JAGDISH SAHAI J. - At the instance of the assessee, M/s. U. P. Vanaspati Agency, Kanpur (hereinafter referred to as the assessee), the statement of the case and the question of law, given below, has been referred to this court by the Income-tax Appellate Tribunal, Allahabad Bench (hereinafter referred to as the Tribunal), under section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act) :
'Whether, on the facts and the circumstances of the case, the sum of Rs. 12,000 was an admissible deduction in working out the assessable income for the assessment year 1961-62 ?'
The statement of the case relates to the assessment year 1961-62, the accounting year being January 1, 1960, to March 31, 1961. The assessee is a registered firm carrying on business as a commission agent for vanaspati, ghee, soap, refined oil, etc. In the assessment year in question he was agent of M/s. Berar Oil Industries, Akola, in Madhya Pradesh, and Tung Bhadra Industries, Kurnool, in Andhra Pradesh.
On January 4, 1960, the manager of the assessee handed over up one Prem Narain, an employee of M/s. Bharat Textiles, a sister concern of the assessee, a sum of Rs. 13,000 in order to deposit it in the Nayaganj branch of the State Bank of India, so that a hundi of M/s. Berar Oil Industries, Akola, of Rs. 21,000 be honoured. Sri Prem Narain handed over a cloth bag containing the amount of Rs. 13,000 at the State Bank of Nayaganj Branch. He then reported to the bank jamadar that the sum of Rs. 13,000 was stolen. The assessee made a first information report at a police station and a sum of Rs. 1,100 was recovered throught the police. Prem Narain was prosecuted but acquitted by the Court of Session on December 13, 1960, on the ground of want of evidence. The assessee claimed a deduction of Rs. 12,000 in the assessment year 1960-61. The Income-tax Officer disallowed it on the ground that the amount was lost not by an employee of the assessee but of a sister concern. The assessees appeal before the Appellate Assistant Commissioner failed and so did his second appeal before the Tribunal.
The Tribunal has, however, made the instant reference to this court.
The Tribunal decided against the assessee on two grounds. Firstly, that the loss occurred in the assessment year 1960-61 and not in the year 1961-62, and, consequently assuming that there was loss, no deduction could be made in the assessment year 1961-62. The second ground on which the Tribunal decided against the assessee is that there was no direct connection between the loss of Rs. 12,000 and the business of the assessee with the result that it could not be comprehended in the words 'loss incidental to business'.
We have heard Mr. Tewari on behalf of the assessee and Mr. Gulati for the department. The assessee was dispossessed of the sum of Rs. 12,000 on January 4, 1960. But, mere dispossession is not loss. A dispossession would become a loss only after the recovery becomes impossible or the chances of recovery become very remote. Besides, there must be the consciousness of loss in the mind of the person who has been dispossessed of the money or property before it can be treated to be a loss and not mere dispossession. From the statement of case it is clear that, even though on January 4, 1960, the entire sum of Rs. 13,100 was stolen, the very same day a recovery of Rs. 1,100 was made. The fact that a considerable amount of the sum was recoverable would have only strengthened the assessee in the belief that there was reasonable possibility of the recovery of the balance also. The consciousness that the money had been lost could have dawned on him only after a reasonable amount of time had been spent in making efforts for the recovery of the sum of Rs. 12,000. The assessment year 1961-62 opened on 1st of April, 1960, that is to say, about three months after January 4, 1960, when the assessee was disposed of the sum of Rs. 12,000. The period of three months cannot be considered to be an unreasonably long period for any person to entertain a hope of the recovery of the amount of which he is dispossessed in the circumstances in which the assessee was dispossessed of Rs. 12,000 on January 4, 1960. Clearly, the period of three months cannot be said to be excessive within which a person can reasonably make efforts to have his money back having been dispossessed of it in the circumstances of the present case. The investigation of the case, the getting of the clue, and the finding out of the track to trace the culprit and the money would necessarily take some time and a period of three months for all this cannot be said to be excessive. Under these circumstances, in our opinion, the consciousness of the loss of Rs. 12,000 should be attributed to the assessee only after 1st April, 1960. i.e., in the assessment year 1961-62. We are, therefore, satisfied that the claim of the assessee could not be rejected on the ground that it should have been made in the preceding assessment year.
From the statement of the case it is clear and there is no dispute whatsoever between the parties that the sum of Rs. 12,000 was actually lost to the assessee. From the statement of the case it is also clear that the sum of Rs. 13,000 was given to Sri Prem Narain so that the money could be paid in the Nayaganj branch of the State Bank in order to honour the hundi of Rs. 21,000 of M/s. Berar Oil Industries. We have already stated earlier that the assessee was agent of M/s. Berar Oil Industries. Admittedly, the hundi was in respect of a business transaction between the assessee and M/s. Berar Oil Industries. Consequently, there is no escape from the conclusion that the sum of Rs. 13,000 was given to Sri Prem Narain to honour a hundi which had been received by the assessee in connection with his business dealings. Inasmuch as Rs. 12,000 was lost, it must be held that it was a loss incurred by the assessee in the conduct of his business.
Mr. Tewari claims deduction under section 10(1) of the Act. The submission is that the provision requires that assessment of tax shall be made on profits or gains any business. Profits or gains are the residue left after deducting the losses and the business expenditure. Therefore, the deduction of any loss is implicit in section 10(1) of the Act.
We, therefore, answer the question referred to us in the affirmative in favour of the assessee and against the department. The department shall pay to the assessee a sum of Rs. 200 as costs of these proceedings. We fix the amount of the learned counsel for the department at the same figure.
Questions answered in the affirmative.