SRINIVASAN J. - The question referred to us is :
'Whether the sum of Rs. 16,737 or any part thereof is deductible from the profits of the year 1952, the previous year for the assessment year 1953-54, under any of the provisions of the Income-tax Act ?'
The assessee carries on the business of banking. At some time after the closing hours of the bank on the 28th April, 1951, and its opening on the following Monday, the 30th of April, 1951, the premises of the bank had been broken into. The safe room had been entered. The safe had been opened and a large amount of cash amounting to the entire closing balance on 28th April, 1955, which was Rs. 26,959 and odd had been taken away. In addition, jewels to the value of about rupees two lakhs, which had been pledged with the bank which had also been kept in the safe, had been removed. In connection with this incident, one Thiagarajan, who was in the employ of the bank as cashier, was prosecuted. Almost the entirety of the jewels and cash of about Rs. 5,000 were recovered from him. The unrecovered balance of Rs. 21,736-14-0 was debited to Thiagarajans account. At a meeting of the directors of the bank held in December, 1952, it was decided that civil proceedings should be taken against Thyagarajan for recovery of Rs. 5,000 only and that the balance of Rs. 16,737 should be written off. It was in respect of this amount so written off that the assessee claimed to be entitled to deduct that amount from the profits of the relevant accounting year. The Income-tax Officer disallowed the deduction on the ground that as the loss was the result of a theft committed after office hours, it was not a defalcation by an employee; further it was not a trade debt which could be said to have been incurred in the normal course of business. This view was concurred in both by the Appellate Assistant Commissioner and the Tribunal and, on the application of the assessee, the question set out above stands referred to us for determination.
In order to appreciate the contentions that have been advanced by Sri Ramamani, for the assessee, it is necessary to set out a few further details. Now, it appears that on the 28th April, 1951, Thiagarajan, the cashier, approached Ramachandra Chettiar, the vice-president of the bank and got him to sign a cheque for Rs. 15,000 on an account of the assessee with another bank. Thiagarajan represented to the vice-president that a constituent of the bank, one Vasantha Chettiar, had sent word to say that he would be withdrawing an amount of Rs. 15,000 and that was the reason why the cash balance of the bank had to be increased. This was later on shown to be false. It is common ground that Thiagarajan did in fact cash the cheque and bring the sum of Rs. 15,000 to the assessee bank. The total cash balance of Rs. 26,000 and odd referred to which was taken away during the burglary in question included this sum of Rs. 15,000.
Had it been the case that Thiagarajan misappropriated this sum of Rs. 15,000 after getting the cheque duly cashed and without bringing this amount into the accounts of the bank, the case would have stood on an entirely different footing, and the department would not have had any justification for refusing to admit the deduction of this amount from the trading results of the assessees business. The question, unfortunately for the assessee, has assumed a different form altogether for the simple reason that it is admitted on all hands that whatever the motive of Thiagarajan might have been in enhancing the cash reserve of the bank, the sum in question came into the custody of the bank and was placed along with the other cash balances of the assessee bank in the strong room of the bank. Sri Ramamani, however, contends that as it was established that the constituent of the bank, Vasantha Chettiar, had given no instructions whatsoever to Thiagarajan and it was further established that Thiagarajan had played fraud upon the vice-president of the bank in getting the cheque for Rs. 15,000 signed by him, it must follow that the loss suffered by the bank was due to the machinations of Thiagarajan. It is contended that where an employee of the bank proposing to act in the normal course of the business of the bank commits a fraud of this description, though the actual loss might have been sustained as a result of the burglary by Thiagarajan himself, at least to the extent of this sum of Rs. 15,000, it should be held that the loss occurred in the normal course of business. The question is whether this view is correct.
In Badridas Daga v. Commissioner of Income-tax, the Supreme Court has held that the loss sustained by a business by reason of embezzlement by an employee is not a deduction which in admissible under any of the provisions of section 10(2). Nevertheless, that, being incidental to the carrying on of the business, should be deducted in computing the profits under section 10(1) of the Act. But that it should arise out of the carrying on of the business and be incidental to it is an essential requirement before the deduction can be justified. Their Lordships clearly laid down that this is a question turning on the facts of each case whether the embezzlement in respect of which deduction is claimed takes place in the carrying on of the business. Learned counsel for the assessee, however, seeks to draw some assistance from certain passages in the judgment of the Supreme Court. He would argue that notwithstanding the subsequent burglary, which was by the cashier himself, which led to the removal of the funds from the premises of the bank, the placing of this sum of Rs. 15,000 in the bank premises was itself actuated by fraudulent motives amounting to, in a manner of speaking, an attempted embezzlement by the cashier. We are not satisfied that whatever might have been the intention of the cashier when he fraudulently obtained the cheque, that intention can be said to continue after the cashier had replaced the funds in the safe room of the bank. The mere circumstance that the cashier was himself the burglar cannot lead to the conclusion that the theft was part of the fraud or the attempted embezzlement by the cashier. The evidence that was recorded in the criminal prosecution of Thiagarajan fully established that at the time when the bank closed for the day on the 28th April, 1951, this sum of Rs. 15,000 along with the other cash balances of the bank was placed in the safe, duly locked up and the keys were dispatched to the honorary secretary, Govindaraja Chettiar. That being so, the subsequent theft becomes completely disassociated from the earlier attempted fraud and it is difficult to see how the loss which was the result of the theft alone could be said to be in the normal course of business and incidental to it.
In Ramaswami Chettiar v. Commissioner of Income-tax, was considered a case where the strong room of a house occupied by the assessee firm was broken into and cash and currency notes were stolen. One of the persons convicted for the offence had been employed as a cook but was not so employed at the time of the offence. This person apparently facilitated the commission of the theft by administering drugs to the inmates of the house. The learned Chief Justice, who delivered judgment in the case, observed :
'So far as the money stolen was the profit of the assessee, unless it can be shown that its loss was incidental to the business he carried on, he cannot claim a deduction in respect of it. If anyone is paid a sum due to him as profits and he puts that in his pocket and on his way home is robbed of it, it would be, I think, difficult to contend that such a loss was incidental to his business. Still more so when he has reached his home and put these profit in a strong-room or some other place regarded by him to be a place of safety. I can well understand that in cases where the collection of profits or payment of debts due by, is entrusted to a gumastah or servant for collection and that person runs away with the money or otherwise improperly deals with it, the assessee should be allowed a deduction because such a loss as that would be incidental to his business. He has to employ servants for the purpose of collecting sums of money due to him and there is the risk that such a servant may prove to be dishonest and instead of paying the profits over to him convert them to his own use. But I cannot distinguish the present case from the case of any professional man or trader who, having collected his profits, is subsequently robbed of them by a stranger to his business.'
The principle laid down in the above decision has not, as far as we are aware, been departed from in any other case.
Learned counsel purported to draw a distinction in the case of a banking business. He claimed that money is the stock-in-trade of banking business and that the loss of stock-in-trade is, in whatsoever manner the loss might have been occasioned, a loss of a revenue nature. While, no doubt, that proposition is sound as far as it goes, and in fact finds support in Badridas Daga v. Commissioner of Income-tax, it does not conflict with the principle on the basis of which the deduction claimed can be allowed. That principle has been repeatedly affirmed to be that the loss should have been occasioned in the course of the business and in any transaction incidental to that business. The facts in so far as they are available in the present case establish beyond doubt that the loss was due to a burglary, a circumstance which disentitles the assessee to the deduction.
Learned counsel for the assessee referred to Bansidhar Onkarmal v. Commissioner of Income-tax. We are unable to see much application of this decision to the facts of the present case. In that case, an accountant of the firm stole a sum kept in the iron safe inside the business premises of the assessee. He did so after the working hours of the business. Narasimham J., as he then was, observed that the position might have been quite different if the theft had occurred during the office hours prior to the crediting of the sum to the account of the employer. The only feature upon which any reliance can be placed upon this decision in support of the assessees contention is that in the present case the money had been brought into the assessees till by means of a fraud practised by Thiagarajan, the cashier. But that, as we have pointed out, was not the occasion when any loss could be said to have arisen to the assessee. That money, in whatsoever manner it might have been procured, was duly brought into the accounts of the bank and was placed in the safe of the bank. The loss did not arise at any time when the cashier was in charge of it in the normal course of his functions. It may be that there might arise occasions when the actual removal of the money from the business might be after the working hours but the employee might have facilitated that removal by concealing that amount elsewhere in the premises of the bank from where its removal would be facilitated. Had such circumstances existed, one could possibly hold that the loss was occasioned during the normal working hours of the bank when the employee took certain steps in that connection. That we may repeat is not the case here.
We are of the opinion that it has not been established that the loss was occasioned to the assessee in the course of its business or was incidental to the business. That being so, the question is answered in the negative and against the assessee. The assessee will pay the costs of the department. Counsels fee Rs. 250.
Question answered in the negative.