COMMISSIONER OF INCOME-TAX, U.P. vs. NAINITAL BANK LTD.

CIVIL APPEAL No. 938/1963Supreme Court[1965] 1 S.C.R. 34025 September 1964Bench: 3 JudgesAuthor: K. SUBBA RAO, J.C. SHAH, S.M. SIKRI10 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that cash is the stock-in-trade of a banking company, and its loss is a trading loss. However, not every loss is deductible unless incurred in the carrying out of the business operations and incidental to them. The question of whether a loss is incidental is a question of fact, determined by the nature of the operations and the risk involved. The degree or frequency of risk is less relevant than its nexus to the business. It is an integral part of banking to retain sufficient money, guarded, to meet constituent demands. This retention carries the ordinary risks of embezzlement, theft, dacoity, or fire, which are incidental to banking operations. Therefore, the loss by dacoity in this case was incidental to the business of banking. The High Court's order was correct. The appeal was dismissed.

What were the facts?

The Nainital Bank Ltd. (assessee), a public limited company engaged in banking, suffered a loss of Rs. 1,06,000 in cash and ornaments due to a dacoity at its Ramnagar branch on June 11, 1951. The bank claimed this as a trading loss for the assessment year 1952-53. The Income-tax Officer disallowed the claim, holding the loss was not incidental to the business. This decision was upheld by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal. The High Court of Judicature at Allahabad, on reference, ruled that the loss was incidental to banking and thus a deductible trading loss. The Revenue appealed this decision to the Supreme Court.

What were the issues?

1. Whether the loss of cash by dacoity is an admissible deduction under Section 10(1) of the Indian Income-tax Act, 1922, in computing the income of a banking business? (Question of law) Assessee's contentions: - The money lost by burglary was the stock-in-trade of the banking business. - It was kept in the bank in the usual course of business. - The risk of its loss was incidental to carrying on the business. - Therefore, the amount lost was a trading loss deductible under Section 10(1). Revenue's contentions: - The bank lost the money not in its capacity as a bank but as an owner of funds. - The risk of burglary was not incidental to the business of banking.

Which sections of the Income-tax Act were involved?

Section 10(1)

AI-generated summary — verify with the full judgment below

340 COM~DSSIONER OF INCOME-TAX, U.P. v. NAINITAL BANK LTD. . , September 25, 1964. (K. SUBBA RAo, J.C. SHAU Ami S. M. SIKRI JJ.) . Income Tax-Deductible /ass-Banking Company-Loss by dacoity- Whether incidental to business-Indian Income-tax, Act, 1922 {ll of 1922) ••. 10(1). . . .

Cash and ornaments worth Rs. 1,06,000 were· robbed by dacoits from the Ramnagar branch of the Nainital Bank Ltd., a public limited company carrying on the business of banking. The loss was claimed by. the bank as a trading loss for the assessment year 1952-53. The claim Wa!! disallowed by the Income-tax Officer· on the ground that the •• , A B c • · loss was not incidental to the business. The finding being confirmed by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal, a reference was made to the ·High -Court of Judicature at • Allahabad which held that the loss by dacoity was incidental to ·the banking business and was, therefore, a trading loss \\'hich , the ~essce could claim as a deduction under s. 10 ( 1) of · the Indian Income-tax Act, 1922. Appeal to this· Court on behalf of the Revenue, came by _way of a certificate under Art. 133 of the Con

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