# COM~DSSIONER OF INCOME-TAX, U.P v. NAINITAL BANK LTD. . , September 25, 1964

- **Citation:** [1965] 1 S.C.R. 340
- **Court:** Supreme Court of India
- **Decided:** 1964-09-25
- **Case number:** ; Civil Appeal No. 938 of 1963
- **Bench:** K. SUBBA RAo, J.C. SHAU Ami S. M. SIKRI
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/com-dssioner-of-income-tax-u-p-v-nainital-bank-ltd-september-25-1964-3316
- **Pages:** 10

## Headnote

. Income Tax-Deductible /ass-Banking Company-Loss by dacoityWhether 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 computing 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.

## Text

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 dacoityWhether 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 computing 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.
01'.1 June 11, 1951, at about 7 P.M.
there was a dacoity in the Bank and the dacoits carried away the
cash amounting to Rs. 1,06,000 and some ornaments etc.
pledged with the Bank.
For the assessment year 1952-53 the
Bank claimed the said amount as a deduction in computing its
incoine from the banking business on the ground that it was a
trading loss.
The J!ncome-tax Officer
disallowed the claim
on the ground that it was not a loss incidental to the banking
business.
On appeal, the Appellate Assistant Commissioner of
Income tax, and on further appeal, the Income-tax Appellate Tribunal, confirmed that finding.
On a reference to the High Court
of Judicature at Allahabad, a Division Bench of that Court held
that the loss by dacoity was incidental to the banking business and
was, therefore, a trading loss and that the assessee was entitled to
a deduction of the same under s. 10( 1) of the Act.
Hence the
appeal.
Mr. Rajagopala Sastri,
learned
counsel for the appellant,
argued that the Bank lost the money by burglary not in its capacity
as a bank but' only just like any other citizen, that the risk of
. L2Sup./64-9
342
SUPREME COURT REPORTS
(1965] I S.C.R.
burglary was not incidental to the business of banking and that,
therefore, the amount burgled could not be deducted as a trading
loss.
Mr. A. V. Viswanatha Sastri, on the other hand, contended that the money lost by burglary was the stock-in-trade of the
banking business, that it was kept in the Bank in the usual course
of its business .and that the risk of ii> loss was incidental to the
carrying on of the said business and, therefore, the amount lost
was a trading loss liable to be deducted under s. I 0( I) of the
Act.
Before we consider the law on the subject, ii would be con.
venient at the outset to notice briefly the scope of the activities of
banking business.
Under s. 5 (I )(b) of the Banking Companies
Act, 1949, "banking" is defined to mean "the acce'pting. for the
purpose of lending or investment, of deposits of money from the
public, repayable on demand or otherwise, and withdrawable by
cheque. draft. order or otherwise"; and under s. 5( I) (c). "banking company" means any company which transacts the husiness of
banking in India; under s. 5(1) (cc), " 'branch' or 'branch
oflk~· in relation lo a banking company. means any branch or
branch office, whether called a pay office or sub.pay office or by
any other name, at which deposits are received, cheques cashed or
money lent, and for the purposes of section 35 include; any place
of business where any other form of bu;iness referred lo in suhseclion (I) of section 6 is transacted."
Therefo•·e.
~ hank in~
busin~ss consists mainly in receiving deposits. makin~ advances.
realizing them and making fresh advances.
It is a continuous
proc~;' which requires maintenance af ready cash in the bank
premi.s~s. The Nainital Bank Ltd .. is a public limited company
incorporated for carrying on such banking business and Ramnagar
branch i< one of its branches doing such business.
Unlike an
individual. a limited company like a hanking companv comes into
existence for the purpose of carrying on only the banking busine's
and ordinarily there cannot be any scope for attributing different
characters to that busines~. We therefore, start with the ract that
the Ramnagar branch of the Bank had kepi large ;imounl< in the
Bank premises in the usual course of its busine~s in order tn meet
the demands of its constituents.
rt is settled law, and indeed it is not disputed, that cash is the
stock-in-trade of a banking company.
In Arunachalam Che/liar
v. Commlssio11er of Income-tax Madra~(
1 ). the Judicial Committee was considering the basis of the right of an assessec to
(1l (1936) 41.T.R. m. 83 (P.C.).
A
ll
c
J)
E
I·
G
II
C.I.T. v. NAINITAL BANK (Subba Rao I.)
343
A deduct irrecoverable loans before arriving at the profits of moneylending, and in that . context stated:
B
c
D
"The basis of the right to deduct irrecoverable loans
before arriving at the profit of money-lending is that to
the money-lender, as to the banker, money is his stockin·trade or circulating capital; he is dealing in money."
In Commissioner of Income-tax, Madras v. Subramanya Pillai(1}
a Division Bench of the Madras High Court, in explaining the
principle why in money-lending business allowances for bad debt&
were given, observed:
"In the case of banking or money-lending business /
. . . . allowance for bad and doubtful debts was given for
the reason that all the moneys embarked in the moneylending business and lent out for interest were in the
nature of stock-in-trade of the banker or money-lender
and the bad and doubtful debts represented so much loss
of the stock-in-trade. Losses in respect of the stock-intrade have always been regarded as trade losses and
allowed to be set off against the receipts."
The same view was expressed by the Full Bench of the Madras
High Court in Ramaswami Chettiar v. Commissioner of lncometax, Madras( 2 ) and by the Patna High Court in Motipur Sugar
E Factory, Ltd. v. Commissioner of Income-tax, Bihar & Orissa(').
Under s. 10(1) of the Act loss of stock-in-trade is certainly
an admissible deduction in computing the profits.
Payment
received from an insurance company for stock destroyed by fire
was taken into account as a trading receipt in computing the
F
profits assessable to income-tax; see Green (H. M. Inspector of
,Taxes) v. /. Gliksten and Son, Ltd.('); and Raghuvanshi Mills
Ltd. v. Commissioner of Income-tax, Bombay City(1). If
receipt from an insurance company. towards loss of stock was a
trading receipt, conversely to the extent of the loss not so recouped
it should be tracling loss.
Loss sustained by an assessee owing to·
G destruction of the stock-in-trade by enemy invasion was held to
be a trading loss which the as~see was entitled to claim as a
deduction: see Pohoomal Bros. v. Commissioner of Income-tax,
Bombay City(•). ·Loss incurred in stock-in-trade by rava~es Qf
·white-ants was allowed as trading loss in computing the profit of
H ·a busineS$; see Hira Lal Phoolchand v. Commissioner of Income-
(I) (1950) 18 I.T.R. 85, 92.
(3) (1955) 28 I.T.R. 128.
(S) [1953] S.C.R. 177.
(2) I.L.R. (1930) 53 Mad. 90-4.
· (4) (1928-29) 14 T.C. 364.
(6) (1958) 34 I.T.R. '4.
344
SUPREME COURT REPORTS
(I 965) I S.C.R.
tax, C.P., U.P. and Berar('). We, therefore, reach the position
A
that cash is a stock-in-trade of a banking business and its loss in
the course of its
business under varying circumstances
is
deductible as a trading loss in computing the total income of the
business.
But it is said that every loss of a stock-in-trade in whatsoever
B
way it is caused is not a trading loss, but the said loss should
have been caused not only in the course of the business but also
should have been incidental ' to it. The leading case on the
subject is that of this Court in Badridas Daga v. CommissioMr of
Income-tax(").
There, the appellant was the sole proprietor of
a firm which carried on the business of money-lending. The agent
C
of the firm withdrew large amounts from the firm's bank account
and applied them in satisfaction of his personal debts. In the
firm's account the balance of the amount not recoverea from the
agent was written off at the end of the accounting ·year as irrecoverable.
This Court held that the Joss sustained by the appellant therein as a result of' misappropriation by the agent was one
D
which was incidental to the carrying on of the business and should
therefore, be deducted in computing the profits under s. I 0( 1)
of the Act. Vcnkatarama Ayyar J., speaking for the Court,
observed:
"The re,ult is that when a claim is made for a deducE
tion for which there is no specific provision in section
I 0(2), whether it is admissible or not will depend on
whether, having regard to accepted commercial practice
and trading principles, it can be said to arise out of
the carrying on of the business and to be incidental to
it. If that is established, then the deduction must be
F
allowed. orovided of course there is no prohibition
against it, express or implied, in the Act."
Applying the nrinciple to the facts of the ~a-;e before the Court,
the leanied Judge proceeded to state:
"If emnloyment of agents is incidental to the carrying
on of business, it must logically follow that losses which
are incidental to such employment are also incidental to
the carrying on of the business."
The principle was clearly laid down and was, if we may say so,
correctly applied to the facts before the Court.
But there is a
(I} (1947) JS l.T.R. 20S.
(2} (19S9J S.C.R. 690.
G
H
C.!.T. v. NAINITAL BANK (Subba Rao J.)
345
A passage in the judgment on which strong reliance was placed by
the kamed counsel for the appellant and it was contended that
the instant case clearly fell under the illustration contained in the
passage. It reads:
B
c
D
"At the same time, it should be emphasised that the
loss for which a deduction could be made under section
I 0 (1) must be one that springs directly from the carrying on of the business and is .incidental to it and not any
loss sustained by the assessee, even if it has some connection with his business. If, for example, a thief were to
break overnight into the premises of a money-lender and
run away with funds secured therein, that must result
in the depletion of the resorrces. available to him for
lending and the loss must, in that sense, be a business
loss, but it is not one incurred in the running of the
business, but is one to which all owners of properties
are exposed whether they do business or not.
The loss
in such a case may be said to fall .on the assessee not
as a person carrying on business but as owner of funds.
This distinction, though fine, is very material as on it
will depend whether deduction could be made under
section 10( 1) or not."
It was said that the loss in the present case fell on the assessee
E
not as a person carrying on the business of banking but as owner
of funds.
That passage in terms refers to a money-lender and does
not deal with a public company carrying on banking business.
In the case of a money-lender the profits he made may form part
F
of the private funds kept in his house which he may or may not
invest in his business.
It is indistinguishable from his other
moneys.
But in the case of a bank the i:Ieposits received by it
fom1 part of its circulating capital and at the time of the theft
formed part of its stock-in-trade.
In one case it cannot be
posited that the amount robbed is part of the stock-in-trade of
G
the trader till he invests it in his business; in the other it forms
part of the stock-in-trade without depending on the intention of
the banking company.
There lies the distinction between the
instant case and the illustration visualized by this ·Court.
We
have only suggested a distinction, but we are not expressing any
H
definite opinion on the question whether the loss incurred in the
case illustrated is or is not a trading loss.
The correctness or
otherwise of the said observation may fall to be considered when
such a case directly arises for decision.
346
SUPREME COURT REPORTS
[1965] I S.C.R·
Before parting with this decision, it may be noticed that thi1
A
Court agreed with the decisions in Ve11kntachalaparh,v fver v.
Commissioner of Income-tax('), Lord's Dairy Farm Ltd. v. Com·
missioner of lncome-tax( 2 ), and Mo1ip11r St1f!ar Factory Ud. v.
Commissioner of Income-tax("). The decision in Motipur Sugar
Factory case( 3 ), which was accepted by this Court to be correct,
takes us a step further in the development of Jaw.
There, the
B
assessee company was carrying on business in the manufacture
of sugar and molasses out of sugarcane. It deputed an employee,
in compliance with the statutory rules, with ca3h ,for disbursement to sugarcane cultivators at the
spot of purchase.
The
cash was robbed on the way.
The Division Bench of. the Patna
High <;ourt held that the Joss of money was loss arising out of C
the business of the assessce and sprang from the statutory necessity
of sending money to various purchasing centres for disbursement
and, therefore, the assessec was entitled to deduct the loss in
computing its taxable income under s. 10(1) of the Act. It will
be noticed that this is not a case of mi~appropriation by a servant
of the company, but a case of Joss to the company by reason of
its cash being robbed from its servant. rn that case, cash was
entrusted to the employee under statutory rules.
But there may
D
be cases where such entrusunent may be made by custom 01
practice.
What is important to notice is that robhery of cash
from the hands of an employee is held to be incidental to the
E
business of the asscsscc.
lif that be so, why should a different
principle be adopted if the loss was not caused by robbery from
the hands of the employee on his way to a particular place in
·discharge of his duty, but it was a loss caiised by dacoity from
the premises of the bank itself.
In one case,
the
employee
carried oash for disbursement to sugarcane cultivators, and in the
F
other, funds were lodged in the Bank with reasonable safeguards
for disbursement of the same to its constituents. If the loss was
incidental to the business in one case, it should equally be so in
the other case. The judgment of the Special Bench of the
Madras High Court in Ramaswami Chettiar v. The Commissioner
of Income-tax, Madras(') supports the case of the
Revenue.
G
There, the loss was incurred by theft of money used in moneylending business and kept in the business premises.
The Full
Bench by majority held that the loss incurred thereby should not
be allowed in computing the income-tax, as the theft was committed by persons who were not
at
the time of commission
employed as clerks or servants by the assessee.
Thi~ judgment,
(I) (19'1) 20 l.T.R. 363.
(3) (1955) 28 1.T.R. 128.
(2) (1955) 27 I.T.R. 700-
(4) (1930) l.L.R. 53 Mad. 904.
H
C.I.T. v. NAINITAL BANK (Subba Rao J.)
347
A if we may say so with respect, takes a narrow view of the problem.
Indeed in Motipur Sugar Factory case('), which was approved by
this Court, the theft was committed not by the employee of the
company but by robbers.
To that extent the correctness of the
Madras decision is shaken.
That apart the judgment of Anantakrishna Ayyar J., who recorded a dissent, contains a constructive
11
criticism of the majority view.
We prefer the view of Anantakrishna Ayyar J., to that of the majority.
The decision of the High Court of Australia in Charles Moore
and Co. (W. A·.) Pvt. Ltd. v. Federal Commissioner of Taxation(') throws considerable light on the subject.
In that case the
c assessee was carrying on business of a departmental store and he
banked the takings thereof daily. It was the practice every business morning for the cashier accompanied by another employee to
taJCe the previous day's takings to the bank some two hundred
yards away and pay them to the credit of the assessee.
One day,
while on their way to the bank the two employees were held up at
D gun point and robbed of a large amount which fonned part of the
receipts of the assessee for the previous day.
The Court held that
the loss WM incurred in gaining or producing the assessable income of the year in question within the meaning of s. 51 ( 1) of
the Income Tax and Social Services Contribution Assessment Act,
1936-52 and was not a loss or outgoing of capital or of a capital
E nature, and was consequently a deduction from assessable income
in such year.
It was pointed out therein:
F
"Banking the takings is a necessary part of the operations that are directed to the gaining or producing day
by day of what will form at the end of the accounting
period the assessable income.
Without this, or some
equivalent financial procedure, hitherto undevised, the
l'eplenishment of stock-in-trade and the payment of
wages and other essential outgoings would stop and that
would mean that the gaining or producing of the assess·
able income would be suspended."
G Then the Court proceeded to state :
H
"The 'occasion of the Joss' in the present case was the
course pursued in banking the money .
. There
is no difficulty in understanding the view that involuntary outgoings and unforeseen or unavoidable losses
should be allowed as deductions when they represent that
kind of casualty, mischance or misfortune which is a
natural or recognized incident of a particular trade or
(ll (19SS) 28 I.T.R. 128.
(2) (19S6·S7) 9S C.L.R. 344, 3SO.
St;PRE!YI E COURT REPORTS
(1965] I S.C.R.
business [Ile profits of which arc in question. These are
charactcrislic incidents of the systematic exercise of a
trade or lhc pursuit of a vocation. ( 1)
Even if armed
robbery of employees carry;ng money through the streets
had become an anachronism which we no longer knew,
these words would apply.
For it would remain a risk
to which of its very nature the procedure gives rise.
But unfortunately it is still a familiar and recognized
hazard and there could be little doubt that if it had been
insured against the premium would have
formed an
allowable deduction.
Phrases
like the foregoing or
!he phrase 'incidental and relevant' when used in relation to the allowability of losses as deductions do not
refer to the frequency, expectedness or likelihood of
their occurrence or the antecedent risk of their being
incurred, but to
their nature or character.
What
matters is their connection with the operations which
more directly gain or produce the assessable income."
This decision laid down the following principles: (i) banking the
takings was a necessary pan of the operations of the business
with which the court was dealing in that case; (ii) the Joss to the
husincss caused by robbery was incidental and relevant to that
business as the procedure involved in carrying on of the business
carried with it the risk of the cash being robbed on the way; (iii)
the expressions "incidental" and "relevant" in relation to losses
did not relate to the frequency of the happening of the risk but
to their nature and character, that is to say, the loss must be
connected with the operation to produce income.
The judgment
of the Supreme Court of Newzt:aland in Gold Band Services
Umited v. Commissioner of Inland Revenue(')
applied
the
decision of the Australian High Court cited above to a situation
which comes
very
near to our case.
The appellant therein
owned and operated a petrol service station which was kept open
continuously.
It was held up by an armed robber and a substantial sum of money was stolen.
The Court held that the sum
lost as a result of the robbery was a loss e~clusively incurred
in
gaining or producing the assessable income of the appellant and
was deductible from its gross income.
Adverting to the argument very often advanced in courts based upon the robbery being
committed i'l the !Jremises and that committed on the way to a
bank, Haslam J. observed :
(I) Rich J. in Com1nission~r of Taxation rN.S.W.) v. A.fh (1938) 61 C.l.R. 263
•• 277.
(2) fl96t) N.Z.L.R. 467, 470.
A
B
c
D
E
F
G
H
A
B
c
C.I.T. v. NAINITAL BANK (Subba Rao I.)
349
"I can see no valid distinction to be drawn in principle
between the robbery of trade receipts on the appellant's
premises at an hour before banking was possible (but
intended to be banked at a time when the banks were
open) and the robbery of the same money when in the
custody of the employee on the way to the bank. In
my opinion, the occasion for the loss of the present
appellant was the operation of its business in the normal
way, with the result that the cash stolen was on the
premises at that particular time and that the possibility
of such plunder constituted an attraction to a certain
type of criminal, including both the safe-blower and
the armed burglar."
The present case is a stronger one, for the money was kept in
the Bank as it was absolutely necessary to carry on the operation
of the banking business.
We may now
summarize the legal position thus.
Under
D s. 10( 1) of the Act the trading loss of a business is deductible for
computing the profit earned by the business.
But every loss is
not so deductible unless it is incurred in carrying out the operation of the business and is incidental to the operation.
Whether
loss is incidental to the operation of a business .i.5 a question of
E fact to be decided on the facts of each 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 the risk or
its frequency is not of much relevance but its nexus to the nature
of the business is material.
In the present case the respondent was carrying on the busiF
nes.s of banking.
It is an integral part of the process of banking
that sufficient moneys should be kept in the bank duly guarded
to meet the demands of the constituents.
The retention of the
money in the bank is a part of the operation of banking.
The
retention of money in the bank premises carries with it
the
ordinary risk of its being subject of embezzlement, theft, dacoity
G or destruction by fire and such other things.
Such risk of loss is
incidental to the carrying on of the operations of the business of
banking.
In this view, we are clearly of the opinion that the
loss incurred by dacoity in the present case is incidental to the
carrying on of the business of banking.
H
In the result, the order of the High Court is correct and the
appeal fails and is dismissed with costs.
Appeal dismissed ..