TaxTMI 
TaxTMI 
1971 (4) TMI 33
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....the name and style of M/s. Soni Hinduji Kushalji & Company at Adoni. It is registered both under the Partnership Act as well as under section 26A of the Act and carries on business in gold, silver and jewellery. The customs authorities had information that the petitioner-firm was smuggling gold from Goa to Adoni and then despatching the same to Bombay to the shop of one Bhimaji Punamchand for disposal. They, therefore, kept watch on a suspect by name Rukmanna Lambade going to the said shop in Bombay. On October 28, 1955, the customs officials followed the said Rukmanna Lambade to the National Refinery Ltd., and after he had taken over some gold from the refinery, searched him and seized from him gold bullion and " rawa " weighing 251 tolas and 133 grams. He disclosed that he was a servant of the petitioner-firm and had brought the gold belonging to the firm. On the same day the customs officials intercepted an uninsured railway parcel sent by the assessee-firm which was opened at the shop of Bhimaji Punamchand and it was found to contain some more pieces of gold, 600 old rupee coins and silver scrap weighing 35 lbs. and 3 tolas. After seizing the gold from Rukmanna Lambade and the ....
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....One who contravenes a statute and trades in business prohibited by law while being liable for prosecution for the offence committed by him will, at the same time, be liable to pay tax out of the income or profits earned from the illegal trade or business. We are now concerned with the loss representing the value of gold on account of the confiscation of the gold for contravention of the provisions of the Customs Act. Can that loss be regarded as a commercial loss pertaining to the business or incidental to the business the assessee was carrying on, is the real question. Mr. Swamy sought to place strong reliance upon a decision of the Gujarat High Court in Commissioner of Income-tax v. S. C. Kothari to contend that the assessee is entitled to claim deduction of the value of the contraband gold confiscated by the customs authorities, as it represented the loss sustained by the firm in the illegal business tarried on by it. The learned judges in that case were of the view that, when illegal business is business within the meaning of the Income-tax Act and if profits from illegal business are assessable to tax, there is no reason either in principle or on authority for refusing to t....
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....ship is in law a partnership between the members of the two firms and is not invalid and that the loss claimed was loss suffered in the course of business by the assessee-firm and was, therefore, allowable. It was further observed that even assuming that the larger partnership was illegal, the assessee-firm was entitled to have the loss in question taken into account in computing its income inasmuch as the mere illegality of the agreement cannot entitle the income-tax authorities to ignore the loss incurred. It is thus seen that the view expressed by the Full Bench of the Allahabad High Court has absolutely no application to the present case, as the question to be answered here is whether confiscation of the contraband gold can be treated as loss in business so as to be allowed as a permissible deduction. Kothari's case, as may be noticed from the facts stated therein, was not a case where a claim for deduction was made by the assessee, as he did not say that a particular expenditure incurred by him should be allowed as a permissible deduction. It is on that ground that the learned judges ruled that the decision in Commissioner of Income-tax v. Haji Aziz & Abdul Shakoor Bros.....
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....band gold by the customs authorities be said to be a trading or commercial loss connected with or incidental to the assessee's business. In Commissioners of Inland Revenue v. Alexander Von Glehn & Co. Ltd. Lord Sterndale M.R. observed : " During the course of the trading this company committed a breach of the law. As I say, it has been agreed that they did not intend to do anything wrong in the sense that they were willingly and knowingly sending these goods to an enemy destination, but they committed a breach of the law, and for that breach of the law, they were fined. That, as it seems to me, was not a loss connected with the business, but was a fine imposed upon the company personally, so far as a company can be considered to be a person, for a breach of the law which it had committed. It is perhaps a little difficult to put the distinction into very exact language, but there seems to me to be a difference between a commercial loss in trading and a penalty imposed upon a person or a company for a breach of the law which they have committed in that trading. " The principle stated by Lord Sterndale M.R. holds good here too, as it is impossible to hold that the loss incurr....
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....ria and Mahabir Sugar Mills (P.) Ltd. v. Commissioner of Income-tax. The Supreme Court in Badridas v. Commissioner of Income-tax, considered what would amount to a trading loss. Venkatarama Aiyar J. observed : " When a claim is made for a deduction for which there is no specific provisioin in section 10(2), whether it is admissible or not will depend on whether, having regard to accepted commercial pratice and trading principles, it can be said to arise out of the carrying on of the business and to be incidental to it. If that is established, then the deduction must be allowed, provided of course there is no prohibition against it, express or implied, in the Act. The loss for which a deduction could be made under section 10(1) must be one that springs directly from the carrying on of the business and is incidental to it, and not any loss sustained by the assessee, even if it has some connection with his business. " Judged from the test laid down by their Lordships, it is impossible to hold that the confiscation of contraband gold, which is in the nature of a proceeding in rem, is a loss that springs directly from the business or trade carried on by the assessee-firm and is....