RAMACHANDER SHIV NARAYAN versus COMMISSIONER OF INCOME TAX, ANDHRA PRADESH, HYDERABAD

Citation: [1978] 1 S.C.R. 801 · Decided: 04-11-1977 · Supreme Court of India · Bench: N.L. UNTWALIA · Disposal: Appeal(s) allowed

Judgment (excerpt)

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_ .. 
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 deduction 
in 
computation of 
his net 
incom~ on the ground that it \Vas a trading loss. 
The Income 
Tax Officer rejected the claim treating the Joss as being either of idle money 
-Or a capital loss and holding that it \Vas not incidental to the business of the 
assessee. 
An appeal before the Income Tax Appellate ·Commissioner 
failed; 
but in furth~r appeal the Tribunal held that 
the loss was allowable 
being 
incidental to the carrying on the business of the 
assessee. 
On 
a reference 
made at the instance of the Commissioner of Income Tax, the High 
Court 
of Andhra Pradesh answered it in favour of Revenue and against the assessee. 
Allowing the appeal by special Jef\ve. the. Court. 
A 
B 
c 
D 
E 
HELD : ( 1) The line of distinction as to whether a particular loss is a 
trading loss or a capital loss is very subtle and thin. 
In terms no specific pro-
vision is to be found in either of the two Acts (Income Tax Act of 1922 or 
1961) for allowing deduction of a trading loss of cash by theft. 
A trading 
loss not being a capital Joss has got to be taken into account while arriving 
F 
at the true figures of the assessee's income in the commercial sense. [803 F. 
~q 
. 
(2) The list of permissible deduction in either of the two Acts is not ex-
haustive. The relevant words, ins. l0(2)(xv) of the 1922 Act corresponding 
to s. 37 of the 1961 Act namely, "any expenditure .......... not being in 
the nature of capital expenditure or personal expenses of the assessee laid out 
or expended \Vholly and exclusively for the purpose of such business ...... " 
has not been able to take within its ambit loss of property or money by theft 
or dacoity as it is not an expenditure which has an element of volition, but a 
forced loss. 
Such a loss is a trading loss in the commercial sense and has got 
to be taken into account for ascei:tainment of true taxable profits. [804 C~EJ 
Badridas Daga v. Conunissioner of Income·Tax, 34 I.T.R. 10 and Co1n-
missioner of Income-tax U.P. v. Nainital Bank Ltd. 55 I.T.R. 707, followed. 
Motipur Sugar Factory Ltd. v. Con1n1i.Jsioner 
of Income-Tax, 
Bihar & 
Orisso 28 I.T.R. 128, approved,. 
Charles Moore & Co. (W.A.) Pty. Ltd. v. Federal Conunissio11er of Taxation 
( 1956·57) Commonwealth Law Reports 344 and Gold Bank Services Ltd. v. 
Commissioner of Inland Revenue (1961) New Zealand Law Reports, 
467 
quoted with approval. 
' 
G 
][ 
A 
B 
c 
D 
E 
F 
G 
H 
802 
SUPREME COURT REPORTS 
[1978] 1 S.C.R-
(3) If there is a direct and proximate nexus between the business operation 
and the Joss or it is incidental to it, then the loss is deductible, as without the 
business oper~tion and doing all that is incidental to it, no profit can be earned. 
It is in that sense that from a commercial standard such a loss is considered 
to be a trading one and becomes deductible from the total income although, 
in terms neither in the 1922 Act nor in the 1961 Act there is a provision like 
section 51 (I) of the Australian Act. [806 G-H] 
Basantlal Sanwar Prasad v. 
Co,n1nis~io11er of lncon1~e-Tax 67 l.T.R. 380 
(Patna); U.P. Vanaspati Age11cy v. Con1n1issio11er of Income-tax 68 I.T.R. 120~ 
Com1nissioncr of 
!11con1e Tax U.P. v. Sarya Sugar Milh· (P) Ltd. 70 l.T.R. 
109; Comn1issioner of Income-Tax, Madras v. K. T. M. S. Mal11nood 74 I

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