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TMI Blog1964 (9) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgment of the court was delivered by SUBBA RAO J.----This appeal by certificate raises the question whether loss of cash by dacoity is an admissible deduction under section 10(1) of the Indian Income-tax Act, 1922, hereinafter called the Act, in computing the assessee's income in a banking business. The facts relevant to the question raised may be briefly stated. The assessee is the Nainital Bank Limited. It is a public limited company which carries on the business of banking. It has various branches and one of them is situated at Ramnagar. In the usual course of its business large amounts were kept in various safes in the premises of the bank. On June 11, 1951, at about 7 p.m., there was a dacoity in the bank and the dacoits carried away the cash amounting to Rs. 1,06,000 and some ornaments, etc., pledged with the bank. For the assessment year 1952-53, the bank claimed the said amount as a deduction in computing its income from the banking business on the ground that it was a trading loss. The Income-tax Officer disallowed the claim on the ground that it was not a loss incidental to the banking business. On appeal, the Appellate Assistant Commissioner of Income-tax, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch is one of its branches doing such business. Unlike an individual, a limited company like a banking company comes into existence for the purpose of carrying on only the banking business and ordinarily there cannot be any scope for attributing different characters to that business. We, therefore, start with the fact that the Ramnagar branch of the bank had kept large amounts in the bank premises in the usual course of its business in order to meet the demands of its constituents. It is settled law, and indeed it is not disputed, that cash is the stock-in-trade of a banking company. In Arunachalam Chettiar v. Commissioner of Income-tax, the Judicial Committee was considering the basis of the right of an assessee to deduct irrecoverable loans before arriving at the profits of money-lending, and in that context it stated : " The basis of the right to deduct irrecoverable loans before arriving at the profit of money-lending is that to the money-lender, as to the banker, money is his stock-in trade or circulating capital: he is dealing in money. " In Commissioner of Income-tax v. Subramanya Pillai, a Division Bench of the Madras High Court, in explaining the principle why in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the firm withdrew large amounts from the firm's bank account and applied them in satisfaction of his personal debts. In the firm's account the balance of the amount not recovered from the agent was written off at the end of the accounting year as irrecoverable. This court held that the loss sustained by the appellant therein as a result of misappropriation by the agent was one which was incidental to the carrying on of the business and should, therefore, be deducted in computing the profits under section 10(1) of the Act. Venkatarama Ayyar J., speaking for the court, observed: " The result is that when a claim is made for a deduction for which there is no specific provision in section 10(2), whether it is admissible or not will depend on whether, having regard to accepted commercial practice and trading principles, it can be said to arise out of the carrying on of the business and to be incidental to it. If that is established, then the deduction must be allowed, provided of course there is no prohibition against it, express or implied, in the Act. " Applying the principle to the facts of the case before the court, the learned judge proceeded to state : " If employment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant case and the illustration visualized by this court. 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. Before parting with this decision: it may be noticed that this court agreed with the decisions in Venkatachalapathy Iyer v. Commissioner of Income-tax, Lord's Dairy Farm Ltd. v. Commissioner of Income-tax and Motipur Sugar factory Ltd. v. Commissioner of Income-tax. The decision in the Motipur Sugar Factory case, which was accepted by this court to be correct, takes us a step further in the development of law. There, the assessee-company was carrying on business in the manufacture of sugar and molasses out of sugarcane. It deputed an employee, in compliance with the statutory rules, with cash for disbursement to sugarcane cultivators at the spot of purchase. The cash was robbed on the way. The Division Bench of the Patna High Court held that the loss of money was loss arising out of the business of the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light on the subject. In that case the assessee was carrying on the business of a departmental store and he banked the takings thereof daily. It was the practice every business morning for the cashier accompanied by another employee to take the previous day's takings to the bank some two hundred yards away and pay them to the credit of the assessee. One day, while on their way to the bank, the two employees were held up at gun point and robbed of a large amount which formed part of the receipts of the assessee for the previous day. The court held that the loss was incurred in gaining or producing the assessable income of the year in question within the meaning of section 51(1) of the Income Tax and Social Services Contribution Assessment Act, 1936-52, and was not a loss or outgoing of capital or of a capital nature, and was consequently a deduction from the assessable income in such year. It was pointed out therein : " Banking the takings is a necessary part of the operations that are directed to the gaining or producing day by day of what will form at the end of the accounting period the assessable income. Without this, or some equivalent financial procedure, hitherto undevise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above to a situation which comes very near to our case. The appellant therein owned and operated a petrol service station which was kept open continuously. It was held up by an armed robber and a substantial sum of money was stolen. The court held that the sum lost as a result of the robbery was a loss exclusively incurred in gaining or producing the assessable income of the appellant and was deductible from its gross income. Adverting to the argument very often advanced in courts based upon the robbery being committed in the premises and that committed on the way to a bank, Haslam J. observed: " I can see no valid distinction to be drawn in principle between the robbery of trade receipts on the appellant's premises at an hour before banking was possible (but intended to be banked at a time when banks were open) and a robbery of the same money when in the custody of the employee on the way to the bank. In my opinion, the occasion for the loss of the present appellant was the operation of its business in the normal way, with the result that the cash stolen was on the premises at that particular time, and that the possibility of such plunder constituted an attraction to a certain ..... X X X X Extracts X X X X X X X X Extracts X X X X
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