Law:

Section:

Section 36(1)(vii), read with section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xi), read with section 10(2)(xv) of the Indian Income-tax Act, 1922] - Bad debts - Assessment year 1947-48 - Whether deduction contemplated by section 10(2)(xv) of 1922 Act must arise out of a voluntary act on part of assessee - Held, yes - Whether when money is lost to business as a result of embezzlement, there is no expenditure on part of employer; it is true that there is loss to business but that loss is entirely involuntary, and although loss may arise in course of business or be incidental to business, it cannot be said that amount represented by that loss was an amount spent wholly and exclusively for purpose of business, profession or vocation and, therefore, case of embezzlement does not fall under section 10(2)(xv) - Held, yes - Whether if in any case it is found that it was necessary for assessee to deputise certain duties to an employee and it was also found that loss sprang directly from necessity of doing so, then loss would be a trading loss and assessee would be entitled to claim that amount as a proper deduction - Held yes - Assessee-company suffered a loss due to defalcation of money by its cashier - Whether loss caused by embezzlement was a trading loss and assessee was entitled to claim deduction - Held, yes FACTS The assessee-company was carrying on business of dairy farming and had employed various persons. One 'C' was the incharge of cash who used to deposit cash with various Banks. The key of the safe of the company was kept with 'C'. On 10-5-1947, the manager of the assessee made a complaint in the Court stating that 'C' had defalcated various amounts aggregating to Rs. 18,000. When the complaint was filed by the manager, 'C' was on leave. Later on 'C' admitted having defalcated Rs. 21,000 and executed a bond on 28-4-1947 undertaking to pay Rs. 21,000. Thereafter the books of account of the assessee-company from April 1946 to April, 1947 were examined by the auditors of the company and it was found that the amount defalcated was not Rs. 21,000 but Rs. 53,000. The assessee also spent moneys in connection with litigation proceedings.…

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