1972 (4) TMI 17 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the sum of Rs. 20,272 being loss suffered by theft is an admissible charge against the income of the previous year

Issues Involved:
1. Admissibility of loss due to theft as a deductible charge against income.

Issue-Wise Detailed Analysis:

1. Admissibility of Loss Due to Theft as a Deductible Charge Against Income

Facts and Circumstances:
The assessee, a commission agent dealing in the purchase and sale of cotton, experienced a theft at his business premises during the night of June 10-11, 1960, resulting in a loss of Rs. 20,272. The assessee claimed this amount as a deductible loss while computing the total income for the assessment year 1961-62. This claim was rejected by the Income-tax Officer, the Appellate Assistant Commissioner, and the Appellate Tribunal. The Tribunal, however, referred the question to the High Court for its opinion.

Tribunal's Findings:
The Tribunal acknowledged that the retention of money in the business premises was necessary for the conduct of the business. However, it emphasized that the theft occurred outside business hours, after all transactions had been finalized and the cash had come to the "till." Thus, the Tribunal held that the loss did not directly spring from the business and was not incidental to it.

Legal Principles:
1. Section 10 of the Indian Income-tax Act, 1922: The loss on account of theft does not fall under the categories mentioned in sub-section (2). However, losses can be considered under section 10(1) if they arise out of the carrying on of the business and are incidental to it.
2. Supreme Court Precedents:
- Badridas Daga v. Commissioner of Income-tax: Established that losses must directly spring from the business and be incidental to it to be deductible.
- Commissioner of Income-tax v. Nainital Bank Ltd.: Affirmed that loss due to theft is incidental to business if it arises out of the business operations, irrespective of whether the theft occurred during or outside business hours.

High Court Analysis:
The High Court referred to several precedents to analyze whether the loss due to theft was incidental to the business:
1. Motipur Sugar Factory Ltd. v. Commissioner of Income-tax: Loss due to robbery while transporting cash for business purposes was held deductible.
2. Badridas Daga Case: Emphasized the necessity for the loss to spring directly from the business.
3. Nainital Bank Case: Distinguished between losses of a money-lender and a bank, noting that theft outside business hours does not negate the incidentality of the loss to the business.
4. Subsequent High Court Decisions:
- Basantlal Sanwar Prasad v. Commissioner of Income-tax: Held that theft loss was incidental to business if keeping cash in the shop was necessary for business.
- Commissioner of Income-tax v. Sarya Sugar Mills (P.) Ltd.: Rejected the argument that theft outside business hours negates the loss's incidentality to business.
- Commissioner of Income-tax v. Ganesh Rice Mills: Supported the view that theft loss can be deductible if incidental to business.

Contrary Views:
The revenue cited cases like Maduri Rajeshwar v. Commissioner of Income-tax and Ram Gopal Ram Sarup v. Commissioner of Income-tax, which were decided before the Supreme Court's decision in the Nainital Bank case. The High Court did not find these cases persuasive enough to change its opinion.

Conclusion:
The High Court concluded that the loss of Rs. 20,272 due to theft was an admissible charge against the income of the previous year, as it was incidental to the business. The reference was answered accordingly, with no order as to costs.

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