R.N.GURTU, J. - (1.) THE following question has been referred to us for an answer : Whether the loss of cash of Rs. 1,06,000 by dacoity is admissible as a deduction under section 10(1) of the Act in computing the assessees income from banking business ?
(2.) THE following facts which have been stated in the referring order may be mentioned. THE assessee, the Nainital Bank Ltd., is a public limited company which carries on the business of banking. THE previous year of the assessee company is the calendar year, the relevant previous year for the assessment in question being the calendar year 1951. THE assessee company had various branches. One of the branches of the assessee was situated at Ramnagar. THE money of the branch was kept in iron safes. On June 11,1951, at about 7 p.m. eleven persons dressed in olive green uniforms of military pattern and armed with rifles and other lethal weapons raided the Ramnagar branch of the assessee bank and extorted the keys of various safes from the manager. THE dacoits opened the safes and took away cash amounting to Rs. 1,06,000 and various ornaments etc., which had been pledged with the bank. THE assessee claimed as a deduction in computing its income from the banking business for the assessment year 1952-53 the sum of Rs. 1,06,000 which had been taken away from the Ramnagar branch. THE Income-tax Officer refused to allow this amount as a deduction on the ground that the loss was not incidental to the business of the bank. This order was confirmed on appeal by the Appellate Assistant Commissioner. THE assessee preferred an appeal to the Tribunal and contended that the above sum is admissible as a deduction for the following reasons : (a) that the cash is the stock-in-trade of the banking company and the loss of cash would be admissible as a deduction irrespective of the circumstances in which the loss occurred and (b) that the loss of cash in the present case was incidental to the carrying on of the banking business and would be admissible as a commercial loss. The same contentions have been advanced before us. From the order of the Income-tax Appellate Tribunal it is clear that it has been held that the cash lost in the dacoity was the stock-in-trade of the bank, a money-lender. It is well settled that in the case of banking and money-lending business money is the stock-in-trade and circulating capital. See Arunachalam Chettiar v. Commissioner of Income-tax and Commissioner of Income-tax v. Subramanya Pillai. It must also be noted at once that this is not a case of an embezzlement by an employee though cases dealing with embezzlement are helpful as they cover the ground as to when loss by embezzlement can be considered to be incidental to the business and deducted. This is a case of loss by dacoity.
(3.) LEARNED counsel for the appellant assessee relied on Venkatachalapathy Iyer v. Commissioner of Income-tax, AIR 1952 Mad 238 and contended that the profits and gains of any business should be ascertained by ordinary commercial principles of trading and in order to constitute a trade loss it must be either a loss of stock-in-trade or a loss incurred in the course of the business and as incidental to it. He contended that it was enough that the stock-in-trade with the bank had been lost and it was not necessary to show anything else. Alternatively he contended that whether it was a loss in the course of business and is incidental to it has to be determined on the facts and circumstances of each case as no general principles governing all cases can be laid down. He contended that in this particular case the bank was bound to keep money which was needed every morning by the bank to carry on its business effectively and the money had to be kept with the manager and in the bank premises and the key had to be left with the manager. He contended that the cash was held in this way by the manager in the safes of the bank in the course of the banks business and incidental to it and that the loss was in the course of carrying on the banks business and was incidental to it even though the loss occurred after the close of banking hours and even though the loss occurred not by the embezzlement of any employee nor by an act of God or enemy action but by the act of the breakers of law. He contended that the risk of a bank being broken into, dacoity being committed, was a risk which was incidental to the carrying on of the business and that in the present case the money had been kept for the carrying on of the business and, therefore, the loss by the dacoity in this case was in the course of business and therefore incidental to it. In the recent case of Badridas Daga v. Commissioner of Income-tax, 1959 SCR 690 it has been laid down that where a claim is made for deduction for which there is not specific provision under section 10(2) whether it is admissible will depend on whether, having regard to accepted commercial practice and trading principles, it can be said to arise out out of the carrying on of the business and be incidental to it. The loss for which a deduction is claimed must be one that springs directly from the carrying on of the business and is incidental to it, and now any loss sustained by the assessee even if it has some connection with his business. If that is established, them the deduction must be allowed, provided that there is no provision against it, express or implied, in the Act.;