Bad debt deduction denied where the advance was not made in the ordinary course of money-lending business.

A debt surrendered in a reconstruction scheme was not deductible as a bad debt where the evidence showed it was linked to managing agency activity, not an advance made in the ordinary course of the assessee's money-lending business. The surrounding circumstances, including the absence of interest and the fact that the surrender facilitated reconstruction and benefited shareholders by improving the value of their holdings, supported the finding that the advance lacked the character required for a bad debt claim. The question was answered against the assessees and in favour of the Revenue.

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Issues: Whether the sum of Rs. 7,20,000 given up in the scheme of reconstruction was money advanced in the ordinary course of the assessee's money-lending business so as to be claimable as a bad debt.

Analysis: The finding below was that the amount represented a debt connected with the managing agency business, not an advance made in the ordinary course of the money-lending business. The surrounding circumstances showed that no interest was charged, the debt was surrendered to facilitate reconstruction, and the surrender benefited the shareholders, including the assessees, by enhancing the value of their shareholding. On those facts, there was ample evidence to support the conclusion that the advance was not made in the ordinary course of money-lending business.

Conclusion: The question was answered in the affirmative, against the assessees and in favour of the Revenue.

Ratio Decidendi: A debt surrendered in the course of a reconstruction, where the surrounding circumstances show it was not advanced in the ordinary course of the assessee's money-lending business, cannot be claimed as a bad debt under the relevant provision.

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