Case: Ramachander Shiv Narayan Vs. Commissioner Of Income Tax,Andhra Pradesh, Hyderabad

[1968] 68 ITR 120 (All) , money entrusted to an employee for being deposited in the bank but lost in the way by robbery was held to be deductible. To the same effect is the view expressed by the Allahabad High Court in the case of Commissioner of Income-tax v. Sarya Sugar Mills (P.) Ltd. [1968] 70 ITR 109 , by the Madras High Court in Commissioner of Income-tax v. K.T.M.S. Mahmood [1969] 74 ITR 100 , by the Madhya Pradesh High Court in Commissioner of Income-tax v. Ganesh Rice Mill [1970] 77 ITR 889 and the Rajasthan High Court in Chhotulal Ajitsingh v. Commissioner of Income-tax [1973] 89 ITR 178. The contrary view expressed in the case of Bansidhar Onkarmal v. Commissioner of Income-tax [1949] 17 ITR 247 (Orissa) and in the Madras Full Bench case of Chettiars AIR 1930 Mad 808 [FB] is no longer good law. The ratio of Dagas case [1958] 34 ITR 10 (SC) does not seem to have been correctly applied by the Punjab High Court in Ram Gopal Ram Sarup v. Commissioner of Income-tax [1963] 47 ITR 611Now, we proceed to point out the persistently wrong application of the law laid down by this court by the Andhra Pradesh High Court in two earlier decisions followed in the decision under appeal also. They are : Commissioner of Income-tax v. Chakka Narayana [1961] 43 ITR 249 (AP) and Maduri Rajeswar v. Commissioner of Income-tax [1964] 51 ITR 213 (AP) . In Chakka Narayanas case [1961] 43 ITR 249 (AP) the assessee, who was a dealer in cloth and Government securities, encashed Government securities worth about Rs. 20, 000. He went to the Madras railway station for taking the cash to his place of business but lost the money on account of theft committed. The High Court referred to Badridas Dagas case [1958] 34 ITR 10 (SC), but yet distinguished it and preferred to follow the majority decision of the Full Bench of the Madras High Court in Ramaswami Chettiars case AIR 1930 Mad 808 [FB], which, as we have already pointed out, was not approved by this court in Nainital Banks case [1965] 55 ITR 707 (SC). The High Court enunciated the law correctly, but committed in error in applying the same to the facts of that case when it said--See [1961] 43 ITR 249 , 251 (AP) :"It could not be posited that it was absolutely necessary for the assessee to cash the cheque issued and to carry the the money on has person. It is only when it could be posited that it was part of his business to take money with him that it could be said that the loss was incidental to his business."12. We do not approve of this distinction. Similarly, the Andhra Pradesh High Court took a narrow view in Maduri Rajeshwars case [1964] 51 ITR 213 also. There, a stranger came to the assessees shop during business hours and, when the assessee had gone into another room to talk on the telephone, the stranger removed the cash box and disappeared. Chandra Reddy C.J., who had delivered the leading judgment in the earlier case as also in this case, if we may point out with respect, committed the same mistake when he said at page 216"It cannot be postulated that the loss sustained by the assessee resulting from the theft committed by the stranger springs directly from his business or is incidental to the carrying on of it. The only connection that could be established in this case is that at the time theft was committed money was in the business premises and it was during business hours. There is no other connection between the theft of the money and the business of the assessee."13. It is to be remembered that the direct and proximate connection and nexus must be between the business operation and the loss. It goes without saying that a businessman has to keep money either when he gets it as sale proceeds of the stock-in-trade or for disbursement to meet the business expenses or for purchasing stock-in-trade and if he loses such money in the ordinary course of business, the loss is a deductible trading loss. It is immaterial whether the money is a part of the stock-in-trade, such as, of a banking company or a money-lender, or is directly connected with the other business operations. The risk is inherent in the carrying on of the business and is either directly connected with it or incidental to it.14. In the judgment under appeal the High Court, to our mind, has taken the same erroneous view and given the answer against the assessee in spite of the fact that it has noticed a catena of cases of the various High Courts already alluded to by us also. Distinguishing the preponderance of the view expressed in the various decisions in favour of the assessee, the High Court, in our opinion, wrongly chose to stick to its earlier narrow view.15. In the light of the conspectus of the law, as discussed above, let us see whether on the facts found by the Tribunal the loss of Rs. 30, 000 was allowable as a trading loss. The assessee had borrowed a sum of Rs. 50, 000 from some creditor. The money was brought in cash to Rajahmundry by its employee. Such a mode of business operation is very common and wellknown. Out of the said sum of Rs. 50, 000 which was meant for purchase of Government securities a sum of Rs. 30, 000 was lost by theft. It is immaterial whether Government, securities were purchased by the remaining sum of Rs. 20,000 or not. The loss was, however, directly connected with the business operation and was incidental to the carrying on of the business of purchase of Government securities to earn profit. In such a situation it was a part of the trading loss and deductible as such in arriving at the true profits of the assessee

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]But we shall presently show that the Andhra Pradesh High Court persisted and has done so even in the judgment under appeal in taking, rather, a narrow view of the matter and not correctly applying the ratio decidendi of Badridas Dagas case [1958] 34 ITR 10 (SC) and Nainital Banks case [1965] 55 ITR 707  terms no specific provision is to be found in either of the two Acts for allowing deduction of a trading loss of the kind we are concerned with in this case. But it has been uniformly laid down that a trading loss not being a capital loss has got to be taken into account while arriving at the true figures of the assessees income in the commercial sense. The list of permissible deductions in either of the Acts is notIn our Acts there is no such express provision because the corresponding provision used the term "expenditure" and notprinciple applicable in India is more or less the same. If there is a direct and proximate nexus between the business operation and the loss or it is incidental to it, then the loss is deductible, as, without the business operation and doing all that is incidental to it, no profit can be earned. It is in that sense that from a commercial standard such a loss is considered to be a trading one and becomes deductible from the total income, although, in terms neither in the 1922 Act nor in the 1961 Act, there is a provision like section 51(1) of the Australian ActThe contrary view expressed in the case of Bansidhar Onkarmal v. Commissioner of Income-tax [1949] 17 ITR 247 (Orissa)   and in the Madras Full Bench case of Chettiars AIR 1930 Mad 808   [FB] is no longer good law. The ratio of Dagas case [1958] 34 ITR 10 (SC) does not seem to have been correctly applied by the Punjab High Court in Ram Gopal Ram Sarup v. Commissioner of Income-tax [1963] 47 ITRNow, we proceed to point out the persistently wrong application of the law laid down by this court by the Andhra Pradesh High Court in two earlier decisions followed in the decision under appealHigh Court referred to Badridas Dagas case [1958] 34 ITR 10 (SC), but yet distinguished it and preferred to follow the majority decision of the Full Bench of the Madras High Court in Ramaswami Chettiars case AIR 1930 Mad 808   [FB], which, as we have already pointed out, was not approved by this court in Nainital Banks case [1965] 55 ITR 707 (SC). The High Court enunciated the law correctly, but committed in error in applying the same to the facts of that case when itcould not be posited that it was absolutely necessary for the assessee to cash the cheque issued and to carry the the money on has person. It is only when it could be posited that it was part of his business to take money with him that it could be said that the loss was incidental to hisdo not approve of this distinction. Similarly, the Andhra Pradesh High Court took a narrow view in Maduri Rajeshwars case [1964] 51 ITR 213 also.is to be remembered that the direct and proximate connection and nexus must be between the business operation and the loss. It goes without saying that a businessman has to keep money either when he gets it as sale proceeds of the stock-in-trade or for disbursement to meet the business expenses or for purchasing stock-in-trade and if he loses such money in the ordinary course of business, the loss is a deductible trading loss. It is immaterial whether the money is a part of the stock-in-trade, such as, of a banking company or a money-lender, or is directly connected with the other business operations. The risk is inherent in the carrying on of the business and is either directly connected with it or incidental tothe judgment under appeal the High Court, to our mind, has taken the same erroneous view and given the answer against the assessee in spite of the fact that it has noticed a catena of cases of the various High Courts already alluded to by us also. Distinguishing the preponderance of the view expressed in the various decisions in favour of the assessee, the High Court, in our opinion, wrongly chose to stick to its earlier narrowassessee had borrowed a sum of Rs. 50, 000 from some creditor. The money was brought in cash to Rajahmundry by its employee. Such a mode of business operation is very common and wellknown. Out of the said sum of Rs. 50, 000 which was meant for purchase of Government securities a sum of Rs. 30, 000 was lost by theft. It is immaterial whether Government, securities were purchased by the remaining sum of Rs. 20,000 or not. The loss was, however, directly connected with the business operation and was incidental to the carrying on of the business of purchase of Government securities to earn profit. In such a situation it was a part of the trading loss and deductible as such in arriving at the true profits of the assessee