RAMACHANDER SHIV NARAYAN vs. COMMISSIONER OF INCOME TAX, ANDHRA PRADESH, HYDERABAD

CIVIL APPEAL No. 1611/1972Supreme Court[1978] 1 S.C.R. 80104 November 1977Bench: 2 JudgesAuthor: N.L. UNTWALIA, D.A. DESAI RAMACHANDER SHIV NARAYAN8 pages
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What were the facts?

The assessee, Ramachander Shiv Narayan, a registered firm dealing in gold, silver, and gunnies, and also deriving income from government securities, appealed a High Court decision. For the assessment year 1964-65, the assessee reported a business loss of Rs. 5,008, which included a claimed deduction of Rs. 30,000 due to theft. This loss occurred when an employee brought Rs. 50,000 in cash for purchasing government securities, and Rs. 30,000 of this sum was stolen by a stranger from the business premises. The Income Tax Officer disallowed the deduction, deeming it a capital loss or loss of idle money, not incidental to business. The Income Tax Appellate Tribunal allowed the deduction, but the High Court, on reference, ruled in favour of the Revenue.

What did the Supreme Court hold?

The Supreme Court held that the loss of Rs. 30,000 due to theft was a deductible trading loss. The Court reasoned that while neither the Income Tax Act of 1922 nor the 1961 Act explicitly provides for the deduction of cash losses from theft, such a loss, if not a capital loss or personal expense, must be considered in arriving at the true income in a commercial sense. The Court emphasized that the list of permissible deductions is not exhaustive. The phrase 'wholly and exclusively for the purpose of such business' in Section 10(2)(xv) and Section 37 does not exclude losses that are forced, like theft, as opposed to expenditures with volition. The Court reiterated that a direct and proximate nexus between the business operation and the loss, or if the loss is incidental to it, makes it deductible. A businessman inherently faces risks in handling money for business purposes, and losses incurred in the ordinary course of business are deductible trading losses, irrespective of whether the money is stock-in-trade or directly connected to other operations. The High Court's view was considered erroneous. The appeal was allowed, setting aside the High Court's decision.

What were the issues?

1. Whether the loss of Rs. 30,000 due to theft is a deductible trading loss under Section 10(2)(xv) of the Income Tax Act, 1922 (corresponding to Section 37 of the Income Tax Act, 1961). Assessee's contentions: The loss of Rs. 30,000 was a trading loss and therefore a permissible deduction in computing the net income. The loss was incidental to the business operations. Revenue's contentions: The loss was not incidental to the business of the assessee, but rather a loss of idle money or a capital loss. The Income Tax Officer rejected the claim on these grounds. The High Court, in its reference decision, also ruled against the assessee.

Which sections of the Income-tax Act were involved?

Section 10(2)(xv),Section 37

AI-generated summary — verify with the full judgment below

- _ .. RAMACHANDER SHIV NARAYAN v. COMMISSIONER OF INCOME TAX, ANDHRA PRADESH, HYDERABAD November 4, 1977 [N. L. UNTWAL!l) AND D. A. DESAI, JJ.J 801 Allowable ldss-Loss of property or nioney by theft or dacoity, whether a trading loss and if pern1issible deduction in computation of his n>et income- Jnconz'e-Tax Act, 1922, sec. 10(2) (xv)=::s. 37 of I11co1ne Tax Act, 1961. The appellant, assessee is a registered firm carrying on business in gold, silver and gunnies at Rajahmundry. It also derives income from investment in Government securities.

The assessee, during the assessment year 1964-65 corresponding to accounting year ended on October 16, 1963 returned; a.. loss of Rs. 5008/- from the business. The said figure \vas arrived at after claiming a loss of Rs. 30,000/- on ac·count of theft. The assessee had borrowed a sum of Rs. 50,000 /- from some creditor. The money was brought in cash by its employee.

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 committed by a stranger. The assessee, therefore, claimed the sum · of Rs. 30,000/- lost by theft as a permissible deduc

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