TMI Blog1965 (7) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... siness may be deducted in computing the profits and gains of that business, even if it does not fall within any of the clauses of sub-section (2). This has been definitely established by the Privy Council in Commissioner of Income-tax v. Chitnavis [1932] 2 Comp. Cas. 464, 470 (P.C.), where a bad debt was held to be an admissible deduction, though there was no special allowance for bad debts in the Act as it then stood. Lord Russell, delivering the judgment of the Board, said: Although the. Act nowhere in terms authorises the deduction of bad debts of a business, such a deduction is necessarily allowable. What are chargeable to income-tax in respect of a business are the profits and gains of a year; and in assessing the amount of the profits and gains of a year account must necessarily be taken of all losses incurred, otherwise you would not arrive at the true profits and gains. Sub-section (1) of section 10 of the Act provides: 10. (1) The tax shall be payable by an assessee under the head 'Profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him. The Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence between the two figures, namely, the value of 59,632 truck loads of sand. The weight of a truck load of sand, we are told, is one and five-eight tons. According to the assessee the writing off of 12,611 was necessitated by the fact that 59,632 truck loads of sand were found to be of very poor mineral content and hence of uneconomic quality for the purpose of processing. This version of the assessee has not been accepted by any of the three authorities concerned, the Income-tax Officer, the Appellate Assistant Commissioner and the Appellate Tribunal. According to the Income-tax Officer and the Appellate Assistant Commissioner, the 59,632 truck loads of sand, though paid for by the assessee, were never delivered at its premises as a result of the fraudulent collusion between its manager, Mr. Growther, its chief engineer, Mr. Declase, and its contractor, Mr. Chellappan Pillai. The, Income-tax Officer said: The loss has evidently occurred through the misconduct or fraud played by the employees of the company. On detection of the deficiency of stock of 59,632 trucks of sand when the inventory was taken on 30th June, 1952, the proper thing for the company is to procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was definite and had arisen in the year of account. And: Since the loss had not become actual and certain in the year of account but was merely a civil liability of the person or persons concerned, it cannot be allowed as a deduction. The Appellate Tribunal proceeded on a different basis, namely, that the 59,632 truck loads of sand were as a matter of fact delivered but was subsequently removed before they were processed. It said: The report of Price Waterhouse and Company (the auditors of the assessee) would appear to indicate the more probable way in which the loss might have occurred. This is what they state in their letter dated 1st July, 1955, addressed to W.J. Parsons, an officer of the assessee-company: 'Apparently from the investigation you made there was no evidence that the delivery records were not genuinely in order and it was quite probable that the quantities recorded were actually delivered but that when the trolleys were supposed to be taking away the worked materials for dumping, they were in fact taking away the unworked sand. They went on to say: 'It is also probable that the quality of some of the sand delivered was abn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 28,000, and wrote off the balance as irrecoverable. The Supreme Court held that the loss sustained by the assessee as a result of the misappropriation of his agent was one which was incidental to the carrying on of the business of the assessee and should, therefore, be deducted in computing the profits under section 10(1) of the Act. In the light of what is stated above we are of the opinion that the deduction claimed in this case is an admissible deduction under section 10(1) of the Indian Income-tax Act, 1922, provided it is not possible to recover the loss from the persons responsible for the same. Both the Income-tax Officer and the Appellate Assistant Commissioner were clearly of the opinion that no steps had been taken by the assessee to recover the amount and that the claim made was hence premature and unsustainable. The Appellate Tribunal has not dealt with the matter. It only stated, as can be seen from the extract given in paragraph 10 above, that any discussion about the necessity for action would appear to be unnecessary. In these circumstances, we can answer the question referred only on a hypothetical basis. If the assessee has made the necessary attempt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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