Bad debt deduction denied where protest payment was a lawful duty expense, not a recoverable business debt

A payment made under protest as duty was held not to be a business debt, because bad debt relief requires a prior debt due from the other party. The amount was not owed by the Port Trust authorities as a recoverable debt; once the duty demand was upheld, it retained the character of a lawful duty payment and an expense attributable to the year in which it was incurred. The assessee's accounting treatment could not change that legal character. The sum was therefore not deductible as a bad debt under the Income-tax Act.

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Issues: Whether the sum of Rs. 1,34,300 constituted a business debt deductible as a bad debt from the profits of the relevant accounting period.

Analysis: A bad debt presupposes the prior existence of a debt. The amount in question was not a debt due from the Port Trust authorities to the assessee. The payment had been made under protest as duty claimed by the authorities, and when the Calcutta High Court upheld the duty demand, the payment was shown to be a lawful duty payment. The amount therefore represented an expense properly attributable to the year in which it was incurred and not a debt that later became irrecoverable. The assessee's accounting treatment could not alter the true legal character of the payment.

Conclusion: The amount was not a business debt and was not deductible as a bad debt under the Income-tax Act.

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