TMI Blog1930 (5) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... to be capital plus the profits collected by the assessee. If this money was capital, then the assessee would not be entitled to a deduction on account of its loss. So far as the money stolen was the profit of the assessee, unless it can be shown that its loss was incidental to the business he carried on, he cannot claim a deduction in respect of it. If anyone is paid a sum due to him as profits and he puts that in his pocket and on his way home is robbed of it, it would be, I think, difficult to contend that such a loss was incidental to his business. Still more so when he has reached his home and put these profits in a strong-room or some other place regarded by him to be a place of safety. 2. I can well understand that in cases where the collection of profits or payment of debts due by, is entrusted to a gumastah or servant for collection and that person runs away with the money or otherwise improperly deals with it, the assessee should be allowed a deduction because such a loss as that would be incidental to his business. He has to employ servants for the purpose of collecting sums of money due to him and there is the risk that such servant may prove to be dishonest and inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, in addition, under Section 328, I.P.C., of administering drugs to the inmates of the house to facilitate the commission of the theft. 7. The Commissioner of Income-tax stated that he had since the decision of the Income-tax Officer ascertained that the loss of the cash and the jewels was genuine. He however was of opinion that there was no provision of law under which the assesses would be entitled to deduction claimed in respect of the cash and currency notes, that the loss could neither be said to be a business loss nor expenditure incurred for earning profits; and that the loss in question is loss of capital. The decision in 2 J.T.C. p. 4, was distinguished on the ground that the loss in the present case could not be said to have been incurred in the business at all, and that such a loss could not be said to have been incurred solely for the purpose of earning the profits and gains of the business. He therefore held that the loss due to theft committed by persons unconnected with the business is allowable as a deduction. 8. The learned Counsel who appeared in support of the assessment argued that the allowance now claimed could not be brought under any of the clauses o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 10(2)(9): Any expenditure not being in the nature of capital expenditure incurred solely for the purpose of earning such profits or gains. 13. It was also argued that in the case of money-lending business of Nattukottai Chettis the loss in question must be taken to be loss of stock-in-trade. On the other side it was argued for the Crown that the loss in question could not be said to be an expenditure incurred, much less, solely for the purpose of earning such profits or gains, and that in any event it should be taken to be expenditure in the nature of capital expenditure. It was also argued that the moneys in question could not be said to be stock-in-trade in the ordinary sense of the expression. Having regard to the way in which such people carry on their money-lending business it would seem to be essential for the successful carrying on of their business to have cash with them even after the usual banking hours, They carry on their business operations as is well known even after the offices of the European Banks are closed for business for the day. Keeping moneys with them for purposes of their trade after such office hours, could not, therefore, in m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of dealing with them from day to day in the ordinary course of its business including that of buying and selling Government securities in the usual course, or whether such Government securities were purchased by the firm (bank) with the object of constituting the same as a sort of reserve, in lieu of cash. In the case of the former, allowance should be made for depreciation (the reason being that the Government securities should, in such a case, be treated as stock-in-trade of the bank); but not in the case of the latter. In the case of money-lending business such as the one before us, I think that the reasonable view to take as regards stock-in-trade is the one indicated by me before. 7. The decision in 2 I.T.C. 4, so far as it goes also supports this view. There, some money was entrusted to a gumasta of a firm in the usual course of business with instructions to pay the same to a creditor of the firm. The gumasta embezzled the moneys. He was criminally prosecuted, but was acquitted, his defence being that he was robbed of the money. The case in 2 I.T.C. 4 however was comparatively a plainer case than the one before us, and the Court, if one may say so with respect, very pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensating passengers for accidents in travelling might be deducted. 20. If losses sustained by a railway company in compensating passengers for accidents in travelling over its line could be deducted, it would seem to follow that losses similarly sustained by a railway company in compensating owners and consignees of goods entrusted to them for carriage, but which were during transit, by theft, could also be deducted in proper cases. That would seem to resemble the present case, and the observations by the Lord Chancellor, I think, prima facie support the contention of the assessee before us. 21. No doubt the further observations made by the Lord Chancellor should also be kept in view. It was remarked later on, at p. 452: Many cases might be put near the line, and no degree of ingenuity can frame a formula so precise and comprehensive as to solve at sight all the cases that may arise. 22. The loss must be something in the nature of a commercial loss. Whether a particular loss is of that nature or not would have to be decided with reference to all the circumstances of a case. In 1897 A.C. 1, Lord Shand expressed the opinion that damages awarded to an employee for wrongful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is stated that a deduction is allowed in respect of employee's theft. 26. At p. 196, it is stated that loss from embezzlement is deductible. Similarly at p. 163: a deduction is permitted in practice for fire insurance premiums; 27. At p. 203, there are two passages which are rather important: deduction is allowed in practice for the loss arising from defalcations of employees, also, loss of stock through fire is deductible in so far as it is not recovered by insurance, but loss of building does not form an admissible deduction. 28. I also note that, loss by flood or tempest is allowed in case of assessments under Sch. A. The above statements, so far as they go, would seem to lend support to the assessee's contention in the present case. 29. Each case has to be decided with reference to the facts and circumstances relating thereto and having regard to the nature and methods of trade or business in question. Having regard to the circumstances of the present case, and the findings of fact arrived at by the Income-tax Commissioner, I think that the assessees are entitled to the deduction of ₹ 9,335 claimed by them, and I would answer the question in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of that case, as I read it, the money lost no longer formed part of the stock-in-trade. The test whether the loss was, in the language of the English rule, connected with or arising out of trade was applied in two other English cases: Strong Co. v. Wood field [1906] A.C. 448 and 12 Tax Cases 227. The former related to damages claimed from an innkeeper in respect of injuries caused to a customer by the falling of a chimney; the latter to a penalty incurred by a trading firm for negligently failing to observe certain conditions imposed during war time on the export of goods to neutral countries. 34. The loss was held, in the language of the English rule, to be a loss not connected with or arising out of trade. These cases do not help us further than to show what manner of test should be applied. Now in the present case it may be conceded that a money-lender's business requires that he should keep a considerable sum in cash on his premises. Even if a bank is accessible to him, it would unduly restrict his activities to transact his affairs only within banking hours. The practice is certainly otherwise, and it is only fair to have regard to custom in deciding what the exig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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