1964 PLP 16 (PTD)

Business‑Loss by embezzlement‑Bank‑Embezzlement by agent during holidays‑Indian Income‑tax Act, 1922, S.

10. A was the agent of a branch of the assessee bank. The keys of the safe in that branch were entrusted, one to A and the other to B. On a certain holiday, at a time when B had left the place after entrusting his key to a peon of the bank, A managed to obtain the key from the peon, opened the safe, took out Rs. 18,000 and absconded Held, (i) that the fact that the embezzlement was by one who had been in joint charge but was acting singly in the matter of the embezzlement made no difference for the purpose of income -tax; (ii) that the loss of the sum of Rs. 18,000 was incidental to the business of the assessee; (iii) that as the money was the stock‑in‑trade of the assessee, a bank, the fact that the money was embezzled not during the office hours but on a holiday did not affect the question whether the loss was incidental to the carrying on of the business. Badridas Daga v. Commissioner of Income‑tax (1958) 34 I T R 10 applied. C. A. Ouseph and C. J. Antony for the Assessee. G. Rama lyer for the Commissioner. JUDGMENT GOVINDAN NAIR, J.‑

The facts of this reference under section 66 (1) of the Indian Income‑tax Act, 1922, are stated in detail in the statement of the case and the questions that have been referred to us are: (1) Whether on the facts and in the circumstances of the case the removal of Rs. 18,000 by one of the employees of the bank was only theft or constituted embezzlement? (2) Whether the embezzlement by one who had been in joint charge, but was acting singly in the matter of embezzlement, made any difference for the purposes of income‑tax? (3) Whether such loss is incidental to the business ? The facts which have been admitted and necessary for answering the above questions are these: The employee concerned, one Ittikkuru, was the agent of the Thathamangalam branch of the assessee bank in early 1950. Because certain irregularities on his part were noticed by the board of directors, one Francis was appointed by the directors as accountant of that branch and the safe keys were entrusted, one to Francis and the other to Ittikkuru. The board of directors thereafter decided to transfer Ittikkuru from the Thathamangalam branch, Ittikkuru came to know of this decision of the board even before this was communicated to him. In the meantime, the said Francis left Thathamangalam on April 6, 1960, after entrusting the key that he had with him with the peon of the bank. April 7, 8 and 9 were holidays and the bank was to open only on the 10th. On the 7th, Ittikkuru obtained the key that was entrusted to the peon from him, sent the peon away from the bank after asking him to close the doors of the bank and then opened the safe and took Rs. 18,000 from it. He had told the peon that he wanted the key for taking out the jewels of his wife pledged with the bank. From the above facts, it is clear that Ittikkuru managed to obtain the key from the peon because of his position as agent of the bank. The peon certainly would not have given Ittikkuru the key if he had not been the agent of the bank. He also would not have left the bank premises but for the position of Ittikkuru as the agent. It is essential for the conduct of the business of the assessee that it should rely on human agencies and should repose confidence and trust in its employees and particularly on a person like lttikkuru, who was the agent of the bank. In doing so, it has to take the necessary risk of such employees embezzling money and even committing theft. The money that was taken is admittedly the stock‑in‑trade of the assessee, a banking company. The fact that the money was taken not during office hours, but on a holiday, does not affect the question for decision if the incurring of the loss was incidental to the carrying on of the business. We have no doubt that, on the facts and in the circumstances stated above, the loss incurred was incidental to the conduct of the business. The case will fall within the principles stated by the Supreme Court in Budridas Daga v. Commissioner of Income -tax ((1958) 34 I T R 10). We follow that decision and answer question No. 2 in the negative and question No. 3 in the affirmative and both in favour of the assessee. In view of the answer to questions Nos. 2 and 3, question No. 1 does not call for any answer. The parties will hear their costs. Reference answered accordingly.