NARASIMHAM, J. - The question that has been referred by the Income-tax Appellate Tribunal, Calcutta Branch, Patna to us for opinion as follows :-
'Whether in the circumstances of the case the sum of Rs. 8,675 is allowable either as a trading loss or as an expenditure laid out or expended wholly and exclusively for the purposes of the business within the meaning of Section 10(2)(xii) of the Act ?'
[Presumably Section 10(2)(xii) of the Act ?
The facts found by the Tribunal are these :-
The assessee carries on the business of selling yarn, speculating on cotton and money-lending. He claimed deduction of Rs. 8,675 in respect of the accounting year commencing from October 21, 1941, and ending on December 8, 1942, on the ground that the said sum was stolen from the iron safe inside his shop by one Jauhar Mal who was a relation of the assessee and who was also working as the accountant of his firm during the year in question. The shop of the assessee used to be closed at about 8 p.m., and the iron safe containing the cash used to remain inside the shop. It was found by all the Income-tax authorities that the said Jauhar Mal secured the keys of the shops after 8 p.m., entered the shop at about 10 p.m., opened the iron safe and removed Rs. 8,995.
On these facts the question arises as to whether the assessee can claim a deduction of the sum stolen, either under the general provisions of sub-section (1) of Section 10 or under clause (xv) of sub-section (2) of that Section. There is no express provision in the Indian Income-tax Act authorizing such deduction but Mr. Mohanti has relied on some decision in which such losses have been allowed on general principles of computation of profits.
Mr. Mohantis main contention is that the theft was committed by the accountant who was an employee of the assessee and that there was no material distinction between embezzlement by an employee of the an assessee or by theft by such an employee so as deduction for the purpose of estimating the profit is concerned. He relied on Jagarnath Therani v. Commissioner of Income-tax, where it was held that a sum embezzled by an employed in the course of the business was a loss incidental to the conduct of the business and should be deducted in calculating the assessable income. The correctness of this decision has been doubted in a later Patna decision reported in Messrs. Mulchand Hirtalal v. Commissioner of Income-tax where the facts found were that some of the money of the assessee was stolen from an employee of the assessee while it was being sent to the bank. But the loss did not occur in the year of accounting and consequently it was unnecessary to consider the whether the loss was deductable from the total profits. Therefore the observations of the learned Judges regarding the correctness of Jagannath Therani v. Commissioner of Income-tax were admittedly in the nature of obiter dicta. In the present case, however, it is unnecessary to consider which of the two views is correct because even on the basis of the earlier Patna decision, Jagarnath Therani v. Commissioner of Income Tax, Mr. Mohanti contention cannot be supported. It cannot be said that the theft which occurred after the close of the shop was committed by the accountant in the course of his employment or else that the theft was incidental to the conduct of the business. In fact, there is hardly any distinction between the case of theft of this type committed by an employee or servant of the owner of the one hand and by an ordinary burglar on the other. The fact that he was an employee merely facilitated the commission of the theft by giving him access to the Keys. The position might have been quite different if the theft had occurred during the horse, prior to the crediting of the sum to the account of the employer. This case is somewhat similar to a Lahore case reported in L. N. Gadodia and Co. In re.
The aforesaid view is supported by the following observations of Rowlatt, J., in Curtis v. J. and G. Old filed Ltd. :-
'I quite think, with Mr. Latter, that if you have a business in the course of which you have to employ subordinates, and owing to the negligence or the dishonesty of the subordinates some of the receipts of the business do not find their way into the till, or some of the bills are not collected at all, or something of that sort, that may be an expense connected with and arising out of the trade in the most complete sense if the word. But here that is not this case at all. This gentleman was the the managing director of the company, and he was in charge of the whole thing, and all we know is that in the books of the company which do exist it is found that the moneys when throughout the books into his pocket. I do not see that there is any evidence at all that there was a loss in the trade in that respect. It simply means that the assets of the company, moneys which are company, had got and which had got home to the company, and he took them out. It seems to me that what has happened is that he has made away with receipts of the company debtors the trade altogether in virtue of his position as managing director in the office and being in a position to do exactly what he likes.'
Mr. Mohanti has placed some reliance on the dissentient judgment of Anantakrishan Ayyar, J., in Ramaswami Chettiar v. Commissioner of Income-tax. But the facts of that case are clearly distinghishable. There the sole business of the assessee was money-lending and the cash that was stolen was considered by Anantakrishna Ayyar J., to be part of the stock-in-trade. The Majority of the Judges, however, held that the theft could not be said to be loss incidental to the conduct of the business. For the purpose of this case, however, it is not necessary to discuss the relative merits of minority view and the majority view. It is sufficient to note that from the facts as found it cannot, by any stretch of a imagination, be held that the theft of the assessee. That is to say, such a loss cannot be regarded as likely to occur having regard to the peculiar risks attendant upon the conduct of the business of the assessee.
Mr. Mohanti next contended that so far as the money-lending portion of the business of the assessee is concerned a portion of the sum that was stolen must be held to be part of the stock-in-trade and deduction should be allowed for the sum. But on this questions we are bound by the finding on facts arrived by the Tribunal. The finding is as follows :-
'There is no evidence that the money kept in the safe was the stock-in-trade of the money-lending business and not his capital.'
I would therefore, answer the question in the negative and say that the sum of Rs. 8,675 is not allowable either as a trading loss or as expenditure laid out or expended wholly and exclusively for the purposes of the business within the meaning of Section 10(2)(xv) of the Income-tax Act.
The assessee should be pay costs to the Commissioner of Income-tax.
Hearing fee is fixed at Rs. 100.
RAY C.J. - I entirely agree. In course of the argument it has been brought to our notice that the later use of Messrs. Mulchand Hiralal v. Commissioner of Income-tax had either case of the self-same Court in the case of Jagarnath Therani v. Commissioner of Income-tax. I do not think such a contention is entertainable. It is unconstitutional for one Division Bench either to overrule or to doubt the correctness of the decision of another Division Bench of the same Court. What is constitutionally permissible is to distinguish it on facts. Besides, What has been laid down as principle of law in the case of Messrs. Mulchand Hiralal v. Commissioner of Income-tax has been so down as an obiter dictum. His Lordship Country -Terrell C.J., before dealing with question of law observed : 'In my opinion the decision of the Commissioner of Income-tax that the loss (be theft) did not occur in the year of accounting (1932-33) is fatal to the contention of the assessee.' This leads me firmly to the clearest possible inference that any further question of law did not arise for consideration in that case; secondly, if I may so, with great respect, his Lordship has proceed upon the assumption that the deduction claimed on account of theft or embezzlement can be claimed only as an allowance permitted in the specific provision of sub-section (2) of Section 10. It has always been held, and that unanimously, that claim for such deduction come within the general principles of law and rule in finding out what really represents the gains and profits of a business. It is for that reason that such deductions are claimed as losses incidental to the trade, otherwise known as trade losses.