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TaxTMI 
TaxTMI 
TaxTMI 
1964 (9) TMI 11
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....eduction in computing its income from the banking business on the ground that it was a trading loss. The Income-tax Officer disallowed the claim on the ground that it was not a loss incidental to the banking business. On appeal, the Appellate Assistant Commissioner of Income-tax, and on further appeal, the Income-tax Appellate Tribunal, confirmed that finding. On a reference to the High Court of Judicature at Allahabad, a Division Bench of that court held that the loss by dacoity was incidental to the banking business and was, therefore, a trading loss and that the assessee was entitled to a deduction of the same under section 10(1) of the Act. Hence, the appeal. Mr. Rajagopala Sastri, learned counsel for the appellant, argued that the bank lost the money by burglary not in its capacity as a bank but only just like any other citizen, that the risk of burglary was not incidental to the business of banking and that, therefore, the amount burgled could not be deducted as a trading loss. Mr. A. V. Viswanatha Sastri, on the other hand, contended that the money lost by burglary was the stock-in-trade of the banking business, that it was kept in the bank in the usual course of its busin....
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....rofit of money-lending is that to the money-lender, as to the banker, money is his stock-in trade or circulating capital: he is dealing in money. " In Commissioner of Income-tax v. Subramanya Pillai, a Division Bench of the Madras High Court, in explaining the principle why in money-lending business allowances for bad debts were given, observed : " In the case of banking or money-lending business.....allowance for bad and doubtful debts was given for the reason that all the moneys embarked in the money-lending business and lent out for interest were in the nature of stock-in-trade of the banker or money-lender and the bad and doubtful debts represented so much loss of the stock-in-trade. Losses in respect of the stock-in-trade have always been regarded as trade losses and allowed to be set off against the receipts." The same view was expressed by the Full Bench of the Madras High Court in Ramaswami Chettiar v. Commissioner of Income-tax and by the Patna High Court in Motipur Sugar Factory Ltd. v. Commissioner of Income-tax. Under section 10(1) of the Act loss of stock-in-trade is certainly an admissible deduction in computing the profits. Payment received from an insurance ....
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....f that is established, then the deduction must be allowed, provided of course there is no prohibition against it, express or implied, in the Act. " Applying the principle to the facts of the case before the court, the learned judge proceeded to state : " If employment of agents is incidental to the carrying on of business, it must logically follow that losses which are incidental to such employment are also incidental to the carrying on of the business. " The principle was clearly laid down and was, if we may say so, correctly applied to the facts before the court. But there is a passage in the judgment on which strong reliance was placed by the learned counsel for the appellant and it was contended that the instant case clearly fell under the illustration contained in the passage. It reads: " At the same time, it should be emphasised that 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. If, for example, a thief were to break overnight into the premises of a money-lender a....
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....ance with the statutory rules, with cash for disbursement to sugarcane cultivators at the spot of purchase. The cash was robbed on the way. The Division Bench of the Patna High Court held that the loss of money was loss arising out of the business of the assessee and sprang from statutory necessity of sending money to various purchasing centres for disbursement and, therefore, the assessee was entitled to deduct the loss in computing its taxable income under section 10(1) of the Act. It will be noticed that this is not a case of misappropriation by a servant of the company, but a case of loss to the company by reason of its cash being robbed from its servant. In that case, cash was entrusted to the employee under statutory rules. But there may be cases where such entrustment may be made by custom or practice. What is important to notice is that robbery of cash from the hands of an employee is held to be incidental to the business of the assessee. If that be so, why should a different principle be adopted if the loss was not caused by robbery from the hands of the employee on his way to a particular place in discharge of his duty, but it was a loss caused by dacoity from the premise....
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.... " Banking the takings is a necessary part of the operations that are directed to the gaining or producing day by day of what will form at the end of the accounting period the assessable income. Without this, or some equivalent financial procedure, hitherto undevised, the replenishment of stock-in-trade and the payment of wages and other essential outgoings would stop and that would mean that the gaining or producing of the assessable income would be suspended." Then the court proceeded to state: "The 'occasion of the loss' in the present case was the course pursued in banking the money ... There is no difficulty in understanding the view that involuntary outgoings and unforeseen or unavoidable losses should be allowed as deductions when they represent that kind of casualty, mischance or misfortune which is a natural or recognized incident of a particular trade or business the profits of which are in question. These are characteristic incidents of the systematic exercise of a trade or the pursuit of a vocation. Even if armed robbery of employees carrying money through the streets had become an anachronism, which we no longer knew, these words would apply. For it would remain a ....