PATHAK J. - (1.) THE Income-tax Appellant Tribunal has referred the following question to his court for its opinion : Whether, on the facts and in the circumstance of the case, the loss of Rs. 53,121 due to theft was an allowable ?
(2.) THE assessee is a private limited company manufacturing and selling sugar. THE assessment year is 1959-60, the previous Year being the year ending October 31, 1958. The Tribunal has found that a theft was committed on November 10, 1957, at 3 oclock of the morning in the factory premises of the assessee and a sum of Rs. 75,031 was stolen. A certain amount was recovered from the thieves who included an employee of the, but the sum of Rs. 53,121 remained untraced. It accepted the case of the assessee that large sums of money were necessary at the factory for conducting its day to day business, that on the eve of commencing sugarcane crushing, a large sum in cash had to be kept available at the factory for dispatching funds of different centers to enable the purchase of sugarcane and for meeting other expenses, and the money had to be kept in the safe-room at the factory as the bank was situated about eighteen miles from the factory. The Tribunal has held that as the money had been kept for meeting incidental expenses necessary or carrying on of the assessees business the assessee was entitled to a deduction of the loss in computing income from business. This reference has now been made at the instance of the revenue. There is no dispute between the parties that the deduction cannot be claimed under any of the clauses of sub-section (2) of section 10 of the Indian Income-tax Act, 1922. The question is whether the loss should be deduced in computing the profits under sub-section (1) of section 10. As to that, it is now fairly well-established that profit and gains which are liable to be taxed under that sub-section are what are understood to be such according to ordinary commercial principles. In Gresham Life Assurance Society v. Styles Lord Halsbury pointed out :
(3.) THE thing to be taxed is the amount of profits and gains. THE word profit I think is to be understood in its natural and proper sense - in a sense which no commercial men would misunderstand. And again at another place in his speech : Profits and gains must be ascertained on ordinary principles of commercial trading.... The principle was declared by the Privy Council in Pondicherry Railway Co. v. Commissioner of Income-tax, to be of general application also to cases arising under the Indian income-tax law.;