TMI Blog1960 (8) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... emporary absence of Inderchand Galada from Madras in March, 1948. Whether any one else was left in charge of the business during the absence of Inderchand Galada is not clear. But that Ranka was all along in charge of the cash was clear. During the absence of Inderchand Galada, Ranka misappropriated a sum of ₹ 13,330 which he appears to have lost on best on horse races. when the shortage of cash was discovered and reported to him, Inderchand Galada returned to Madras. Ranka confessed in writing to the defalcation and prayed for forgiveness (see annexure A, A-1 and A-2). He was not prosecuted. On April 7, 1948, Inderchand Galada obtained from Ranka a promissory note for ₹ 13,125, after adjusting ₹ 205, which was due to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cept the mere oral statement that there was embezzlement in this case. That it was for money misappropriated by Ranka that he executed the promissory note was never in issue before the Department. The Tribunal however recorded: It looks as if the money was advanced to the employee and later written off since the employee could not repay the sum. We do not want to say more or speculated about it. In case it is a loan to the employee, it is clear that it was not for business purpose and therefore it cannot be termed as bad debt. The basic fact being unproved it is not necessary for us to consider whether it could be allowed under any of the provisions of the Act. If the Tribunal was of the view, that the promissory note was for mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary to embark afresh on a review of the case law on the subject, under what circumstances can an amount embezzled by an employee left in charge of his employer's funds be accepted as a trading loss in computing the profits of that employer under section 10(1) of the Act. The case law was elaborately reviewed by the Supreme Court in Badridas Daga v. Commissioner of Income-tax [1958] 34 I.T.R. 10, wherein the scope of the principle laid down by Rowlatt J., in Curtis v. J. and G Oldfield Ltd. [1925] 9 Tax Cas. 319 was also explained. At page 20 of the report, their Lordships of the Supreme Court pointed out: It would, therefore, be an error to suppose that the observations made by Rowlatt, J., ....could be regarded as an authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from embezzlement by an employee In a business is admissible as a deduction under section 10(1) what has to be considered is whether it arises out of the carrying on of the business and is incidental to it.....A business especially such as is calculated to yield taxable profits has to be carried on through agents, cashiers, clerks and peons. Salary and remuneration paid to them are admissible under section 10(2)(xv) as expenses incurred for the purpose of the business. If employment of agents is incidental to the carrying on of business, it must logically follow that losses which are incidental to such employment are also incidental to the carrying on of the business. Human nature being what it is, it is impossible to rule out the possibil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employment of the employee in the normal course of that business and was it a normal incident of the conduct of that business? Was the entrustment of the funds of the employer to that employee in the normal course of the conduct of that business? Was the loss caused to the employer by the embezzlement by the employee incidental to that entrustment? These question have to be answered from the view point of a prudent man of business. If these tests are satisfied then the loss would be a trading loss. The assessee in this case carried on a money-lending business. The employment of a cashier was obviously a normal incident of that business. So was the entrustment of the cash of the business to that cashier. That Inderchand Galada was in char ..... X X X X Extracts X X X X X X X X Extracts X X X X
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