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TMI Blog1972 (4) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... and Rs. 20,272 in cash comprising currency notes and change was stolen. The assessee claimed this amount as admissible deduction while computing the total income of the previous year. The claim was rejected by the Income-tax Officer, by the Appellate Assistant Commissioner and finally by the Appellate Tribunal. At the instance of the assessee, the Tribunal has made the present reference. At the outset we may address to the precise findings of fact arrived at by the Tribunal. The Tribunal in its order dated January 23, 1967, observed that the assessee was keeping cash in hand from time to time is not in dispute. For the period of May 12, 1960, to June 10, 1960, the opening cash balance with the assessee varied between Rs. 8,044 and Rs. 36,193. The assessee has also given us the day's total credits and debits. These include adjustment entries also. The Tribunal thus did not indicate its intention to dispute the assessee's claim that the retention of money in the business premises was necessary for the conduct of the business. The Tribunal, however, emphasized the fact that the theft had occurred at a time when all the business transactions had been finalised. The business had close ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it can be said to arise out of the carrying on of the business and be incidental to it. The loss for which a deduction is claimed must be one that springs directly from the carrying on of the business and is incidental to it, and not any loss sustained by the assessee even if it has some connection with his business. If that is established, then the deduction must be allowed, provided that there is no provision against it, express or implied, in the Act." The Supreme Court approved the decision of the Patna High Court in Motipur Sugar Factory Ltd. v. Commissioner of Income-tax and also the cases of the Bombay and Madras High Courts in Lord's Dairy Farm Ltd. v. Commissioner of Income-tax and Venkalachalapathy Iyer v. Commissioner of Income-tax taking a similar view. After stating the governing principles, the Supreme Court observed that in deciding whether the loss resulting from embezzlement by an employee or agent in a business is admissible as a deduction under section 10(1) of the Indian Income-tax Act, what has to be considered is whether it arises out of the carrying on of the business and is incidental to it. If the employment of agents is incidental to the carrying on of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one case it cannot be posited that the amount robbed is part of the stock-in-trade of the trader till he invests it in his business ; in the other it forms part of the stock-in-trade without depending on the intention of the banking company.... We have only suggested a distinction, but we are not expressing any definite opinion on the question whether the loss incurred in the case illustrated is or is not a trading loss. The correctness or otherwise of the said observation may fall to be considered when such a case directly arises for decision. " In this manner, their Lordships pointed out the distinction between the case before them and the illustration referred to in the earlier decision. The Supreme Court also indicated that the fact that the theft or burglary is committed outside business hours makes no substantial difference if the loss is otherwise inciden- tal and arises out of the business. Their Lordships then referred to the decisions of the High Court of Australia, and the Supreme Court of New Zealand and eventually summarised the position as follows : " Under section 10(1) of the Act, the trading loss of a business deductible for computing the profit earned by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was or was not the stock-in-trade of the business as compared to the money kept by the money-lender in his house at the time when the theft took place there. It cannot be contended that the loss in the stock-in-trade alone is permissible to be deducted under section 10(1) of the Act. Any loss other than in stock-in-trade, if incidental to the business, will also come within the purview of that section. That is why their Lordships of the Supreme Court, while referring to the case of Ramaswami Chettiar v. Commissioner of Income-tax , were inclined to agree with the minority view expressed in that judgment." In this view of the matter, the Patna High Court held the loss on account of theft as permissible deduction. In Commissioner of Income-tax v. Sarya Sugar Mills (P.) Ltd. , the assessee was a company carrying on the business of manufacturing and selling sugar. A theft was committed at 3 o'clock of the morning in the factory premises resulting in some loss. The assessee claimed the loss as permissible deduction. The High Court on a reference held that the loss on account of theft was a permissible deduction. Dealing with the argument of the revenue that the theft having been com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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