Law: Income Tax Act, 1961

Section: 28(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 bank claimed embezzlement of cash by its agent as business loss in computation of its business income - Whether fact that embezzlement was by one who had been in joint charge but was acting singly made no difference for purpose of income-tax - Held, yes - Whether said loss was incidental to business of assessee and as money was stock-in-trade of assessee, fact that money was embezzled not during office hours but on holiday did not affect position that loss was incidental to carrying on of business - Held, yes FACTS According to the assessee-bank, the safe keys of its branch were entrusted, one to 'F' and the other to the agent K. On the fateful day, 'F' on leaving the branch, entrusted his key with the peon of the bank. 'K' after obtaining the key from the peon, opened the safe in the peon's absence and took Rs. 18,000 from it. According to the department, it was a case of embezzlement by one of its employees, and therefore, such loss was not incidental to the assessee's business, allowable as deduction under section 10(1). On reference : HELD It was essential for the conduct of the business of the assessee that it should rely on human agencies and should repose confidence and trust in its employees and particularly on a person like K, who was the agent of the bank. In doing so, it has to take the necessary risk of such employees embezzling money and even committing theft. The money that was taken was admittedly the stock-in-trade of the assessee, a banking company. The fact that the money was taken not during office hours, but on a holiday, did not affect the question for decision if the incurring of the loss was incidental to the carrying on of the business. No doubt, the loss incurred was incidental to the conduct of the business. The embezzlement by one who had been in joint charge, but was acting singly in the matter of embezzlement, made no difference for the purposes of income-tax and such loss was incidental to the business. Note: The case was decided in favour of the assessee.…

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