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

The facts of the case as found by the Tribunal are in a very narrow compass. Their correctness was neither challenged nor could it be challenged in the High Court on any legal grounds, such as, that the findings were vitiated as being perverse, wholly unreasonable or unsupported by any evidence. No reference to challenge the correctness of the facts was either asked for or made. The High Court has, therefore, rightly proceeded to answer the question on the facts found by theassessee is a registered firm carrying on business in gold, silver and gunnies at Rajahmundry. It also derives income from investment in Government securities. The assessment year in question is 1964-65. The corresponding accounting year ended on October 16, 1963. The assessee had sold some Government securities and bonds in the years both preceding and succeeding the accounting year concerned in the present appeal. Income-tax was levied on such income also. For the assessment year 1964-65, it returned, a loss of Rs. 5, 008 from the business. The said figure was arrived at after claiming, a loss of Rs. 30, 000 on account of theft committed by some stranger during the corresponding accounting period. A sum of Rs. 50, 000 for the purpose of purchasing Government securities was brought in cash to Rajahmundry by its employee. The money was handed over to its cashier. When the cashier turned his back to take out some books, a stranger suddenly arrived at the place of assessees business and committed the theft of Rs. 30, 000. In spite of the lodging of a report with the police, no amount could be recovered. The assessee claimed the sum of Rs. 30, 000 lost by theft as a permissible deduction in computation of his net income on the ground that it was a trading loss. The Income-tax Officer rejected the claim treating the loss as being either of idle money or a capital loss. According to him it was not incidental to the business of the assessee. Its appeal before the Income-tax Appellate Commissioner failed but the assessee succeeded in the further appeal taken to the Tribunal. The loss was allowed on the ground that it was incidental to the carrying on of the business of the assessee. The Commissioner of Income-tax asked for a reference which was made on the question of law above-mentionedMany cases of this kind involving almost identical questions on facts somewhat similar or varying have come up for consideration before the courts in England and other countries and the various High Courts in India.

Reasoning: 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