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TMI Blog1972 (4) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... n showing a taxable profit of Rs. 54,152 after deducting amongst others a sum of Rs. 10,500 which was cash stolen from the business premises. The assessee stated, which statement has not been doubted, that the said sum of Rs. 10,500 represented the cash balance of the day and that the said amount was lost by reason of theft. The Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal disallowed the claim to deduct the said loss on the ground that it was a capital loss. According to the Tribunal the loss did not arise out of carrying on of the business and it was not incidental to it. The Tribunal observed : " . . . There is no specific provision under the law for allowing such like claims. The question about the admissibility of the claim depends on the factor whether having regard to the accepted commercial practice and trading principles it can be said that the loss arose to the assessee out of the carrying on of the business and is incidental to it. The loss for which a deduction is claimed 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 wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. Now the argument on behalf of the petitioner-assessee is that the amount lost represented the sale value of its stock-in-trade and if such amount was lost by theft or other reasons it would in effect be a loss of stock-in-trade and consequently a business loss. The argument on behalf of the department, however, is that once the stock-in-trade is sold and converted into cash, the loss of such cash by theft could not be deducted in computing business profits unless it was established that the loss was incidental to the business. I think it cannot be denied that if stock-in-trade is lost by whatsoever reason, the loss would be admissible as a deduction (Pohoomal Bros. v. Commissioner of Income-tax)), but where the stock-in-trade has been sold and the sale proceeds is lost by theft, possibly it would be difficult to admit that loss of the sale proceeds in the shape of cash was the same thing as loss of the stock-in-trade. The character of the loss no more remains the loss of the stock-in-trade but becomes a loss of the sale proceeds of such stock. If, therefore, the cash is lost the admissibility of such loss as a deduction in computing the business profits would depend on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature of the risk involved in carrying them out." Reverting to the facts found in this case, the three facts enumerated above do not give any indication as to whether the cash which was lost was kept at the business premises for carrying out operation of the business. Those facts merely indicate that sale proceeds of the business which might or might not be required for carrying out the operation of the business was kept at the business premises and while so kept was lost by theft. May be that the said cash was required for carrying out the operation of the business or may be that it was not. In the absence, therefore, of the vital fact as to whether the cash stolen was required for carrying out the operation of the business it is not possible to express any opinion on question No. 1. I, therefore, felt inclined to call for a supplementary statement of the case, but possibly I cannot do so because this will require asking the Tribunal to make a supplementary statement on fresh facts after taking additional evidence. Such a course is not open to the -High Courts even in terms of section 258 of the Income-tax Act, 1961 : vide Commissioner of Income-tax v. Indian Molasses Co. (P.) Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res in the manner as observed above in the said order under section 185 of the Act, namely, that he included the share income of Arjun Lall Agarwal and Ratan Lall Agarwal in the hands of Kewal Ram Agarwal and the share income of Rambilash Agarwal in the hands of Gopi Ram Agarwal. Such action of the Income-tax Officer was confirmed both by the Appellate Assistant Commissioner as also by the Tribunal. The Tribunal observed that "........ the transferees were mere benamidars and the funds still belonged to the Hindu undivided families headed by Kewal Ram and Gopi Ram......." Mr. Tarkeshwar Prasad appearing for the assessee-petitioner, submitted that having accorded registration to the firm, as constituted under the instrument of partnership dated November 11, 1960, the allocation of the income of, the firm between the partners must necessarily be in accordance with the shares of the partners who constituted the firm. As to whether any of the partners constituting the firm held beneficial interest in the shares of another partner, was a question which was not germane as far as the assessment and the allocation of the income of the firm was concerned. It was, therefore, urged that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indu family or some other person or persons, the partner occupies a dual position; qua the partnership, he functions in his personal capacity; qua the third party, in his representative capacity. The share of the partner depends on the terms of the partnership deed and the share of the persons whom that partner might be representing depends on a separate contract altogether. Therefore, while computing the income of the firm and allocating such income in the hands of the partners thereof, the share which has to be allocated to the partners in the firm's assessment must be in accordance with the terms of the partnership, if the partnership has been registered as a genuine and valid partnership. The assessment of the income of a registered firm must not be confused with the assessment of income of the individual partners thereof. The share of an income of individual partner may be held by him for the benefit of another person, but qua the firm, it is irrelevant. While assessing the firm and allocating its income amongst its partners the only relevant fact is who are the partners qua the firm. The same view has been expressed earlier in the cases of Varjivandas Hirji & Co. v. Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant portion of which has already been quoted in the judgment of my learned brother, is not an order allowing the registration of the firm, but an order refusing the registration of the partnership as evidenced by the deed dated 11 th of November, 1960. It is not possible to accept his contention. Under section 185 of the Act, it is not open to the Income-tax Officer to pass a conditional order. If he is satisfied as to the existence of a genuine firm during the previous year, he must register the firm. If he is not so satisfied ,he should refuse to register the firm. It has been held by the Supreme Court in Agarwal and Co. v. Commissioner of Income-tax that for the purposes of finding out who are the partners of a firm, one has only to look to the partnership deed and not to go behind it. The order dated 30th of November, 1962, cannot but be read as an order registering the firm as evidenced by the deed of partnership dated 11 th of November, 1960. With reference to question No. 1, it was submitted by learned counsel for the assessee that, in view of the decisions in Badridas Daga v. Commissioner of Income-tax , Commissioner of Income-tax v. Nainital Bank Ltd. and Basantlal Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows: " That passage in terms refers to a money-lender and does not deal with a public company carrying on banking business. In the case of a money-lender the profits he made may form part of the private funds kept in his house which he may or may not invest in his business. It is indistinguishable from his other moneys. But, in the case of a bank the deposits received by it form part of its circulating capital and at the time of the theft formed part of its stock-in-trade. In one case it cannot be posited that the amount robbed is part of the stock-in-trade of the trader till he invests it in his business; in the other it forms part of the stock-in-trade without depending on the intention of the banking company. There lies the distinction between the instant case and the illustration visualized by this court. We have only suggested a distinction, but we are not expressing any definite opinion on the question whether the loss incurred in the case illustrated is or is not a trading loss. The correctness or otherwise of the said observation may fall to be considered when such a case directly arises for decision." The decision of the Supreme Court in Nainital Bank Ltd.'s case , there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asad's case, therefore, is not applicable to the facts of the case before us. Reliance was also placed on the decision in Pohoomal Bros. v. Commissioner of Income-tax, in support of the proposition that stock-in-trade, if lost, is an admissible deduction, In my opinion, that decision is not an authority for the proposition that sale proceeds of the stock-in-trade in the hands of the assessee continued to be values of the stock-in-trade and, therefore, are admissible deductions. Ordinarily, sale proceeds include some profit and the profit part of it cannot be said to be the equivalent of stock in-trade. In the decision of the Supreme Court of New Zealand in Gold Band Services Ltd. v. Commissioners of, Inland Revenue (N.Z.) , substantial sum of money was stolen as a result of an armed hold-up by robbers from a petrol service station of the assessee. The petrol service station was kept open continuously day and night. The loss, therefore, was during working hours. The decision is distinguishable. It is not for this court on a reference under section 256(1) of the Act to give its own finding of fact and in the instant case, my learned brother, S. P. Sinha J., has rightly declined to a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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