TMI Blog1969 (2) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... ss, which was computed after deducting the loss. These facts are not in dispute. The Income-tax Officer declined to allow it as a business loss on the view that the watches did not form part of the assessee's Stock-in-trade and that further the theft did not occur in his business premises or during business hours. The Appellate Assistant Commissioner differed and held that in view of the fact that in the subsequent year the profit made by the assessee out of the sale of the watches was treated as business income, the watches should be regarded as constituting his stock-in-trade. He remarked that the number of watches in the possession of the assessee by purchase was not acquired by him for the pride of possession nor as a collection of curios. In his view, since the loss of the stock-in-trade occurred during the course of the assessee's business, it should be allowed. The Tribunal substantially concurred in that view, though its reason was influenced by Pohoomal Bros. v. Commissioner of Income-tax. The Commissioner of Income-tax has now brought up this reference and the question for our consideration is : " Whether, on the facts and in the circumstances of the case, the Appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired. The profits and gains should be from the business and it should be one carried on by the assessee. It follows from this that, if a loss is claimed as an allowance, it must be connected with or related to the business carried on by the assessee and the profits or gains made thereout. In England, the law seems to have been developed from a statutory provision enabling business loss as a deduction. Strong and Company of Romsey Ltd. v. Woodifield is one of the earliest cases, and the Lord Chancellor, with whom the other law Lords concurred in the result, stated : " I think only such losses can be deducted as are connected with it in the sense that they are really incidental to the trade itself. They cannot be deducted if they are mainly incidental to some other vocation, or fall on the trader in some character other than that of trader." The two requisites therefore are : (1) the loss is incidental to the trade itself, that is to say, there must be a nexus between the loss and the trade which should have been incurred in the course of the trade ; and (2) the loss should have been incurred by one in the character of a trader and the same should fall on him in that character. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of exporting oil to Norway. We do not propose in the present reference to examine Rowlatt J.'s approach that the loss should be one contemplable. We hesitate to accept it without further examination, because, as advised at the moment, there may be a loss which may not be contemplable, but at the same time may well be treated as a business loss eligible for deduction in computing the taxable profits or gains of a business. A reference to cases decided by the High Courts and the Supreme Court in this country does show the general acceptance of the English test we just referred to as correct and workable, that is to say, the loss must be one connected with the trade in the sense that it must be incidental to trade and should have been incurred in the character of a trader who bears the loss. Pohoomal Bros. v. Commissioner of Income-tax related to a claim to deduction of loss resulting from deprivation of stock-in-trade as a result of enemy invasion. In allowing the deduction, Chagla C.J., Who spoke for the Division Bench of the Bombay High Court, gave the following reason: " Therefore, in this case, this particular stock-in-trade, instead of realising a certain cash equivalen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trustment of cash to employees or agents is necessary or unavoidable in carrying on the banking business. Commissioner of Income-tax v. Nainital Bank Ltd. was no doubt a case of dacoity by which moneys belonging to the banking company were lost to it when they were on their transit in the usual course of the business. But the Supreme Court in that case examined the decided cases relating to loss incurred by persons other than banking companies, and summed up the legal position as follows : " We may now summarize the legal position thus. Under section 10(1) of the Act, the trading loss of a business is deductible for computing the profit earned by the business. But every loss is not so deductible unless it is incurred in carrying out the operation of the business and is incidental to the operation. Whether loss is incidental to the operation of a business is a question of fact to be decided on the facts of each case, having regard to the nature of the operations carried on and the nature of the risk involved in carrying them out. The degree of the risk or its frequency is not of much relevance but its nexus to the nature of the business is material. " These are words, general in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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