1954 (12) TMI 32 - AT - Income Tax

Summary

Issues Involved:

1. Whether the embezzled amount of Rs. 2,02,442-13-9 by the assessee's munim is allowable as a deduction under the Indian Income-tax Act, either under section 10(1) or under section 10(2)(XV) or under the general principle of determining the profit and loss of the assessee.

Issue-wise Detailed Analysis:

1. Allowability of Deduction under Section 10(1) or Section 10(2)(XV) of the Indian Income-tax Act:

The Tribunal accepted that the amount of Rs. 2,30,636-4-0 was misappropriated by the munim, Chandrattan Laxminarayan Daga. However, it opined that no deduction could be allowed under section 10(1) or section 10(2)(XV) of the Act. The Tribunal referenced Curtis v. Oldfield and Venkatachalapathy Iyer v. Commissioner of Income-tax, Madras, to support its view.

Curtis v. Oldfield Analysis:

In Curtis v. Oldfield, the managing director of a company misappropriated funds. The court held that there was no evidence to support that the loss was a trading loss. The reasoning was that the funds had already "got home" to the company and were then taken out by the managing director, which was outside the scope of trade losses.

Application to Present Case:

The munim held a general power of attorney and had wide powers similar to the managing director in Curtis v. Oldfield. The court noted that the money was credited to the assessee's bank account and thus had "reached him." Therefore, the loss occurred after the money had reached the assessee and could not be regarded as a loss in business. The court concluded that such a loss is akin to theft and cannot be deducted under section 10(2)(XV).

Venkatachalapathy Iyer v. Commissioner of Income-tax Analysis:

In this case, a clerk embezzled funds before they reached the managing partner. The court allowed the deduction as the funds had not yet "reached the till." The court differentiated this from Curtis v. Oldfield, where the funds had already reached the company's control.

Application to Present Case:

The court found the present case distinguishable from Venkatachalapathy Iyer v. Commissioner of Income-tax because the money had already reached the assessee's control before being misappropriated by the munim. Thus, it could not be considered a loss in trade.

General Principles of Determining Profit and Loss:

The court reiterated that for a loss to be deductible as a trading loss, it must occur in the course of business operations and not after the funds have reached the business owner. Since the funds were misappropriated after being credited to the assessee's bank account, the loss did not arise in the course of business operations.

Conclusion:

The court concluded that the amount of Rs. 2,02,442-13-9 could not be allowed as a deduction under section 10(2)(XV) or under the general principles of determining the profit and loss of the assessee. No arguments were advanced regarding deduction under section 10(1).

Costs:

The costs of the application were to be borne by the applicant, with counsel's fee set at Rs. 250.

Reference Answered Accordingly:

The reference was answered in the negative, confirming that the embezzled amount is not deductible under the specified provisions of the Indian Income-tax Act.