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TMI Blog1967 (4) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... ecember, 1941, estimated at Rs. 1,93,750. It is common ground that this bombing in December, 1941, fell within the accounting year. When the assessee claimed that these losses should be deducted under section 10(2) of the Income-tax Act, the department held that the losses in question represented capital assets and, therefore, would not be an allowable deduction. When the assessee appealed to the Tribunal, it held that the loss was of the stock-in-trade of the money-lending business, but such loss suffered owing to enemy action, was not a risk incidental to the carrying on of the business, in accordance with the ratio of the decision of the Supreme Court in Badridas Daga v. Commissioner of Income-tax. The Tribunal upheld the decision of the Appellate Assistant Commissioner, and held that the loss was not a permissible deduction under section 10(2) of the Act. On this finding the Tribunal has submitted to this court for decision, the following question : " Whether, on the facts and circumstances of the case, the loss of Rs. 1,93,750 was an allowable deduction under section 10 of the Indian Income-tax Act ? " Under section 10(1) of the Income-tax Act, the tax shall be payable by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st now. The leading English decision is Green v. Gliksten Son Ltd. In that decision, timber, which was the stock-in-trade of the assessee, was destroyed, and the assessee received insurance money for the stock thus destroyed, and the receipt was much more than the book value of the timber. Rowlatt J., pointing out the nature of a trading account which is the accounting procedure to be adopted in such cases, observed : " It starts with the stock-in-trade in hand at the beginning of the year on the left hand side, then the amount of purchases, and then the amount of expenses, and then there is the total. On the other side, there is, of course, the amount of sales and the stock-in-trade that is left at the end of the year ; that is totalled and the difference between the two would normally show the gross profit or the gross loss on the years' trading. But in the year in question, owing to to the fire, some of the stock which they had at the beginning of the year and which they bought during the year is not accounted for either by the sales or by the stock-in-trade which is left, because it has been burnt." The House of Lords, which confirmed the view of the Court of Appeal, obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income-tax applied the above principles to a case of loss of stock-in-trade by enemy action. Learned counsel for the revenue, on the other hand, argued that even in such cases it must be found that the loss was incidental to the trade or business before a deduction can be allowed and that while fire can be considered as incidental to business, enemy action cannot. For the test of loss being incidental to the business, the learned counsel relies on the decision in Badridas Daga v. Commissioner of Income-tax as well as Commissioner of Income-tax v. Nainital Bank Ltd. For understanding the scope of these two decisions, a brief reference to the concerned facts will be necessary. In the former case, the assessee was a money-lending firm, and the question arose in respect of loss of money resulting from embezzlement by an employee or agent of the firm. In that case, the Supreme Court observed : " 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. Human nature being what it is, it is impossible to rule out the possibility of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness of banking." It is necessary to point out that except for an observation at page 712 of the report in the Nainital Bank's case that, in the case of a bank, the deposits received by it formed part of its circulating capital and at the time of the theft formed part of its stock-in-trade, there is absolutely no indication in that judgment or in the judgment in Daga's case that the Supreme Court considered the loss of money in such cases on the same footing as the loss of the stock-in-trade of a businessman, who for the purpose of calculating his profits and gains, has necessarily to take into account the value of the stock-in-trade at the beginning of the accounting year and the the value of the stock-in-trade at the end of the accounting year and make provision for the incomings and outgoings in the course of the year by adding them or substracting them as the case may be. In other words, the Supreme Court in these two decisions was concerned with loss of money in regard to which no further computation of its value for the purpose of accounting procedure was necessary. Loss of money of a money-lender or a bank whether by embezzlement or theft or dacoity appears in the accou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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