Loss by dacoity is an admissible deduction under Section 10(1) of the Indian Income-tax Act, 1922, in computing the assessee's income in a banking business.

Judgment

SUBBA RAO, J.: This appeal of certificate raises the question whether loss of cash by dacoity is an admissible deduction under Section 10(1) of the Indian Income-tax Act, 1922, hereinafter called the Act, in computing the assessee s income in a banking business.

2. The facts relevant to the question raised may be briefly stated. The assessee is the Nainital Bank Limited. It is a public limited company which carrier on the business of banking. It has various branches and one of them is situated at Ramnagar. In the usual course of its business large amounts were kept in various safes in the premises of the Bank. On June 11, 1951, at about 7 p.m. there was a dacoity in the Bank and the dacoits carried away the cash amounting to Rs. 1,06,000 / - and some ornaments etc. pledged with the Bank. For the assessment year 1952-53 the Bank claimed the said amount as a deduction in computing its income from the banking business on the ground that it was a trading loss. The Incometax Officer disallowed the claim on the ground that it was not a loss incidental to the banking business. On appeal, the Appellate Assistant Commissioner, of Income-tax, and on further appeal, the Income-tax Appellate Tribunal, confirmed that finding. On a reference to the High Court of Judicature at Allahabad, a Division Bench of that Court held that the loss by dacoity was incidental to the banking business and was, therefore, a trading loss and that the assessee was entitled to a deduction of the same under S. 10(1) of the Act. Hence the appeal.

3. Mr. Rajagopala Sastri, learned counsel for the appellant, argued that the Bank lost the money by burglary not in its capacity as a bank but only just like any other citizen, that the risk of burglary was not incidental to the business of banking and that, therefore, the amount burgled could not be deducted as a trading loss. Mr. A. V. Viswanatha Sastri, on the other hand, contended that the money lost by burglary was the stock in trade of the banking business, that it was kept in the Bank in the usual course of its business and that the risk of its loss was incidental to the carrying on of the said business and, therefore, the amount lost was a trading loss liable to be deducted under S. 10 (1) of the Act.

4. Before we consider the law on the subject, it would be convenient at the outset to notice briefly the scope of the activities of banking business. Under S. 5(1) (b) of the Banking Companies Act, 1949, "banking" is defined to mean "the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise"; and under Section 5(1)(c), "banking company" means any company which transacts the business of banking in India; under S. 5(1)(cc), "branch" or "branch office" in relation to a banking company, means any branch or branch office, whether called a pay office or sub-pay office or by any other name, at which deposits are received, cheques cashed or money lent, and for the purposes of section 35 includes any place of business where any other form of business referred to in sub-section (1) of S. 6 is transacted. Therefore, a banking business consists mainly in receiving deposits, making advances, realizing them and making fresh advances. It is a continuous process which requires maintenance of ready cash in the bank premises. The Nainital Bank Ltd., is a public limited company incorporated for carrying on such banking business and Ramnagar branch is noe of its branches doing such business. Unlike an individual, a limited company like a banking company comes into existence for the purpose of carrying on only the banking business and ordinarily there cannot be any scope for attributing different characters to that business. We, therefore, start with the fact that the Ramnagar branch of the Bank had kept large amounts in the Bank premises in the usual course of its business in order to meet the demands of its