Law: Income Tax Act, 1922

Section: 10(1)

Section 28(1) of the Income-tax Act, 1961 [Corresponding to section 10(1) of the Indian Income-tax Act, 1922] - Business loss - Allowable as - Assessment year 1956-57 - Assessee carrying on business in timber, hired elephant for hauling timber from forests alongwith mahout as per agreement and one elephant died during hauling of timber of injuries inflicted by attached mahout as a result of which assessee had to pay damages to owner which it claimed as deduction - Whether where nature of business carried on by assessee was such that risk of negligence of assessee's servants while acting in course of their employment was incidental to such business, liability of assessee to pay damages for such negligence was also incidental to total business and therefore, loss resulting therefrom was allowable as trading loss in computing assessee's income from business and fact that such negligence resulted in breach of contract would make no difference - Held, yes FACTS Pursuant to an agreement with the Government of Cochin an elephant along with its two mahouts were with the stipulation that the elephant should be used only for hauling timber which did not exceed a specified volume and that the two mahouts attached to the elephant must be engaged by the assessee. The State of Cochin instituted a suit against the assessee for compensation for the death of the elephant. On an analysis of the evidence, the High Court came to the conclusion that the mahouts were the servants of the assessee company at the time and that they caused the injuries to the elephant in the course of their employment as servants of the company. So the assessee was held liable for the acts of the mahouts. The High Court also made the assessee liable to accounts for the death of the elephant to the State. The taxing authorities and the Tribunal on the above findings of the High Court came to the conclusion that the damages that the assessee-company was called upon to pay represented its liability arising out of a breach of contract and therefore, disallowed the claim for deduction of that payment. On reference : HELD The Supreme Court in Badridas Daga v. CIT [1958] 34 ITO 10, 15 held that when a claim is…

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