TMI Blog1977 (11) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... hallenged nor could it be challenged in the High Court on any legal grounds, such as, that the findings were vitiated as being perverse, wholly unreasonable or unsupported by any evidence. No reference to challenge the correctness of the facts was either asked for or made. The High Court has, therefore, rightly proceeded to answer the question on the facts found by the Tribunal. The assessee is a registered firm carrying on business in gold, silver and gunnies at Rajahmundry. It also derives income from investment in Government securities. The assessment year in question is 1964-65. The corresponding accounting year ended on October 16, 1963. The assessee had sold some Government securities and bonds in the years both preceding and succeeding the accounting year concerned in the present appeal. Income-tax was levied on such income also. For the assessment year 1964-65, it returned, a loss of Rs. 5,008 from the business. The said figure was arrived at after claiming, a loss of Rs. 30,000 on account of theft committed by some stranger during the corresponding accounting period. A sum of Rs. 50,000 for the purpose of purchasing Government securities was brought in cash to Rajahmund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was required to pay tax in respect of the profits or gains of any business carried on by him. The corresponding provision in the 1961 Act is to be found in section 28. Sub-section (2) of section 10 of the 1922 Act prescribed the method for computation of profits or gains after making the allowances enumerated in the various clauses of that sub-section. The corresponding section 29 of the 1961 Act says : "The income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43A." In terms no specific provision is to be found in either of the two Acts for allowing deduction of a trading loss of the kind we are concerned with in this case. But it has been uniformly laid down that a trading loss not being a capital loss has got to be taken into account while arriving at the true figures of the assessee's income in the commercial sense. The list of permissible deductions in either of the Acts is not exhaustive. We may just refer to section 10(2)(xv) of the 1922 Act corresponding to section 37 of the 1961 Act. The relevant words of the said provision, namely, "any expenditure ... not being in the nature of capital expenditure or person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 ........" The learned judge emphasised at page 16 : "......that the loss for which a deduction 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." An example of theft committed by a thief by breaking overnight the premises of the money-lender and running with the funds was given to show in Daga's case [1958] 34 ITR 10 (SC) that it would not be an allowable loss. But the example was not considered to be quite apposite in the case of Nainital Bank [1965] 55 ITR 707 (SG) for taking the opposite view. The majority opinion of a Special Bench of the Madras High Court in S. P. S. Ramaswami Chettiar v. Commissioner of Income-tax [1930] ILR 53 Mad 904 : AIR 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the corresponding provision used the term "expenditure" and not losses. But the principle decided by the Full Court of the High Court of Australia (the highest court in the land) is aptly applicable in India. The argument for the Commissioner that before the money was stolen it had come home to the taxpayer so as to form part of the capital resources was rejected at page 351 on the ground : "........ We are here dealing with a loss incurred in an operation of business concerned with the regular inflow of revenue, not with a loss of or concerning part of the 'profit yielding subject', the phrase in which Lord Blackburn in United Collieries Ltd. v. Inland Revenue Commissioners [1929] 12 TC 1248 at page 1254 (C Sess) summarised the characteristics of a business undertaking or enterprise considered as an affair of a capital nature." The language of the New Zealand statute was more or less the same except that it contained the adverb "exclusively". Haslam J., therefore, stated at page 470 of [1961] New Zealand Law Reports : "While our section contains the adverb 'exclusively', which is absent from its Australian counterpart, I do not think that on the instant facts this differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y this court by the Andhra Pradesh High Court in two earlier decisions followed in the decision under appeal also. They are : Commissioner of Income-tax v. Chakka Narayana [1961] 43 ITR 249 (AP) and Maduri Rajeswar v. Commissioner of Income-tax [1964] 51 ITR 213 (AP). In Chakka Narayana's case [1961] 43 ITR 249 (AP) the assessee, who was a dealer in cloth and Government securities, encashed Government securities worth about Rs. 20,000. He went to the Madras railway station for taking the cash to his place of business but lost the money on account of theft committed. The High Court referred to Badridas Daga's case [1958] 34 ITR 10 (SC), but yet distinguished it and preferred to follow the majority decision of the Full Bench of the Madras High Court in Ramaswami Chettiar's case AIR 1930 Mad 808 [FB], which, as we have already pointed out, was not approved by this court in Nainital Bank's case [1965] 55 ITR 707 (SC). The High Court enunciated the law correctly, but committed in error in applying the same to the facts of that case when it said--See [1961] 43 ITR 249, 251 (AP) : "It could not be posited that it was absolutely necessary for the assessee to cash the cheque issued and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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