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

Citation: [1965] 1 S.C.R. 340 · Decided: 25-09-1964 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Dismissed

Judgment (excerpt)

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 Constitution of India. 
. It was contended on behalf of the appellant that the risk of burglary 
was not incidental to the business of banking. _and the loss in the present 
case fell on. the assessee not as a person carrying on the business of 
banking but as an owner of funds. 
D 
HELD : Cash is the stock-in-trade of a banking company, and its 
E 
loss is therefore a trading loss. But every loss is not deductible in com-
puting the income of a business unless it is incurred in the carrying out 
. of the operation of the 
business and is 
incidental to the 
operation • 
. \Vhether in a particular case an item of loss claimed as a deduction 
under s. 10( 1) of the Act is incidental to the operation of the assessee's 
business or not is a question of fact to be decided on the facts of that 
• 
case, having regard to the nature of the operations carried on and the 
nature of the risk involved in carrying them out. The degree of risk 
F 
or its frequency is not of much relevance but-' its nexus to th.: r..ature 
of the business is material. [344 A; 349 D-E]. 
It is an integral part of the buSiness of bankinJ that 
sufficient 
moneys should be kept in the bank duly guarded to meet tho demands 
of the constituents. 
Retention of the money in the bank is part of the 
·operation of banking. 
Retention of money in the bank carries \vith it the 
ordinary risk of its being the subject of embezzlement, tho!!, clacoity 
G 
or destruction by fire and such other things. 
Such ri5k of loss is inci-
·dental to the carrying on of the operation of the business of b:mking. 
Loss incurred by dacoity in the present case is incidental to th! carrying 
on of the business of banking. [349 F-G]. 
Case law discussed. 
Motipur ·Sugar Factory Ltd. v. Commissioner of Incon:e-tax, Bihar 
.and Orissa, (1955) 28 I.T.R. 128 Charles Moore .!< Co. (IV.A.) Pvt. Ltd. 
H 
-v. Federal Cominissioner of Taxation, (1956) 95 C.L.R. 344 and Gold 
U 
Band Services Ltd. v. Con1111issioner of Inland Revenue~ (1961) ti.Z.L.R.·" 
· .467, relied on. 
f' · 
.. 
C.!.T. v: NAINITAL BANK (Subba Rao J.) 
341 
A 
Badridas Daga v. Commissioner of Income-tax 
[1959] S.C.R. 
690 
B 
c 
distinguished. 
Ramaswamy Chettiar v. Commissioner of lncome...taxJ Madras l.L.l~. 
( 1930) 53 Mad. 904, disapproved. 
CIVIL APPELLATE JURISDICTION; Civil Appeal No. 938 
of 
1963. 
. 
Appeal from the judgment and decree dated December 19, 
1960 of the Allahabad High Court in Income-tax Reference No. 
1588 of 1956. 
K. N. Rajagopala Sastri, R. H. Dhebar and R. N. Sackthey, 
for the appellant. 
A. V. Viswanatha Sastri and Naunit Lal, for the respondent. 
The Judgment of the Court was delivered by 
Subba Rao J. 
This appeal by certificate raises the question 
whether loss of cash by dacoity is an admissible deduction nnder 
D 
s. 10(1) of the J!ndian Income-tax Act, 1922, hereinafter called 
the Act, in computing the assessee's income in a banking business. 
E 
F 
G 
H 
The facts relevant to the question raised may be briefly stated. 
The assessee is the Nainital Bank Limited. It is a public limited 
company which carries on the business of banking. It has various 
branches and one of them is situated at Ramnagar. 
In the usual 
course of its business large amounts were kept in various safes in 
the premises of the Banlr.

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