1965 (12) TMI 5 - HC - Income Tax

Money sent to Commission agent through an employee was lost through a highway robbery - whether such loss would be allowable as a trading loss

Summary

Issues Involved:
1. Whether the sum of Rs. 10,000 was a loss from business deductible in computing the total income of the assessee.

Detailed Analysis:

Issue 1: Whether the sum of Rs. 10,000 was a loss from business deductible in computing the total income of the assessee.

The primary question referred to the High Court was whether the sum of Rs. 10,000, which was robbed while in transit, could be considered a deductible business loss under section 10(1) of the Indian Income-tax Act, 1922.

Facts of the Case:
The assessee, engaged in the kirana business, sent Rs. 10,000 through an employee to pay a commission agent, Babulal Kharga. The money was robbed en route. Initially, the assessee claimed the amount as a bad debt but later argued it was a trading loss deductible under section 10(1) of the Act.

Tribunal's Findings:
The Tribunal accepted that the money was in transit and was robbed. However, it held that the loss was not deductible as the assessee exposed itself to the risk of robbery without proper protection and there was no business necessity for such exposure.

Assessee's Argument:
The assessee contended, citing Motipur Sugar Factory Ltd. v. Commissioner of Income-tax and Badridas Daga v. Commissioner of Income-tax, that the loss was incidental to the business and should be deductible. The loss was directly connected with the business operations.

Department's Argument:
The department argued that the Tribunal's finding on the robbery was erroneous and unsupported by evidence. Even if the robbery was accepted, it was not established that the loss was incidental to the business operations.

Precedents Cited:
1. Motipur Sugar Factory Ltd. v. Commissioner of Income-tax: Loss of money due to robbery while being transported for business purposes was held to be incidental to the business and deductible.
2. Badridas Daga v. Commissioner of Income-tax: Emphasized that the loss must spring directly from business operations and be incidental to it.
3. Commissioner of Income-tax v. Nainital Bank Ltd.: Loss by dacoity was held to be incidental to the banking business and deductible.

High Court's Analysis:
The High Court noted that the principles from the cited cases required the loss to be directly linked to and incidental to the business operations. The Tribunal's findings were insufficient to conclusively determine this. The High Court emphasized the need for clear findings on:
- Whether the loss occurred as alleged.
- Whether the money was in transit for business purposes.
- Whether it was customary to send money in such a manner.

Conclusion:
The High Court found the Tribunal's findings inadequate and referred the case back to the Tribunal to record clear findings on the above points. The expressions "incidental" and "relevant" in relation to losses must be connected to the operation to produce income, not necessarily the frequency or exposure to risk.

The case was remanded to the Appellate Tribunal for further findings to enable the High Court to determine the question of law involved.