Kondaiah, J. -
(1.) THIS is a reference by the Income-tax Appellate Tribunal, Hyderabad Bench, under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as " the Act "), for the opinion of this court on the following question:
" Whether, on the facts and in the circumstances of the case, the assessee was entitled to the allowance of the loss of Rs. 30,000 ? "
(2.) IN order to appreciate the scope of the question, it is necessary to refer to the material facts that gave rise to the same. Messrs. Ramchandar Shivnarayan, Rajahmundry (hereinafter referred to as " the assessee"), is a registered firm carrying on business in gold and silver, gunnies, etc. It also derives income from investment in Government securities. For the assessment year 1964-65 relevant to the accounting year ending with October 16, 1963, it returned a loss of Rs. 5,008 from the business. A sum of Rs. 50,000 for the purpose of purchasing Government securities was brought in cash to Rajahmundry, the place of business of the assessee-firm, by its employee and was handed over to its cashier. The aforesaid amount which was in bundles of 100 and 10 rupee notes was kept by the cashier on a desk. While he turned his back to take out a book, some stranger committed theft of Rs. 30,000. No amount was recovered in spite of the police report. The assessee claimed the loss of Rs. 30,000 as a permissible deduction. The INcome-tax Officer rejected the claim of the assessee on the ground that what was lost was not profits or monies sent for a specific trade liability or for purchases, but it was a loss of either idle money or a capital loss. The loss was found to be not incidental to the business of the company. The appeal preferred by the assessee to the INcome-tax Appellate Commissioner was without success. However, on further appeal to the Appellate Tribunal, the claim of the assessee was allowed on the ground that the loss was incidental to the carrying on of the business of the assessee. Hence, this reference at the instance of the Commissioner of INcome-tax.
It was contended by Sri P. Rama Rao, the learned standing counsel for the income-tax department, that the loss claimed by the assessee is of capital nature but not a permissible deduction and the Tribunal has erred in law in holding that the loss was incidental to the business of the assessee. It is also urged that the loss does not spring from the activity of business carried on by the assessee nor is it incidental to, or has any connection with its business activity as the money borrowed from Messrs. Hirama Ramsukh of Hyderabad was intended for the purchase of Government securities but not for money-lending business.
This claim of the revenue is resisted by Sri Anjaneyulu, learned counsel appearing for the assessee, contending, inter alia, that the assessee carried on business in gold, silver, gunnies, Government securities and money-lending, that the assessee required considerable money for the purpose of the carrying on of its business, that the money borrowed by the assessee was for purchasing Government securities which is part of its business and that the money was stolen in the business premises of the assessee during business hours and the amount was entrusted to the cashier of the assessee and hence, the loss of money is incidental to the business of the assessee and, the decision of the Tribunal is correct.
(3.) SECTION 4 of the Act is the charging section whereunder the total income of the previous year of every person shall be liable to charge of income-tax for any assessment year at any rate or rates specified in the concerned Central Act. " Total income " is defined under Clause (45) of SECTION 2 as " the total amount of income referred to in SECTION 5, computed in the manner laid down in this Act". By SECTION 5 the total income of any previous year of a person includes all income from whatever source derived, which is received or is deemed to be received, or accrues or arises or is deemed to accrue or arise to him, or accrues or arises to him outside, India during such year. Chapter III comprising sections 10 to 13 provides for incomes which do not form part of the total income. SECTIONs 14 to 59 comprised in Chapter IV deal with the computation of total income under various heads. SECTIONs 15, 16 and 17 provide for the income relating to salaries whereas sections 18 to 21 deal with interest on securities. SECTIONs 22 to 27 provide for the income from house property whereas sections 28 to 44 deal with profits and gains of business or profession. SECTION 28(1), corresponding to SECTION 10(1) of the Indian Income-tax Act, 1922, makes the profits and gains of any business or profession carried on by the assessee at any time during the relevant previous year chargeable to income-tax under the head " Profits and gains of business or profession". SECTION 29 states that the income from business or profession referred to in SECTION 28 shall be computed in accordance with the provisions of SECTIONs 30 to 43. The amount spent towards rent, rates, taxes, repairs and insurance for premises used by the assessee for the purpose of the business or profession has to be allowed under SECTION 30 in the manner specified therein. The amount spent by the assessee towards repairs and insurance of machinery, plant and furniture is deductible. Depreciation, development rebate and expenditure on scientific research and other deductions permissible under SECTIONs 32 to 40 must be allowed. Any bad and irrecoverable debts are also admissible deductions.
Any loss or expenditure which is of business nature is a permissible deduction in computing the income of the assessee under the head " profits and gains of business or profession ". A loss or expenditure of capital nature is the one which is not permissible to be deducted from the profits and gains derived from the business or profession. Whether a particular amount of loss is business or capital loss depends upon the facts and circumstances of each case.;