HARNATH RAI LAKHI PRASAD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Patna Bench, has referred under section 66(1) of the Indian Income-tax Act, 1922, hereinafter to be referred to as "the Act", to the High Court the following question of law

(2.) THE necessary facts which would appears stated in the statements of the case prepared by the Tribunal, as also in the orders of the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal are these. THE assessee carried on business in kirana at Bhagalpur. One of its adathiyas (commission agent) was one Babulal Kharga of Asarganj. THE assessee had dealings with Babulal. THE account of Babulal in the books of the assessee showed that the assessee purchased grains from him and made payments in cash. On the 10th of January, 1955, during the accounting year in question, a sum of Rs. 10,000 was sent by the assessee from Bhagalpur to Asarganj, where Babulal resided and carried on his business, for payment to him through one of the old employees of the assessee, Sri Sachidanand. On the way he was robbed of the said amount on the point of a pistol b y some robbers. THE assessee claimed the amount in the first instance, as it appears from the order of the Income-tax Officer, as a bad debt written off in the account of Babulal Kharga because the amount when it was sent on the 10th January, 1955, to Babulal was debited in his account in the hope that it would reach him at Asarganj. But since the amount was robbed on the way and did not reach Babulal, it had to be written off and was, therefore, apparently claimed as a bad debt due from Babulal but, in substance, the claim was that it was trading loss which should be taken into consideration while assessing the profits of the assessee under section 10(1) of the Act. THE Income-tax Officer disallowed the claim on the ground that the matter was not reported to the police on the same day but was reported two days after and that the money when debited to the account of the party, the loss was the loss of the party and not of the assessee. THE Appellate Assistant Commissioner, while upholding the decision of the Income-tax Officer in the appeal filed by the assessee, held that the appellant had failed to produce the relevant papers or a copy of the police report in the matter and it was, therefore, not possible to ascertain the exact facts of the case and that the appellant, in the opinion of the Appellate Assistant Commissioner, had failed to establish the primary fact that the loss of cash arose as a result of his employee having been robbed on the way. On the further appeal by the assessee, the Appellate Tribunal, before which a copy of the first information report was produced, held as a question of fact that the money was in transit in the possession of Sachidanand and at that point of time the highway robbery took place. On considering the various amounts standing to the credit and debit of Babulal Kharga, the ultimate given by the Tribunal is :

(3.) MR. S. N. Datta placed reliance upon a recent decision of the Supreme Court in Commissioner of Income-tax v. Nainital Bank Limited, a public limited company which carried on the business of banking. It had various branches and one of them was situated at Ramnagar. In the usual course of its business, large amounts were kept in various sages in the premises of the bank. On June 11, 1951, at about 7 p.m. there was a dacoity in the bank and the dacoits carried away the cash amounting to Rs. 1,06,000 and some ornaments pledged with the bank. The bank claimed the said amount as a deduction in computing its income from the banking business on the ground that it was a trading loss. The claim was not accepted by the Income-tax Officer, the Appellate Assistant Commissioner or by the Income-tax Appellate Tribunal. But, on a reference, the High Court of Allahabad held that the loss by dacoity was incidental to the banking business and was, therefore, a trading loss. Subba Rao J., on a review of many authorities, upheld the decision of the High Court. In the regard to the passage which has been extracted by me above from the judgment of Venkatarama Aiyar J. in Badridas Dagas case, Subba Rao J. has said : The correctness or otherwise of the said observation may fall to be considered when such a case directly arises for decision, but distinguished the case of Nainital Bank on the ground that in the case of a bank the deposits received by it form part of its circulating capital and at the time of the theft formed part of its stock-in-trade. The case of Motipur Sugar Factory Ltd. was also referred to by his Lordship with approval but it was pointed out that although in the case of Motipur Factory case cash was entrusted to the employee under statutory rules, there may be cases where such entrustment may be made by custom or practice. What is important to notice is, said his Lordship, that robbery of cash from the hands of an employee is held to be incidental to the business of the assessee.