TMI Blog1958 (3) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of stock-in-trade by the invading Japanese. The Appellate Assistant Commissioner estimated the loss which should be allowed at Rs. 1,42,500 for the Manila branch, Rs. 40,000 for the Kualalumpur branch and nil for the Saigon branch. Against this decision the Department went in appeal to the Tribunal and the Tribunal accepted the contention of the Department and disallowed these losses. The assessee has made this claim on the basis that these losses represent trading losses and from a commercial point of view these losses should be allowed. On the other hand, the view taken by the Tribunal was that, inasmuch as the losses were due to enemy action, that was a factor which was not incidental to the trade which the assessee was carrying on and that loss could not be allowed. The Tribunal also took the view that, in any case, these losses cannot be allowed as a revenue deduction: the most that could be said was that the whole capital invested by the assessee was lost and the capital losses could not be allowed as a deduction. Now, the question that we have to consider is whether, when a trader loses part of his stock-in-trade or the whole of it, that is a loss that can be looked u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and so does the taxing department; if the cash equivalent is less than the book value, the trader loses and so does the Taxing Department. If that be the true principle, then we fail to see what difference it makes to that principle if, instead of a particular stock-in-trade realising a particular cash value, it does not realise anything at all. To that extent the trader's loss is greater. Therefore, in this case, this particular stock-in-trade, instead of realising a certain cash equivalent, did not realise anything at all; and from this point of view, the cause of the loss is irrelevant. Whatever may be the cause for the loss of the stock-in-trade, the essential fact to bear in mind is that the stock-in-trade has gone out of the business and it so happens that the stock-in-trade has realised no cash. It is illogical, in our opinion, to say that if the stock-in-trade has realised Rs. 5, we could have assessed the loss, but if the stock-in-trade realised nothing, the trader is not entitled to that deduction. Any loss caused to the stock-in-trade must in its very nature be a loss incidental to the trade, and, therefore, when the authorities speak of a loss being incidental to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it. I can see no reason why that money should not be brought into the account instead of the timber." When the matter went to the Court of Appeal, it was argued that the timber company did not trade in fires and, therefore, any profits it had made on insurance should not be allowed to be subjected to income-tax. This argument was rejected by the Master of the Rolls, Lord Hanworth, who said: ".......governed by ordinary business prudence, and mindful of the fact that untoward events take place both by land and by sea, the company take steps to insure an indemnity being paid to them whether they lose their stocks in transit to them by perils of the sea, or whether they lose it in situ on land by the perils and misfortune of fire." The House of Lords confirmed the view of the Court of Appeal, quoting with approval the remarks of Lord Justice Sargant: "To my mind the book value of the timber in the company's books has nothing at all to do with the amount of the loss or with the amount which has been recovered in respect of the loss. That amount is a gain of the company in the course of its business no less than the sale price of the timber would have been if the timber ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... test. Now can it be said that, when the stock-in-trade of a trader is destroyed, that loss falls on him in some character other than that of a trader, or that this loss is incidental to some other vocation or business ? As we said before, business can only be carried on and business can only earn profits provided there is a stock-in-trade, and if the stock-in-trade itself is destroyed, it is not only a loss but a calamity as far as the business is concerned. There is a judgment of the Patna High Court in Motamal Jethumal v. Commissioner of Income-tax [1947] 15 ITR 155 which is really based on Green s case (supra), but there is a significant passage in the judgment of Mr. Justice Manohar Lall at page 163 where the learned judge says: "Supposing the timber had been sold to a customer and he had failed to make any payment at all and the amount due from the customer had been lost or had become irrecoverable, it cannot be seriously argued that such a loss would not have been a trading loss." So the learned Judge here, while he is dealing with a case of loss by fire, applies, with respect, the correct principle, that if the sale of the stock-in-trade did not in fact fetch any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant Commissioner on an estimate has come to the conclusion that the loss in respect of Manila was Rs. 1,42,500 and in respect of Kualalumpur it was Rs. 40,000. Unless that finding is disturbed by the Tribunal, that finding must stand. Just as it is not always possible to determine the profits from actual evidence or actual materials and the Taxing Department estimates the profits, similarly, if for reasons over which the assessee has no control there are no actual materials to show what was the stock-in-trade which was destroyed, it was open to the Appellate Assistant Commissioner to estimate the loss from such materials as were available, and the materials available in this case were the previous balance-sheets and profit and loss accounts of the business. In our opinion, therefore, the assessee is entitled to succeed with regard to the deductions which he has claimed for losses which the Appellate Assistant Commissioner has estimated at Rs. 1,82,500 for the destruction of the stock-in-trade at Manila and at Kualalumpur. Turning to the second branch of this reference, various expenses were claimed by the assessee for the years 1943-44 to 1946-47 and these expenses were allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly, accepted the contention of the assessee that the finding of the Tribunal on a question of fact that the business had come to an end was erroneous. Now that is an entirely erroneous view to take both of our powers under section 66(2) and of what actually happened on this occasion. It is unnecessary to repeat what is quite elementary, that our jurisdiction under that section is purely an advisory jurisdiction. We are not an appellate court of facts, nor is it our function to find facts. We can only interfere with findings of fact if we are satisfied that facts have been found without any evidence or materials. But before we can say so, we must direct the Tribunal to state a case with regard to that question. The question as has now been framed, as we said before, assumes that the business was suspended. That was the finding of fact of the Appellate Assistant Commissioner and if the assessee can satisfy us that on the record that finding has been accepted by the Tribunal, then certainly the question of law would arise on that assumption. But if on the record the finding still remains that the business came to an end, then whatever the legal position may be with regard to the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to treat the discharge of that liability by the assessee as a deductible expenditure. The simple cases that strike one are of premises taken on long lease or of the services of a person employed on a fairly long tenure; and while the lease of the premises is subsisting or the contract with the employee is subsisting, the fact that business is not carried on in the premises or the services of the employee are no longer required for that business would not justify the assessee in not paying the rent or not paying the remuneration of the employee. This principle is brought out in two cases referred to by Mr. Kolah and they are Commissioners of Inland Revenue v. Falkirk Iron Co. Ltd. [1933] 17 Tax Cas. 625 and Hyett v. Lennard [1940] 23 Tax Cas. 346. In Falkirk Iron Co. Ltd. s case ( supra) the assessee company had a lease of certain premises for a period of ten years and it carried on part of its business there for two years and then that part of the business came to an end. Part of the premises were sublet and the assessee claimed the difference between the rent payable under the lease and the rent received from the sub-tenant. The House of Lords held that the assessee was entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h necessitated payment of salaries even after the business had come to an end and there was no business to which these employees could attend ; in other words, that the position was that the contract of service could not be put an end to in law. There is no evidence at all on this aspect. Reliance has merely been placed by the assessee on the fact that it did make payments either to its employees or to their dependants and in respect of rent. But mere payments made in respect of a non-existent business is not sufficient to justify the assessee in claiming them as permissible deductions. It has got to go further and establish, according to the principle laid down in the above two English cases, that the liability was initially incurred in respect of rent and salaries for the purpose of the business and that liability could not be put an end to when the business came to an end. As no such fact has been established by the assessee, in our opinion, the Tribunal was right in the conclusion it came to with regard to these expenses. The result is that we will answer the first question in the negative. As stated in the judgment, the assessee is entitled to claim the loss of Rs. 1,82,500. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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