A loss by theft may be deductible from the gross profits of a business for the purpose of income tax if it is incidental to the business.

1. In this case the assessee is a private limited Company carrying on business in the manufacture of sugar and, molasses out of Sugarcane. The assessment year is 1951-52 and the Accounting year corresponds to the period from 1-10-1949 to 30-9-1950.

2. The purchase of Sugarcane on behalf of the assessee was governed by the Bihar Sugar Factories Control Act, 1937, (Bihar Act 7 of 1937) and the Bihar Sugar Factories Control Rules 1938. In accordance with those rules the assessee company was required to set up purchasing centres for sugarcane and to locate weigh bridges at the purchasing centres. The assesses company was also required to purchase sugarcane at these centres and payment for the cane to the Sugar cane cultivators was required to be made within a fortnight of the date of weighment. The assessee company was required to exhibit on the notice board at each weighment centre the dates and hours at which payments would be made from time to time.

In compliance with the statutory rules the assessee company announced that payments to the sugarcane cultivators would be made at Dooria which was one of the purchasing centres on Tuesdays and Sundays of each week. On 16-4-1950, the Assessee company deputed one of its employees to go to Dooria and sent a sum of Rs. 35,000.00 in cash through its employees in a jeep car. The amount of Rs. 35,000.00 was robbed on the way, and in spite of police investigation the amount) was not recovered and the miscreants could not be traced. The amount of Rs. 35,000.00 was thus debited by the assessee to the cane expenses account as revenue expenditure.

The Income-tax officer however, held that the money was not stock-in-trade of the assessee and the deduction cannot be allowed. The assessee company took the matter in appeal to the Appellate Assistant Commissioner who considered that the loss of money was a loss incidental to the business of the assessee and the claim ought to be allowed. The Appellate Assistant Commissioner observed that the assessee sent out money to various centres for distribution to the cane-growers as one of usual operations without which the cane could not be purchased and profit could not be earned.

The Income-tax Department preferred an appeal to the Income-tax Appellate Tribunal which held that the loss could not be deducted from the gross profits of the assessee. The Tribunal found that the loss was incidental to the business of the assessee, but the Tribunal held that they were bound by the decision of this Court in -- Mulchand Hiralal V/s. Commr. of Income-tax, B. and O., AIR 1938 Pat. 159 (A). The Tribunal therefore, dismissed the appeal holding that the loss was not deductible from the gross income of the assessee. In these circumstances the Appellate Income-tax Tribunal has submitted the following question of law for the opinion of the High Court. "Whether in the facts and circumstances of this case, the loss of the sum of Rs. 35,000.00 is deductible in computing the total income of the assessee company."

3. On behalf of the assessee Mr. Dutt put forward the argument that the Income-tax Appellate Tribunal was wrong in holding that the decision of this Court in AIR 1938 Pat 159 (A) was applicable to this case. The contention of learned Counsel was that the loss of the assessee on account of the theft was a loss closely connected with the business of the assessee and could properly be deducted, from the gross profits for the purpose of imposing the tax. Learned Counsel also pointed out that the Appellate Tribunal have themselves come to the conclusion that the loss of the money was incidental to the business carried on by the assessee. On the basis of this finding Counsel made submission that the assessee was entitled as a matter of law to deduct the amount of Rs. 35,000/-for computation of the total income for the purpose of income-tax. In our opinion, the argument addressed on behalf of the assessee is well founded and must be accepted as correct. It is clear