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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 ..... sale of cotton and the question relates to the assessment year 1961-62, the accounting year ending on 17th July, 1960. The assessee used to keep cash in his business premises in connection with his business. In the night between 10th and 11th June, 1960, a theft was committed in the business premises and an iron safe was broken 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) of section 10 of the Indian Income-tax Act, 1922. At the same time it is now well-settled that the enumeration of items under section 10(2) is not exhaustive and that losses can be taken into account while calculating profits and losses under section 10(1). Thus, profits and losses have to be determined on the well-recognised commercial principles. A case somewhat s similar to the facts of the present case came up before the Patna High Court in Motipur Sugar Factory Ltd. v. Commissioner of Income-tax. In that case the assessee-company was carrying on business in the manufacture of sugar and molasses out of sugarcane. The company deputed an employee in compliance with the statutory rules, with cash for distribution to sugar-cane cultivat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 business, it must logically follow that losses which are incidental to such employment are also incidental to the carrying on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss, but the said loss should have been caused not only in the course of the business but also should have been incidental to it," Their Lordships noticed Badridas Daga's case and referred to the passage relating to the illustratioi of theft in a money-lender's house and observed as follows : " That passage in terms refers to a money-lender and does not deal with a public company carrying on banking business. In the case of a money-lender, the profits he made may form part of the private funds kept in his house which he may or may not invest in his business. It is indistinguishable from his other moneys. But, in the case of a bank the deposits received by it form part of its circulating capital and at the time of the theft formed part of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard to the nature of the operations carried on and the nature of the risk involved in carrying them out. The degree of the risk or its frequency is not of much relevance but its nexus to the nature of the business is material. " We may also usefully notice some of the decisions of the High Courts subsequent to the Supreme Court decision in Nainital Bank's case. In Basantal Sanwar Prasad v. Commissioner of Income-tax, the assessee was a registered firm having wholesale business in cloth. A burglary took place at night in its shop premises and a sum of Rs. 11,407 was lost. The assessee claimed loss on account of burglary as permissible deduction. The Appellate Tribunal did not allow the deduction. On a reference, the High Court held that on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ft 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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