TMI Blog1978 (3) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... ransport business, returned for the assessment year 1965-1966, an income of Rs. 71,934, claiming certain deductions inclusive of a loss of Rs. 3,127 which was stated to have been incurred in the purchase and sale of certain Government bonds during the relevant accounting year. The taxing officer disallowed this sum of Rs. 3,127 in computing the net income at Rs. 80,310 after allowing some deductions. In the assessee's appeal before the AAC, it was contended that the assessee had to subscribe to Government loans at the instance of the road transport authorities as otherwise permits would not have been granted to ply the buses and that the taxing officer should have allowed deduction of the loss of Rs. 3,127 incurred by the assessee by the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o discharge the obligation in accordance with the accepted commercial practice in this line of business and that the assessee was entitled to the deduction claimed, and allowed the appeal. Since the matter revolves on s. 37(1) of the I.T. Act, 1961, we shall extract it: " Any expenditure (not being expenditure of the nature described in sections 30 to 36 and section 80V and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'." The scope of the expression " for the purpose of the business" was consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its business large amounts were kept in various safes in the premises. There was a dacoity in the branch at about 7.00 P.M. on June 11, 1951, and the dacoits carried away cash amounting to Rs. 1,06,000. Their Lordships of the Supreme Court held that the loss incurred by dacoity was incidental to the carrying on of the business of banking and was deductible as a trading loss in computing the income of the company from the banking business and they have observed that the degree of the risk or its frequency is not of much relevance but its nexus to the nature of the business is material. In Venkatachalapathy Iyer v. CIT [1951] 20 ITR 363 (Mad), which came up before a Division Bench of this court, the assessee, a firm carrying on business a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m in satisfaction of his personal debts. The assessee cancelled the power-of-attorney granted to him when they came to know of the true state of affairs and filed a suit against him and could recover only a sum of Rs. 28,000 from him. The assessee wrote off the balance and subsequently claimed deduction for the amount in computing the income for the purpose of income-tax. It has been held that misappropriation of funds by the agent was incidental to the carrying on of the business and that the difference was deductible, in computing profits, under s. 10(1) of the Act of 1922. In Addl. CIT v. Badrinarayan Shrinarayan Akodiya [1975] 101 ITR 817 (MP) decided by a Division Bench of the Madhya Pradesh High Court, the assessee had paid two sums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that any failure to comply with the request might involve the displeasure of the authorities. The nature of the business of the assessee is such that it might have to keep the road transport authorities in good humour and the assessee might have bona fide felt that it was necessary in order to carry on the business that it shall not displease the authorities. " We have no doubt on the facts and circumstances of this case that the expenditure was incurred by the assessee in the course of its carrying on the business as a transport operator and it was wholly and exclusively laid out for the purpose of the same. But the learned judges, however, reframed the question as follows : " Whether, on the facts and in the circumstances of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee was obliged to sell the bonds before they became ripe for payment only to stop incurring further loss as the money with which the subscription for the Government bonds had been made had been borrowed by the assessee from a bank at 10% interest while the bond carried interest only at 4 1/2%. The Tribunal has further found that the loss was incurred while trying to discharge the obligations in accordance with the accepted commercial practice in the line of business. In those circumstances, we find that the Tribunal was right in law in holding that the loss in the purchase and sale of the Government bonds was allowable as a loss incidental to the carrying on of the assessee's business. We, accordingly, answer the question in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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