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TMI Blog1971 (3) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... securities. For the assessment year 1964-65 relevant to the accounting year ending with October 16, 1963, it returned a loss of Rs. 5,008 from the business. A sum of Rs. 50,000 for the purpose of purchasing Government securities was brought in cash to Rajahmundry, the place of business of the assessee-firm, by its employee and was handed over to its cashier. The aforesaid amount which was in bundles of 100 and 10 rupee notes was kept by the cashier on a desk. While he turned his back to take out a book, some stranger committed theft of Rs. 30,000. No amount was recovered in spite of the police report. The assessee claimed the loss of Rs. 30,000 as a permissible deduction. The Income-tax Officer rejected the claim of the assessee on the ground that what was lost was not profits or monies sent for a specific trade liability or for purchases, but it was a loss of either idle money or a capital loss. The loss was found to be not incidental to the business of the company. The appeal preferred by the assessee to the Income-tax Appellate Commissioner was without success. However, on further appeal to the Appellate Tribunal, the claim of the assessee was allowed on the ground that the loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provide for the income relating to salaries whereas sections 18 to 21 deal with interest on securities. Sections 22 to 27 provide for the income from house property whereas sections 28 to 44 deal with profits and gains of business or profession. Section 28(1), corresponding to section 10(1) of the Indian Income-tax Act, 1922, makes the profits and gains of any business or profession carried on by the assessee at any time during the relevant previous year chargeable to income-tax under the head " Profits and gains of business or profession ". Section 29 states that the income from business or profession referred to in section 28 shall be computed in accordance with the provisions of sections 30 to 43. The amount spent towards rent, rates, taxes, repairs and insurance for premises used by the assessee for the purpose of the business or profession has to be allowed under section 30 in the manner specified therein. The amount spent by the assessee towards repairs and insurance of machinery, plant and furniture is deductible. Depreciation, development rebate and expenditure on scientific research and other deductions permissible under sections 32 to 40 must be allowed. Any bad and irrec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and allowed to be set off against the receipts." See also Ramaswami Chettiar v. Commissioner of Income-tax and MotiPur Sugar Factory Ltd. v. Commissioner of Income-tax. Payment received by an assessee from an insurance company towards compensation for stock destroyed by fire was held to be income receipt for the purpose of computation of assessable profits of the recipient-assessee : vide Raghuvanshi Mills Ltd. v. Commissioner of Income-tax. In Pohoomal Bros. v. Commissioner of Income-tax, it was held that the losses sustained by the assessee in that case due to destruction of its stock-in-trade by enemy invasion were trading losses which the assessee was entitled to deduct from the profits and gains of the business. Loss incurred in stock-in-trade by ravages of white ants was held in Hira Lal Poolchand v. Commissioner of Income-tax to be a trading loss deductible from the profits of the business of a firm. In Badridas Daga v. Commissioner of Income-tax it was held by the Supreme Court that the loss of Rs. 2,02,442 incurred by the assessee-firm who carried on business as money-lenders, dealers in shares and bullion and commission agents in Bombay, Calcutta and other places, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or which it required considerable amount of money in cash, it was found on the facts that the stolen money " was admittedly intended for the purchase of Government securities ". When once the money lost was not borrowed for the purpose of money-lending or commission business but to purchase Government securities, it can, by no stretch of reasoning, be said that it formed part of stock-in-trade of the money-lending business. If really the borrowal was for money-lending business and the amount lost had been entrusted to the cashier of the assessee-firm for the purpose of money lending, the loss should have been an admissible deduction as it amounts in such a case to a trading loss. If the Government securities purchased by the assessee had been lost, then such a loss would have been a permissible deduction as it amounts to a loss in stock-in-trade of its business. Before purchasing the Government securities, if the amount set apart for such purchase is lost or stolen, such a loss incurred by the assessee cannot, in our opinion, be said to be a business loss. Unless and until the assessee has purchased the securities, the business operation of the assessee cannot be held to have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Anjaneyulu that this money was required for money-lending and commission business of the assessee cannot be acceded to, in view of the admitted fact that the amount was intended for the purchase of Government securities. Though it was contended that the assessee had money-lending business also, it was not disclosed from the accounts that it had any earnings from such money-lending business also. In our opinion, the money was stolen, though in the business premises of the assessee during hours of business, only before the actual investment in Government securities. It was admittedly not stolen after the commencement of the business activity or in the course of the business of the assessee. The amount at the point of time of theft did not form part of the assessee's business asset. Either the borrowal by a partner of the assessee from third parties or the handing over of such borrowed amount to the assessee's cashier would not amount to a business dealing of the assessee and, hence, any loss sustained at that stage cannot be termed to be a loss incidental to its business. This view of ours finds support in the decision of this court in Commissioner of Income-tax v. Chakka Narayana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government securities can, by no stretch of reasoning, be said to carry with it the ordinary risk of its being subject of embezzlement, theft or dacoity which amounts to risk of loss incidental to the carrying on of the operations of its Government securities business. The observations of the learned judge that the Special Bench of the Madras High Court in Ramaswami Chettiar v.Commissioner of Income-tax, has taken a narrow view of the problem and the dissentient view expressed by Anantakrishna Ayyar J. contained a constructive criticism of the majority view, pertain to the view expressed by the majority that the loss incurred by theft of money used in money-lending business by persons who were at the time of commission not employed as clerks or servants of the assessee, was not an admissible deduction. If the money was stolen or embezzled by the persons employed in the business, it is indisputably a permissible deduction as a trading loss. However, the Supreme Court pointed out specifically that every loss is not deductible unless it is incurred in carrying out the operation of the business and is incidental to the operation. Hence, the decisions of this court in Chakka Narayana's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank. An amount of Rs. 1,100 was recovered on a police complaint by the asseesee. It was held, on a consideration of the facts and circumstances, that the hundi was in respect of a business transaction between the assessee and its principal and, hence, the loss of Rs. 12,000 was held to be a business loss. The facts of the aforesaid two cases, though cited to show that it is not essential in every case where the loss is claimed to be a trade loss that the amount formed the stock-in-trade, are distinguishable from those of the present case. The next case is that of Sarya Sugar Mills (P.) Ltd., wherein the loss of Rs. 53,121 stolen by thieves at about 3 o' clock in the morning in the factory premises of the assessee was held to be a loss incidental to its business. It is pertinent to notice the following material facts found by the learned judges : " Here, in the instant case, we have an assessee who finds it necessary for the purposes of its business to withdraw from the bank and lodge in the factory safe-room a sufficient amount of money for paying out to canegrowers and for meeting other business expenses. There is no mixing of the money with profits earned by the assessee o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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