Back
1966 Supreme(Pat) 83
PATNA HIGH COURT
H.Mahapatra and A.B.N.Sinha JJ.
Basantlal Sanwar Prasad
Versus
Commissioner Of Income Tax
Miscellaneous Judicial Case No. 1767 of 1964 ;
Decided On : JULY 21, 1966
A loss incurred in carrying out the operation of a business and incidental to the operation is deductible under Sec.10 (1) of the Income Tax Act.
Headnote:
INCOME TAX - Deduction - Loss by theft - Whether allowable as a business expense - Held, yes.
Fact of the Case:
The assessee, a registered firm dealing in wholesale cloth business, claimed a deduction of Rs. 11,407 lost by theft from its shop premises as a business expense. The Income Tax Officer disallowed the deduction, but the Appellate Assistant Commissioner allowed it, holding that the loss was incidental to the business. The Appellate Tribunal, however, set aside the order of the Appellate Assistant Commissioner and upheld the action of the Income Tax Officer.
Finding of the Court:
The High Court held that the loss sustained by theft in respect of the amount stolen was incidental to the business and the assessee was entitled to deduct that from its gross receipt.
Issues: Whether the Tribunal was justified in disallowing the assessee's claim for deduction of Rs. 11,407 lost by theft as capital loss?
Ratio Decidendi: The High Court held that the principle laid down in Badridas Daga v. Commissioner of Income-tax, (1958) 34 ITR 10 (AIR 1958 SC 783), was applicable to the facts of the present case. The Court held that the loss of cash caused by theft in the assessee's shop in the night of the 10th January, 1961, was incidental to the business of that firm, and in that view, is allowable as a legitimate deduction under Sec.10 (1) of the Act.
Final Decision: The High Court answered the question in the negative, holding that the Tribunal was not justified in disallowing the assessee's claim for deduction of Rs. 11,407 on account of loss by theft as capital loss.
Mahapatra, J.
1. This is a reference under Sec. 66 (1) of the Indian Income Tax Act in regard to the assessment of Income Tax for the assessment year 1961-62. The assessee is a registered firm having wholesale business in cloth. On the 10th of January, 1961, a burglary took place in the shop premises where cash was kept in the iron safe. A sum of Rs. 11,407 was found to have been stolen away from that. The assessee claimed that as a business expense, meaning thereby that the loss of the money was incidental to their business. The Income Tax Officer did not accept that and did not allow the deduction. The Appellate Assistant Commissioner, however, took the view that the loss having been caused in connection with the carrying of the business, and being incidental to the business of the assessee was allowable for the purpose of determining the net profit of the assessee out of the business. Against that, the Department came in appeal before the Income Tax Appellate Tribunal, who set aside the order in that respect of the Appellate Assistant Commissioner, and upheld the action of the Income Tax Officer. The assessee thereafter asked for a reference and the Appellate Tribunal has sent the statement of case to this Court. The question formulated is:
"Whether in the facts and circumstances of the case, the Tribunal was justified in disallowing the assessees claim for deduction of Rs. 11,407 lost by theft as capital loss?"
2. The facts and the circumstances of the case appear from the order of the Appellate Assistant Commissioner which is a part of the statement of the case He observed that it was necessary for the assessee to keep sufficient amount of cash in the shop premises during the night, so that the transactions of the next day may be started without any inconvenience There was a theft in the shop in the night. It was true that the theft occurred at a time when no business transaction was being carried on, but the loss due to theft must necessarily be considered to have been directly arisen from the carrying of the business and incidental to it, because it was necessary to keep the money there for the purpose of carrying on the business. The appellate Tribunal also referred to this part of the order of the Appellate Assistant Commissioner in their order which is annexure C to the statement of case. They observed:
"As the Appellate Assistant Commissioner was of the opinion that the deduction claimed in this case sprang directly from the carrying on the business and was incidental to it, he held that the loss should be allowed".
At another place they also observed;
"On appeal the Appellate Assistant Commissioner held that when the days work was finished and the cash in hand was ascertained and the shop was closed for the day, the cash had to he left in the shop room as it was necessary to keep sufficient amount of cash during the nielli so that transaction of the next day may he started without any inconvenience. If there was a theft in the shop at night even alter business hours, the loss due to theft must necessarily be considered to have directly arisen from the carrying on the business and incidental to it. "
3. This finding by the Appellate Assistant Commissioner, in relation to the justifiability or otherwise of the deduction claimed by the assesses, was not questioned before the Appellate Tribunal, I am rather inclined to say that the Appellate Tribunal proceeded on those facts and circumstances. But they preferred to apply the law in a different manner from what the appellate Assistant Commissioner did. I shall refer to that a little after Learned counsel appearing for the revenue contended that the observations of the Appellate Assistant Commissioner, which I have quoted above, were in a general way and did not relate to the facts and the circumstances of the case According to him the Appellate Assistant Commissioner only propounded a principle and in that context made those observations. To me, however, it appe
