TMI Blog1998 (4) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... is stated to have not been deposited in her account. Subsequent to deposit of the cheques in the account of Smt. Soona N. Chenoy, Sri Rustomji obtained her signature on blank cheques and withdrew money which was not turned over either to Smt. Soona N. Chenoy or Smt. G. Y. Chenoy. Thus, he misappropriated huge sums. Sri Rustomji had a general power of attorney executed by Smt. Soona N. Chenoy to look after her properties of which she is the trustee. Since the assessee received consideration for the sale of the property less than the amount embezzled by Sri Rustomji, she claimed that for the purpose of computation of capital gain the consideration which was received by her is relevant and not the full amount of consideration under the sale deed. She offered for assessment the capital gains which she actually received excluding the amount embezzled by Sri Rustomji. The Income-tax Officer rejected the claim of the assessee and held that for the purpose of computing the capital gains tax the entire amount of Rs. 5 lakhs under the sale deed should be taken into account and not the consideration which she has actually received after excluding the amount embezzled by Sri Rustomji. On appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the ordinary principle of commercial practice for the purpose of business is to be followed, we have to see whether the misappropriation made by the power of attorney holder or the agent of the assessee is to be excluded for the purpose of computing the net capital gain. In this context, it is necessary to refer to section 48 of the Act which reads as follows : "48. The income chargeable under the head 'Capital gains' shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :--- (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the capital asset and the cost of any improvement thereto." It is not the case of the assessee that it is an expenditure incurred wholly and exclusively in connection with such transfer. Therefore, clause (i) of section 48 has no application. The main argument of learned counsel for the assessee is that the capital gains shall be computed on the value of the consideration received since the assessee has received less than the amount misappropriated and it is only that am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 10(1) or not. The legal position was summarised stating that 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. It was further held by the Supreme Court that it is an integral part of the process of banking that sufficient moneys should be kept in the bank duly guarded to meet the demands of the constituents. The retention of the money in the bank is a part of the operation of banking. The retention of the money in the bank premises carries with it the ordinary risk of its being subject to embezzlement, theft, dacoity or destruction by fire and such other things. Such risk of loss is incidental to the carrying on of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is some connection with his business. In other words, the learned judges distinguished a loss sustained by the assessee as an owner of the property from the loss sustained by carrying on business and such loss having connection with the business and incidental to the carrying on of the business. Bansidhar Onkarmal v. CIT [1948] 17 ITR 247 (Orissa), is a case where the assessee carried on the business of selling yarn, speculating on cotton and money-lending. He claimed deduction of a certain sum which was stolen from an iron safe inside his shop by one of his relations who was also working as the accountant of his firm. The theft took place after the shop was closed at about 8.00 p.m. It was held that the sum was not allowable either as a trading loss or as expenditure laid out or expended wholly and exclusively for the purposes of the business within the meaning of section 10(2)(xv) of the Indian Income-tax Act. Justice Narasimham observed that the position might have been quite different if the theft had occurred during office hours, prior to the crediting of the sum to the account of the employer. In other words, a distinction is drawn between the loss which took place in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
