MOTAMAL JETHAMAL Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) This is a reference by the Appellate Tribunal under Section 66(1), Income-tax Act, asking for the opinion of this Court on the question whether the aggregate sum of Rs. 24,506 representing the value of goods destroyed by fire, in the circumstances of the case, is allowable as a deduction in computing the profits and gains of the assesses business under Section 10, Income-tax Act.

(2.) The facts are these. The assessee is a dealer in grains, jute, groceries and cloth. In the accounting year of the assessee which is 1997 Sambat corresponding to 1940-41, a. fire broke out in the vicinity of the assessee's shop Which ultimately spread out and affected his godown with the result that his goods worth Rs. 17,552, jute worth Rs. 6954 and currency notes worth Rs. 3228 were destroyed. The assessee claimed a set-off against his income in the accounting year for these three sums as his business loss. The claim was disallowed by the Income-tax Officer on the ground that this was a capital loss in these words: During the accounting year there was an accidental fire in assessee's shop in which a good portion of his stock-in-trade, fixed assets and cash, was burnt. Item (3) above (that is to say currency notes) is clearly a capital loss and is added back.... The assessee lost his stock-in-trade due to an accidental fire. This loss which is due to the shortages of C.S. lost in fire, is thus more a capital loss. These are, therefore, not incidental to business, and are added back.

(3.) In appeal, the assessee's claim was rejected in these words: The loss of stock-in-trade is a revenue loss only when it occurs by a cause usual in the course of business and is by its nature incidental to the carrying on of the business. The break-out of the fire was an unfortunate accident not attributable to any operations carried on during trade. The destruction of currency notes and goods was thus purely by reason of an unexpected accident, and therefore the loss was a loss Of capital not deductible from taxable profits.