COMMISSIONER OF INCOME TAX, PATIALA versus PIARA SINGH

Citation: [1980] 3 S.C.R. 1122 · Decided: 08-05-1980 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Appeal(s) allowed

Judgment (excerpt)

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1122 
COMMISSIONER OF INCOME TAX, PATIALA 
v. 
PIARASINGH 
May 8, 1980 
[P. N. BHAGWATI, V. D. TULZAPURKAR AND R. S. PATHAK, JJ.] 
Losses in business-Deduction under section 10(1) of the Income Tax Act, . 
1922.....:./s a smuggler who is taxed on his income from smuggling under 
the 
Income Tax Act, 1922 entitled to a deduction under section 10(1) of the Act 
on account of the confiscation of currency notes e1nployetl in the smuggling 
activity. 
The respondent Piara Singh was apprehended in September 1958 by the 
Indian Police while crossing the Inda-Pakistan border into Pakistan. A sum 
o~ Rs. 65,500/r in currency notes was recovered from his person. On interro-
gation he stated that he was taking the currency notes to Pakistan to enilble him 
to purchase gold in that country with a view to smuggling it into India. The 
Collector of Central Excise and Land Customs ordered the confiscation of the 
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currency notes. 
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T •• 
In the proceedings initiated by the Income Tax -Officer, ho found that 
Rs. 60,500/- constituted the income of tlle assesscc from undisclosed sources. 
An appeal by the assessee was dismissed by the Appellate Assistant Commis-
sioner. In second appeal before the Income Tax Appellate Tribunal, the. assessee 
represented that if he was regarded as engaged in the business of smuggli!lll 
gold he was entitled to il deduction under section 10( 1) of the Income Tsx 
Act, 1922 of the entire sum of Rs. 65,500/, as a loss incurred in tho business 
on the confiscation of the currency notes. The Tribunal upheld the claim to 
dedliction. It proceeded- on the basis that the 
assessee was 
carrying on a 
regular smuggling activity which consisted of taking currency notes 
out 
of 
India and exchanging them with gold in Pakistan which was later smuggled 
into India. The High Court on a reference at the instance of the Revenue 
answered the· reference against the Revenue. Hence the appca:J. 
Allowing the appeal, the Court. 
HEID : I. The assessee is entitled to the deduction of Rs. 65,500 ;, under sec-
tion 10(1) of the Income T&x Act, 1922. [1124 C, 1126 BJ 
2. The assessce was Oarrying on the business of smuggling a.nd, therefore. 
was liable to income tax on income from that business. The currency notes 
carried by the assessee across the border was an essential part of the smuggling 
operation. If the activity of smuggling can be regarded as a business, those 
who are ~rrying on that busine§s must be deemed to be aware that a necessary 
incident involved in the business is detection by the Customs authorities tnd 
the consequent confiscation of the currency notes. It is an incident as predict-
able in the course of carrying on the activity as any other feature of il Having 
regard to the nature of the activity possible detection by the Cus!oma autho-
ritiCS> constitutes a normal feature integrated into all !hat is 
implied 
and 
involved in ir. The confiscation of the currency notea is a loss OOCll8ion<d in 
pursuinJ the business; it is a Joss in much th• oam1 'fV•Y as if tho currency 
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C.I.T, V., PIARA SINGH (Pathak, ].) 
1123 
nbtet bad been stolen or dropped on the way while carrying on the bll!iness. 
A 
It is a lqss which springs directly from the carrying on of the business and is 
incidental to it. Applying the principle laid down by this Court in Badridas 
Daga v. Commissioner of Income Tax the deduction must be allowed. 
' 
[1124 D-B] 
Bodridas Daga v. Commissioner of Income Tax, [1958] 34 !TR 10; Com-
missioner of Income Tax, Gujarat v. S. C. Kothari [1971] 82 lTR 194; applied. 
B 
Haji Az;iz and Abdul Shakoor Bros. v. Commi.r.sioner of Income 
Tax, 
Bombay City IT, [1961] 41 ITR 350, Sari Hinduji K/wshalji & Co. v. Commr . 
of Income Tax, A.P. (1973] 8' ITR 112; J. S. Parkar v. V. B. 
Palekar an<t 
Ors. [1974] 94 !TR 616; distinguished and explained. 
CivlL APPELLATE JURISDICTION : Civil Appeal No. 2752 of 1972. 
Appeal by Certificate from the Judgment and Order dated the 
5th November, 1970 of the Punjab and Haryana High Court in 
Income Tax Reference No. 38 of 1969. 
c. 
G. A. Shah & Miss A. Subhashini for the appellant. 
Naunit Lal & Mr. Kailash Yasudev for respondent. 
The Judgment of the Court was delivered by 
PA'THAK, J. Is a smuggler, who is taxed on his income from 
smuggling under the Income Tax Act, 1922, entitled to a deduction 
under Section 10(1) of the Act on account of the confiscation of cur-
rency notes employed in the smuggling activity ? 

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