TMI Blog1962 (1) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... see during the account year at the Calcutta branch amounted to ₹ 58,246. 4. One Prabhu Dayal, an employee of the assessee's Calcutta branch, had been sent on November 3, 1955, with a sum of ₹ 9,300 in cash to the Punjab National Bank Ltd., Bara Bazar Branch, Calcutta, for depositing the same in the bank account of the assessee firm. On the bank premises, the bundle containing the said money was snatched away by a thief and a report thereof was duly lodged with the police authorities. But the culprit could not be traced and the amount was written off in the assessee's books of account as having been stolen. In the income-tax return for the year, submitted before the Income-tax Officer, the assessee claimed the amount as a trade loss. The Income- tax Officer disallowed the claim on the ground that the assessee had failed to substantiate that the amount was laid out for a business purpose. A copy of the order passed by the Income-tax Officer is made part of the case and is annexure A . 5. It was contended before the Appellate Assistant Commissioner who heard the first appeal that the loss was a trading loss incidental to the assessee's business. It was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat case, observed as follows: 'When money is stolen, the person from whom such money is stolen is parting with the money unwillingly or unknowingly and he cannot be said to lose the money for the purpose of earning such profits or gains.' The claim in that case was, however, a claim for deduction under section 10(2) Of the Income-tax Act and not as a loss under section 10(1), but the underlying principle in considering whether it was necessary for the purpose of carrying on the business or was incidental to the business is the same. We are, therefore, unable to accept the contention of the assessee. The disallowance of the claim is accordingly confirmed. Copy of the order of the Tribunal is made a part of the case and is annexure C . 7. It is on these facts that we refer the following question of law for the opinion of their Lordships of the Punjab High Court: Whether, on the facts and in the circumstances of the case, the loss of ₹ 9,300 arose in the ordinary course of, and incidental to, the assessee's business and was, as such, a trading loss under section 10(1) of the Income-tax Act allowable in computing the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee had lost the cash which was not the stock-in-trade and, therefore, was not a revenue loss suffered. He did not disagree with the Income-tax Officer that the loss was not accidental and in the ordinary course of the business affairs, but even if it was so the Appellate Assistant Commissioner did not consider it to be a revenue loss and expressed the view that it partook of the nature of capital loss in the hands of the assessee. On these grounds he agreed with the Income-tax Officer that the assessee could not be allowed to set off this loss. The Appellate Tribunal did not accept the assessee's contention that the loss suffered arose in the course of the assessee's business or was incidental thereto. The provisions of section 10(1) could not be attracted. The case of Lord's Dairy farm Ltd. v. Commissioner of Income-tax [1955] 27 I.T.R. 700, which was cited on behalf of the assessee, was held inapplicable and the Tribunal thought that the principle set down in Mulchand Hiralal v. Commissioner of Income-tax [1938] 6 I.T.R. 151 was fully applicable. Reliance was placed upon the observations of Courtney-Terrell C.J., who said: When money is stolen, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r employee in the accounting year in question. The dispute before the income-tax authorities was whether the amount embezzled was an admissible deduction. It was held, on the facts of that case, that the loss which had been sustained by the assessee as a result of misappropriation by its employee was incidental to the carrying on of its business and it should, therefore, be deducted in computing the profits under section 10(1) of the Act. It was held that the employment of agents was incidental to the carrying on of business and losses which were incidental to such employment were also incidental to the carrying on of the business. The Supreme Court them observed: At the same time, it should be emphasized that the loss for which a deduction a could be made under section 10(1) 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, for example, a thief were to break overnight in to the premises of a money-lender and run away with funds secured therein, that must result in the depletion of the resources available to him for lending a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax v. Chukka Narayana was cited at the Bar. In that case an assessee who was a dealer in cloth and Government securities encashed them for ₹ 20,790, but lost the cash by theft at a railway station. It was held that the loss was not incidental to the assessee's business and, therefore, was not an allowable deduction and that it was only when it could be pointed out that it was part of the assessee's business to take cash with him that it could be said that the loss was incidental to the business. It was observed: In our opinion, every loss sustained by an assessee having some connection with his business would not amount to a loss incidental to his business. It must be directly connecting the business or it must arise out of the business. The mere fact that there is some remote connection between to loss and the business would not bring the loss within the expression 'loss incidental to the business'. It should spring directly from the carrying on of the business and be incidental to it. The loss should be inseparable from the business. Applying the above test to the facts of that case, it was held that the loss was not incidental t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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