1. ' SALEEM AKHTAR, J.-- The applicant is a non-resident company having its Head Office in United Kingdom. The applicant was carrying on business at Karachi and East Pakistan. For the assessment year 1973-74 ending December 31, 1972, the applicant claimed loss of current assets to the extent of Rs,3,62,530 suffered due to fall of East Pakistan. The Income-tax Officer disallowed the claim which was confirmed by the Appellate Assistant Commissioner and upheld by the Tribunal. The applicant then filed an application under section 66(1) of the Income-tax Act and the Tribunal has referred the following question:- "Whether in the facts and circumstances of the case the Tribunal was right in holding that the loss claimed was not admissible in the years of accounts?"
2. ' Mr. Naseem Ahmed Khan, the learned counsel for the applicant has contended that as the applicant has suffered losses of current assets in East Pakistan branch due to creation of Bangladesh and reasons beyond the control of the applicant, its Head Office at Karachi can claim the losses in its account which are allowable as revenue losses. It was further contended that due to nationalisation in Bangladesh the entire business of the applicant has been taken over by the Government of Bangladesh without any compensation and, therefore, the claim of the applicant should have been allowed. Mr. Shaikh Haider, the learned counsel for the respondent has contended that as loss was suffered outside the territory of Pakistan the claim was rightly rejected by the relevant authorities.
3. ' The main emphasis of Mr. Naseem Ahmed Khan was that the applicant was carrying on business in Pakistan having two offices one at Karachi and the other in East Pakistan and as the business has been taken over due to reasons beyond the control of the applicant it is entitled to claim loss of current assets in Pakistan. At this stage it is pertinent to note the facts that the loss claimed by the applicant was incurred after East Pakistan had separated and emerged as an independent State of Bangladesh. The learned counsel for the applicant referred to the Commissioner of Income-tax Karachi v. Messrs Shabbir & Company PLD 1966 SC 540 where the assessee was a proprietary concern carrying on business of sanitary goods, marble pieces and allied articles. The accountant was sent with a sum of Rs,15,225 to the Customs House, Karachi for payment of customs duties. While he was on his way in a car driven by a driver of the company he was robbed of the money by the driver. The respondent spent Rs,1,424 in attempts to trace or the driver. The respondent claimed Rs,16,649 as deduction under section 10 o he Income-tax Act which was disallowed by the Income-tax Officer. The Appellate Assistant Commissioner reversed this order as loss had occurred in the normal course of business and, therefore, constituted a trading loss. The Tribunal, however, did not agree with this finding and the High Court came to the conclusion that a sum of Rs,15,525 was lost in the course of transaction which was incidental to the assessee's business but the sum of Rs,1,424 was disallowed. The Honourable Supreme Court after considering various judgments observe& as follows:- "The principle, therefore, seems to have been recognised in all these decisions that the loss, incurred by an assessee, should be allowed, as a deduction under section 10(1) of the Act, it is incidental to the carrying on of the normal business of the assessee, and if the Act expressly or by implication, does not forbid such a deduction. Applying this test to the circumstances of the present case, it is clear that the respondent-assessee was under a necessity, for the purpose of its business, to send money through its Accountant to the Custom House, for the clearing of its goods, and that an employee, namely, the driver of the car, who took the Accountant to the Custom House,robbed him of this money. Mr. Muhammad Akram was constrained to agree that, if the business was carried on necessarily through employees, and one of these employees embezzled the money of the employer in the conduct of the business, the loss would be an allowable deduction. He attempted to suggest, however, that a case of robbery would not fall within the same category. We are unable to see why a stealing or misappropriation should help the assessee to claim a deduction, but that, if stealing is accompanied by violence, it should disentitle the assessee. The circumstances of the present case clearly establish that the loss was incurred by the dishonest conduct of an employee, in the course of the regular functioning of the assessee firm, and this was a necessary risk, which had to be incurred, in the conduct of that business. We are, therefore, in agreement with the High Court that a deduction under section 10(1) of the Act of the amount lost by robbery, was eminently justifiable, in the circumstances of the instant case. The appeal fails and is hereby dismissed with costs."
4. ' The learned counsel for the applicant referred Commissioner Income-tax, Madras v. S.N.A.S.A.
5. Annamalai Chettiar (1972) 86 I T R 607. In this case the assessee was a member of Hindu undivided family which carried moneylending business in India and abroad. In the course of business properties were taken over in settlement of debts in partition of the family. The assessee received some shares and properties in Malaya and thereafter, continued the moneylending business in Malaya. During World War two due to Japanese attack on Malaya the assessee suffered damages to these properties and claimed the loss as business loss. The Tribunal did not allow the claim, but on reference the High Court allowed the deduction under section 10 of the Income Tax Act. In appeal the Supreme Court of India upheld the judgment of the High Court and observed `taking into consideration the facts and circumstances of the case the loss accrued must be held to be loss incidental to the business carried on by the assessee in Malaya during the War'.
6. ' Reference was also made to Burgery Das Daga v. Commissioner of Income-tax (1958) 34 I T R 10 where the loss resulting from embezzlemen y a new employee or agent was held to be a business loss admissible as deduction under section 10(1) of the Income Tax Act which arose out of the carrying of the business and incidental to it. In this case the appellant was carrying on business as money-lender, dealer in shares and as commission agent through an agent who was holding a power of attorney having power of management and operation on bank account. The agent withdrew an amount aggregating Rs,2,30,036 and spent it for satisfaction of his personal dues incurred in speculative transactions. Coming to know of this fact the appellant cancelled the power of attorney and demanded the said amount. A suit was also filed for recovery of this amount but only Rs,28,000 was recovered and Rs,2,02,442 was written off. It was held that the loss sustained by the appellant due to misappropriation by the agent was one which was incidental to the carrying on of the business and, therefore, should be deducted in computing the profit under section 10(1).
7. ' The learned counsel for the applicant also relied on Commissioner of Income-tax v. Nani Tal Bank Limited 1965 I T R 707. In this case the respondent-company was carrying on banking business and had a branch at Ram Nagar. In the usual course of business various amounts were kept in safe in that branch. At about 7-00 a.m. On 11th June, 1951, dacoity was committed and Rs,1,06,000 was taken away. It was held that the loss incurred by dacoity was incidental to the carrying on of the business of the banking and was deductable as a trading loss in computing the income of the business from banking business.
8. From the aforestated authorities the common principle which can be deduced is that where there is a trading loss its deduction is allowed while computing the profit and loss of the year but the precondition is that such loss should be incidental to the carrying on of the business. Every loss is not deductable unless it is inseparably connected with the business of the assessee. It should accrue in the normal course of business and be incidental to the conduct of business. The determination of this question entirely depends upon the facts of each case. In the present case the facts and circumstances are completely different from the cases cited at the Bar. The applicant has claimed loss which had occurred in Bangladesh during the year 1972 which ended on 31st December, 1972. Admittedly the applicant is a non-resident company with its Head Office in United Kingdom and branches at Karachi and in the then East Pakistan. The moment East Pakistan separated and State of Bangladesh was created the branch in the territory of Bangladesh fell outside the territorial limits of Pakistan. The assessment for the business carried on in Bangladesh could not be made with applicant's branch at Karachi. The income in Bangladesh could not be treated as income of the applicant in Pakistan nor could it be taxed in Pakistan. Therefore, whatever loss the applicant suffered in 1972 it was in a foreign country outside the territorial limits of Pakistan.
9. The losses suffered in Bangladesh cannot he claimed by the applicant in the account of branch at Karachi. Before the creation of Bangladesh the applicant could have claimed the losses of East Pakistan Branch' in its account at Karachi because at that time East Pakistan was part of Pakistan and the applicant's income wherever it accrued in Pakistan was taxable at Karachi. The cases cited by the applicant do not apply to the facts of the present case. In Shabbir and Company's case the assessee was carrying on business in Pakistan. Only Burgery Daga's case is nearer to the applicant's case but it is also distinguishable on facts. In this case assessee was carrying on business in India and Malaya as well. His business in Malaya was a branch office and the assessm ent was made in India where the Head Office was located. The assessce was, therefore, allowed to claim the losses suffered in Malaya due to bombing during war in the accounts in India.
10. This case, therefore, does not apply to the applicant's case.
11. Mr. Nasim Ahmed Khan then contended that even if it is not a deductable item in view of section 10(1) while computing the income and loss and gain consideration should be given to the loss suffered by the applicant due to nationalisation in Bangladesh which was due to reasons beyond its control. As stated earlier, the applicant is a non-resident company and the income which had accrued in Bangladesh after 16-12-1971 cannot be treated as income accrued in Pakistan nor the income which have been accrued there could be taxed in Pakistan after that date. The company in the then East Pakistan was taken over by Bangladesh Government and at the time of nationalisation the company and C the business did not exist within the territorial limits of Pakistan, therefore, the question of allowing deduction in Pakistan does not arise. In the facts and circumstances the loss which occurred in Bangladesh cannot be treated as incidental to running of business by the applicant which is a non-resident company carrying on business in Pakistan.
12. The applicant cannot claim set off in Pakistan where its registered Head Office is not situated.
13. ' For these reasons we answer the question in the affirmative.