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TMI Blog1965 (3) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the assessment for the year 1954-55, and there the matter ended. In the assessment for the assessment year 1955-56, the assessee again put forward this claim. It was stated that the cashier and the accountant employed by the assessee had embezzled these amounts. Two letters signed by these persons were produced before the income-tax authorities in which each acknowledged his extent of his guilt in the matter. The assessee-firm also appointed an auditor to investigate into the matter and to ascertain how and in what manner the embezzlement had been effected. According to the auditors, up to April 11, 1954, a total sum of Rs. 40,744 had been so embezzled. The Income-tax Officer rejected the claim, taking the view that the loss did not occur in the course of the business, and that, further, as the assessee had taken promissory notes from the employees responsible for the embezzlement, but had taken no action to recover the moneys on the promissory notes, no allowance could be granted. Successive appeals to the Appellate Assistant Commissioner and the Tribunal failed. When the matter came to this court under section 66(2) of the Income-tax Act, this court directed the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collected at all, or something of that sort, that may be expense connected with and arising out of the trade in the most complete sense of the word. But, if the contributory cause was the management's own negligence, it would be like giving free access to the thief and handing over the money to him. " It appears to be the view of the Tribunal that unless the management is vigilant and is shown to have displayed such vigilance right through, the loss which in its view arose from the contributory negligence of the employer through lack of vigilance was not a loss in the ordinary course of business. In another part of its appellate order, the Tribunal observed : " We are aware that in all cases of embezzlement, there is bound to be an element of negligence on the part of the proprietors; but in this case, the negligence would appear to be an indulgence shown to the employee. Since 1948, the cash balance was not counted at all at any time though on days it was very substantial. Not even ordinary care appears to have been bestowed upon the maintenance of the account which also, in our opinion, is an important part of carrying on a business. We are, therefore, unable to hold that the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it and had to write off the balance as irrecoverable. Their Lordships pointed out that the principle that, when once the moneys had reached the till, their subsequent withdrawal was de hors the business was inapplicable to, a business such as banking or money-lending. That being so, the continuous operation on the bank account by the agent was incidental to the course of the business. In those circumstances, his withdrawal of the moneys was referable to his character as agent and the loss resulting from the misappropriation was necessarily incidental to the carrying on of the business. In the present case also, it is not in dispute that though the business is not one of money-lending or banking, it had necessarily to entrust cash and amounts (sic) to the employees for the purpose of day-to-day transactions, and for the purpose of carrying on another part of its business as share dealers and stock-brokers, it had to entrust the necessary share transfer stamps to the employees. If the employees embezzled amounts from either of these heads of account, it would certainly seem to follow that the loss was occasioned in the course of the business and was undoubtedly incidental to the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lost to the assessee and there is no real chance of recovering them. Though the actual decision in that case went against the assessee, the principles above are worth noting. In another case, Manavala Naidu v. Commissioner of Income-tax/Excess Profits Tax, a Bench of this court laid down that what is material is the time of discovery of the loss and it is only with reference to that year that the assessee could claim the loss. In another decision of the Bombay High Court, Lord's Dairy Farm Limited v. Commissioner of Income-tax, the principle relevant to cases of this kind has been stated thus : "If it is necessary for the assessee to appoint employees and delegate to them certain duties and if loss springs directly from the necessity of doing so, then the loss would be a trading loss, and the assessee would be entitled to claim that amount as a proper deduction. If a loss by embezzlement can be said to be necessarily incurred in carrying on the trade it is allowable as a deduction from profits." They further observe that only when it is clear that the money cannot be recovered that the loss is caused. It seems to us to be unnecessary to labour the point any further. We have alre ..... 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