. The court emphasized that unless the securities were purchased, the business operation related to the securities could not be considered to have commenced. Therefore, the loss of money before the purchase of securities was deemed a capital loss and not a business loss.Detailed Analysis:Permissibility of Deduction as Business Loss:The court discussed the principles under section 28(1) of the Income-tax Act, 1961, which allows for the deduction of business losses in computing the profits and gains of business or profession. It was highlighted that not every loss incurred by the assessee is deductible; it must be incidental to the business operations. The court referred to several precedents, including Badridas Daga v. Commissioner of Income-tax and Commissioner of Income-tax v. Nainital Bank Ltd., to elucidate that a loss must have a direct or proximate connection with the business activities to be considered a business loss.The court examined the facts and found that the stolen money was intended for the purchase of Government securities, which are capital investments. The court concluded that the mere retention of money in the business premises for purchasing securities did not amount to a business operation. Therefore, the loss could not be considered incidental to the business activities of the assessee.Nature of the Loss - Capital or Business:The court analyzed whether the stolen money could be considered part of the stock-in-trade of the assessee's business. It was found that the money was borrowed specifically for purchasing Government securities and not for the money-lending business. The court distinguished the present case from other cases where losses were considered business losses due to their direct connection with the business operations, such as in banking or money-lending businesses.The court referred to decisions in Commissioner of Income-tax v. Chakka Narayana and Maduri Rajeshwar v. Commissioner of Income-tax, where losses due to theft were not considered incidental to the business. The court emphasized that the principles applicable to banking or money-lending businesses do not extend to cases where the money is intended for capital investments like Government securities.The court concluded that the loss of Rs. 30,000 was a capital loss as it occurred before the commencement of the business operation of purchasing Government securities. The court held that the loss did not have a direct or proximate connection with the business activities of the assessee and was, therefore, not an admissible deduction.Conclusion:The court answered the question in the negative, ruling that the loss of Rs. 30,000 was not a permissible deduction as a business loss. The assessee was directed to pay the costs of the reference to the Commissioner of Income-tax, with the counsel's fee fixed at Rs. 250.