BADRIDAS DAGA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This is an appeal against the Judgment of the High Court of Nagpur in a reference under S. 66(1) of the Indian Income-tax Act, 1922, hereinafter referred to as the Act.

(2.) The appellant is the sole proprietor of a firm called Bansilal Abirchand Kasturchand, which carries on business as money-lenders, dealers in shares and bullion and commission agents in Bombay, Calcutta and other places. He is a resident of Bikaner and manages the business at the several places through agents. During the relevant period, the agent of the firm at Bombay was one Chandratan, who held a power-of-attorney dated 13-5-1944, conferring on him large powers of management including authority to operate on bank accounts. During the period, 15-11-1944 to 23-11-1944, the agent withdrew from the firm's bank account sums aggregating to Rs. 2,30,636-4-0, and applied them in satisfaction of his personal debts incurred in speculative transactions. On 25-11-1944, the cashier of the firm sent a telegram to the appellant informing him of the true state of affairs. Thereupon, the appellant went to Bombay on 3-12-1944, and on the 4th cancelled the power-of-attorney given to the agent, and by notice dated 6-12-1944, called upon him to pay the amounts withdrawn by him. The agent replied on 8-12-1944, admitting the misappropriation of the amounts and pleading for mercy. On 16-1-1945, the appellant filed a suit against him in the High Court of Bombay for recovery of Rs. 2,30,636-4-0 and that was decreed on 20-2-1945. A sum of Rs. 28,000 was recovered from Chandratan and adjusted towards the decree and the balance of Rs. 2,02,442-13-9 was written off at the end of the accounting year as irrecoverable.

(3.) Before the Income-tax authorities, the dispute related to the question whether this amount of Rs. 2,02,442,13-9 was an admissible deduction. The Tribunal found that the amount in question represented the loss sustained by the appellant owing to misappropriation by his agent, Chandratan, but held on the authority of the decision in Curtis vs. J. and G. Oldfield, Ltd., 1925-9 Tax Cas. 319 (A) that it was not a trading loss and therefore could not be allowed. On the application of the appellant, the Tribunal referred the following question of law for the decision of the High Court, Nagpur: