1964 (9) TMI 11 - SC - Income Tax

Whether loss of cash by dacoity is an admissible deduction under section 10(1) of the Indian Income-tax Act, 1922 in computing the assessee s income in a banking business? Held that - In the present case the respondent was carrying on the business of banking. It is an integral part of the process of banking that sufficient moneys should be kept in the bank duly guarded to meet the demands of the constituents. The retention of the money in the bank is a part of the operation of banking. The retention of money in the bank premises carries with it the ordinary risk of its being subject of embezzlement, theft, dacoity or destruction by fire and such other things. Such risk of loss is incidental to the carrying on of the operations of the business of banking. In this view, we are clearly of the opinion that the loss incurred by dacoity in the present case is incidental to the carrying on of the business of banking. Appeal dismissed.

Summary

Issues Involved:
1. Whether loss of cash by dacoity is an admissible deduction under section 10(1) of the Indian Income-tax Act, 1922, in computing the assessee's income in a banking business.

Issue-wise Detailed Analysis:

1. Admissibility of Loss by Dacoity as Deduction under Section 10(1):

The primary issue in this case is whether the loss of cash due to dacoity can be considered a deductible trading loss under section 10(1) of the Indian Income-tax Act, 1922, while computing the income of a banking business. The facts of the case reveal that the assessee, a banking company, suffered a loss of Rs. 1,06,000 due to a dacoity at one of its branches. The Income-tax Officer, Appellate Assistant Commissioner, and Income-tax Appellate Tribunal disallowed the claim, but the High Court of Allahabad allowed it, leading to this appeal.

The appellant argued that the loss was not incidental to the banking business but was akin to a loss any citizen might face due to burglary. Conversely, the respondent contended that the cash lost was part of the bank's stock-in-trade, and its loss was incidental to the business of banking.

Legal Precedents and Principles:

The judgment discusses various legal precedents to elucidate the principles involved:

- Stock-in-Trade Concept: It is established that cash is the stock-in-trade of a banking company. The Judicial Committee in Arunachalam Chettiar v. Commissioner of Income-tax and the Madras High Court in Commissioner of Income-tax v. Subramanya Pillai recognized that money is the stock-in-trade for bankers and money-lenders, and losses in respect of stock-in-trade are considered trade losses.

- Incidental Losses: The judgment emphasizes that not all losses of stock-in-trade are deductible; they must be incidental to the business. The leading case of Badridas Daga v. Commissioner of Income-tax established that losses incidental to the carrying on of business are deductible under section 10(1).

- Relevant Case Law: The judgment refers to the Motipur Sugar Factory Ltd. v. Commissioner of Income-tax, where the loss of money due to robbery while being transported for business purposes was considered incidental to the business and deductible. Similarly, the Australian High Court in Charles Moore & Co. (W.A.) Pty. Ltd. v. Federal Commissioner of Taxation and the Supreme Court of New Zealand in Gold Band Services Ltd. v. Commissioners of Inland Revenue recognized losses due to robbery as incidental to business operations.

Distinction from Personal Losses:

The judgment distinguishes between losses suffered by individuals and those by public companies engaged in banking. It notes that for a bank, the cash on its premises is part of its stock-in-trade, unlike a money-lender whose funds may not always be invested in business. The judgment rejects the narrow view taken by the Madras High Court in Ramaswami Chettiar v. Commissioner of Income-tax, favoring a broader interpretation that recognizes the inherent risks in banking operations.

Conclusion:

The court concludes that under section 10(1) of the Act, a trading loss is deductible if it arises from the operations of the business and is incidental to it. The retention of cash in a bank, necessary for its operations, carries risks such as theft or dacoity, which are incidental to banking. Therefore, the loss incurred by dacoity in this case is incidental to the business of banking and deductible.

Final Judgment:

The Supreme Court upheld the High Court's order, dismissing the appeal and confirming that the loss by dacoity was a trading loss deductible under section 10(1) of the Indian Income-tax Act, 1922. The appeal was dismissed with costs.