Partnership loss set-off and bad debt treatment are limited by the true character of the transaction, not book entries.

For income-tax purposes, a partner's set-off is confined to his own share of the firm's loss for the relevant year; a claim to carry forward and aggregate an ex-partner's unpaid share of past partnership losses after dissolution is outside that scheme. The text also states that transferring a partnership debit into money-lending books does not change its true character: a contribution claim arising from financing the venture is not converted into a loan or deductible bad debt by book entries, a promissory note, or a later mortgage. The alleged amount is therefore not treated as a business loss of the money-lending concern.

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Issues: (i) Whether an assessee could, after dissolution of a cotton partnership, set off the ex-partner's unpaid share of past partnership losses against his other income as a loss of profits or gains under the Indian Income Tax Act, 1922. (ii) Whether the amount transferred to the assessee's money-lending books and written off as irrecoverable could be treated as a bad debt or loss arising in the course of the money-lending business.

Issue (i): Whether an assessee could, after dissolution of a cotton partnership, set off the ex-partner's unpaid share of past partnership losses against his other income as a loss of profits or gains under the Indian Income Tax Act, 1922.

Analysis: The allowable set-off in partnership cases is confined to the partner's own share of loss made by the firm in the relevant year of account. The statutory scheme proceeds on the basis that the firm's profits or losses are computed as such, and each partner is then taxed or relieved according to his agreed share. The liability of one partner to bear more than his share because the other partner is insolvent introduces questions of contribution and ultimate balance between partners, which lie outside the limited inquiry of an income-tax assessment. The attempt to aggregate several years' losses after dissolution and treat them as the capitalist partner's further loss was inconsistent with the structure of the Act.

Conclusion: The claim to set off the ex-partner's unpaid share of past partnership losses was not allowable, and the answer was against the assessee.

Issue (ii): Whether the amount transferred to the assessee's money-lending books and written off as irrecoverable could be treated as a bad debt or loss arising in the course of the money-lending business.

Analysis: The transfer of the partnership debit into the money-lending books did not alter the true character of the transaction. The amount represented the assessee's outlay in financing the cotton venture and the ultimate right was one of contribution against the partner, not a loan advanced in the ordinary course of money-lending business. A debt that was already bad when transferred could not become a deductible bad debt merely by book entries, a promissory note, or a later mortgage. The alleged loss was therefore not a business loss of the money-lending concern in the relevant year.

Conclusion: The amount could not be deducted as a bad debt or as a loss of the money-lending business, and the answer was against the assessee.

Final Conclusion: The appeal failed in substance because neither the partnership-loss set-off nor the bad-debt characterization could be sustained under the income-tax framework.

Ratio Decidendi: For income-tax purposes, a partner may claim only his own share of a firm's loss for the relevant year, and a contribution claim arising from another partner's insolvency cannot be converted into a deductible bad debt or expanded into a larger set-off after dissolution by mere book adjustments.

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