Appeal No 2016 of 1969
Appeal by Special Leave from the judgment and order dated April 27 1967 of the Madras High Court in Tax Case No 75 of 1963
section C Manchanda B D Sharma and R N Sachthey for the appellant
M C Chagla Janendra Lal and B R Agarwala for the respondent
The Judgment of the Court was delivered by Hegde J
This appeal by special leave arises from a decision of the Madras High Court in a reference under section 66 1 of the Indian Income Tax 1922 to be hereinafter referred to as the Act
As demanded by the assessee the Tribunal submitted the statement of the case to the High Court seeking its opinion on the question whether on the facts and in the circumstances of the case the loss of Rs 193750 was an allowable deduction under section 10 of the Income tax Act 461 Material facts are these The assessee respondent was a member of a Hindu undivided family which carried on money lending business in India and abroad
In the course of such money lending business properties were taken over in settlement of debts as and when occasion arose
The family was disrupted on March 28 1939
The assessee received some shares in some companies properties and gardens and certain other items in Malaya
Even after the partition the assesses continued the money lending business in Malaya
During the war in general with others the assessee suffered damages to these properties on account of Japanese bombing
This loss occurred on account of bombing in December 1941 a date falling within the accounting period ending on April 12 1942 relevant for the assessment year 1942 43
This loss was claimed as a business loss
The Income Tax Officer rejected that claim
The Appellate Assistant Commissioner affirmed the order of the Income Tax Officer 
The assessee did not succeed before the Tribunal as well
The Tribunal rejected the claim of the assessee on the sole ground that bombing which caused the loss was not incidental to the business of the assessee
The Tribunal held that the loss in question was a loss of stock in trade
That finding of the Tribunal has not been challenged
Hence we have to proceed on the basis that the loss caused to the assessee was a loss of stock in trade
It was contended on behalf of the department that the loss in question cannot be given deduction to as a business loss in computing the net income of the assessee under section 101
According to the department that was not a loss incidental to the business carried on by the assessee
We are unable to appreciate the contention of the department
It is established that the assessee was carrying on business in Malaya when the war was going on
Malaya was within the war zone and therefore there was every possibility of that area being bombed
If the assessee had earned any profits out of his business during the war the department undoubtedly would have considered those profits as assessable income
It is strange that when loss had occurred in such a situation the department should contend that the loss in question was not a business loss
In our opinion taking into consideration the facts and circumstances of the case the loss occurred must be held to be a loss incidental to the business carried in by the assessee in Malaya during the war
We are fortified in our conclusion by the decision of the Bombay High Court in Pohoomal Bros vs Commissioner of Income Tax Bombay City1
The facts of that case are some 1 462 what similar to the facts before us
The assessee therein which had its head office in Bombay and branches in various parts of the world claimed deduction of the losses resulting from the destruction of its stock in trade in three foreign branches at Manila Saigon and Kuala Lumpur by enemy invasion in computing its profits and gains for the purpose of income tax
The department resisted that claim but the High Court held that the losses in question were trading losses
This decision of the High Court was cited with approval by this Court in Commissioner of Income Tax UP vs Nainital Bank Ltd 1 In this connection we may also refer to two English decisions
The first case is Green vs J Gliksten2
The facts of that case were as follows  A fire occurred on the company s premises in August 1921 and destroyed timber the written down value of which in the company s books was pound 160824 the company s valuation of its stock based on cost or market value whichever was the lower had been accepted for purposes of taxation
The timber had been insured for many years and the company had been allowed to deduct the insurance premises in computing its assessable profits
In due course the company received from the insurers a sum of pound 477838 representing the replacement value of the destroyed timber but only a small part of this timber was in fact replaced because the current demand was for timber of a different character
The company accordingly credited in its profit and loss account as a trading receipt only pound 160824 of the insurance payment the balance did not appear in the profit and loss account but was entered as a reserve in the balance sheet
The Special Commissioners held that no part of the sum of pound 477838 recovered from the insurers was a trading receipt
But the House of Lords held that the whole sum recovered was trading receipt to be taken into account in computing the profits assessable to Income Tax under case 1 of Schedule D and to Corporation Profits Tax
This court in Nainital Bank s case supra quoting that decision with approval observed
If receipt from an insurance company towards loss of stock was a trading receipt conversely to the extent of the loss not so recouped it should be trading loss
 Next we shall refer to the decision of the Court of Appeal in London Investment and Mortgage Co Ltd vs Inland Revenue Commissioners3 The facts of that case were as follows  The assessee were paying compulsory war damage contributions during the war in respect of the properties in which they were dealing
They received payments under the War Damage Act 1943 in respect of the properties damaged by enemy action
1 2 14 Tax Cases 364
3 1957 1 All England Reports 377
463 They disposed of some of the properties but retained others as part of their stock in trade and either were having them rebuilt or would have them rebuilt
Under the War Damage Act 1943 contributions made and indemnities given under Part I were to be treated for all purposes as outgoings of a capital nature and expenditure on making good war damage was not deductible in computing profits for income tax purposes
On the question whether the value payments should be included in the receipts of the taxpayers  trade for the purpose of their assessments to income under Case 1 of Schedule D and to profit tax the Court of Appeal held that the value payments should properly be treated as part of the taxpayers  trading receipts since they were money into which their stock in trade had been converted
This decision is an authority for the proposition that the compensation received in lieu of loss of stock in trade as a result of enemy action is a trading receipt conversely a loss of stock in trade occasioned by enemy action must be considered as a trading loss
For the reasons mentioned above we agree with the conclu sions reached by the High Court and see no merit in this appeal
It is accordingly dismissed with costs
KBN Appeal dismissed


Summary:
The assessee who was carrying on business in Malaya which was within the war zone suffered damages to property during the war on account of bombing
The loss in question was loss of stock in trade
On the question whether the loss could be given deduction to as a business loss in computing the net income of assessee under section 10 1 of the Income tax Act 1922
HELD  On the facts and circumstance of the case the loss occurred must be taken to be a loss incidental to the business carried on by the assessee during the war
If the assessee had earned any profits cut of his business during the war the department undoubtedly have to consider those profits as assessable income
When loss had occurred in such situation the department cannot contend that the loss in question must not be a business loss
A loss of stock in trade occasioned by enemy action must be considered as a trade loss
461 F Bombay High Court in Pohoomal Bros vs Commissioner of Income tax Bombay City  Commissioner of Income tax UP vs Nainital Bank Ltd  Green vs J Glikstan 14 Tax Cases 364 and London Investment and Mortgage Co Ltd vs Inland Revenue Commissioners 1957 1 All England Reports
377 referred to