Law: Income Tax Act, 1961

Section: 28,37

Indian Income Tax Act, 1961-Section 28, 37-Business loss-Test- Commercial standard Business in gold, silver and gunnies-Income invested in Government securities-Cash brought to place of business far buying securities Loss of part of cash at place of business by they? by stranger- Whether business loss-Held yes. A businessman has to keep moneys 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 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. The appellant, a registered firm, carried on business in gold, silver and gunnies at Rajahmundry. It also derived income from investment in Government securities. In years both preceding and succeeding the relevant accounting year the appellant had sold some Government securities and bonds. A sum of Rs. 50,000 borrowed from a creditor for the purpose of purchasing Government securities, was brought in cash to Rajahmundry by its employee and was handed over to its cashier. At a time when the cashier had turned his back to take out some books, a stranger suddenly arrived at the place of the appellants business and committed theft of Rs. 30,000. In spite of logding a complaint with the police the amount could not be recovered. The appellant claimed deduction of Rs. 30,000 as a business loss in computing its profits and the Tribunal allowed the claim on the ground that the loss was incidental to the carrying on of its business. On a reference at the instance of the Commissioner, the High Court held that the loss was not allowable as a deduction as the loss was not incidental to the appellants business. On appeal to the Supreme Court : Held, reversing the decision of the High Court, that the loss of Rs. 30,000 was directly connected with the business operation and was incidental to the carrying on…

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