BASANTLAL SANWAR PRASAD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This is a reference under Section 66 (1) of the Indian Income Tax Act in regard to the assessment of Income Tax for the assessment year 1961-62. The assessee is a registered firm having wholesale business in cloth. On the 10th of January, 1961, a burglary took place in the shop premises where cash was kept in the iron safe. A sum of Rs. 11,407 was found to have been stolen away from that. The assessee claimed that as a business expense, meaning thereby that the loss of the money was incidental to their business. The Income Tax Officer did not accept that and did not allow the deduction. The Appellate Assistant Commissioner, however, took the view that the loss having been caused in connection with the carrying of the business, and being incidental to the business of the assessee was allowable for the purpose of determining the net profit of the assessee out of the business. Against that, the Department came in appeal before the Income Tax Appellate Tribunal, who set aside the order in that respect of the Appellate Assistant Commissioner, and upheld the action of the Income Tax Officer. The assessee thereafter asked for a reference and the Appellate Tribunal has sent the statement of case to this Court. The question formulated is:

(2.) The facts and the circumstances of the case appear from the order of the Appellate Assistant Commissioner which is a part of the statement of the case He observed that it was necessary for the assessee to keep sufficient amount of cash in the shop premises during the night, so that the transactions of the next day may be started without any inconvenience There was a theft in the shop in the night. It was true that the theft occurred at a time when no business transaction was being carried on, but the loss due to theft must necessarily be considered to have been directly arisen from the carrying of the business and incidental to it, because it was necessary to keep the money there for the purpose of carrying on the business. The appellate Tribunal also referred to this part of the order of the Appellate Assistant Commissioner in their order which is annexure 'C' to the statement of case. They observed:

(3.) This finding by the Appellate Assistant Commissioner, in relation to the justifiability or otherwise of the deduction claimed by the assesses, was not questioned before the Appellate Tribunal, I am rather inclined to say that the Appellate Tribunal proceeded on those facts and circumstances. But they preferred to apply the law in a different manner from what the appellate Assistant Commissioner did. I shall refer to that a little after Learned counsel appearing for the revenue contended that the observations of the Appellate Assistant Commissioner, which I have quoted above, were in a general way and did not relate to the facts and the circumstances of the case According to him the Appellate Assistant Commissioner only propounded a principle and in that context made those observations. To me, however, it appears that the position is not so because it is in that circumstances, as stated by the Appellate Assistant Commissioner, that the loss was held to be incidental to the business. It is further to be found from the order of the Appellate Tribunal that on the day on which the loss was sustained by theft, the cash position of the assessee was as follows. On the 10th of January, 1961, the opening balance was Rs 586. sale proceeds was Rs. 4,888 and a cash loan of Rs. 9.000 was obtained from one Sheo Prasad Phoolchand of Jharia. The closing balance of that day was Rs 11.470 The assessee as T have staled before, is a registered firm The cash balance kept in the shop premises that night obviously belonged to the firm itself Keeping such amounts in the shop premises was necessary as held by the Appellate Assistant Commissioner, for the transaction of the business on the following day. That obviously was the trading practice with the assessee firm. In that view, there cannot he any doubt whatsoever that the loss sustained by theft in respect of that amount was incidental to the business and the assessee was entitled to deduct that from its gross receipt.