Bad debt deduction requires a genuine business debt; accommodation advances and mixed dealings were not deductible here.

A deduction for bad or doubtful debts is available only where the amount represents a proper debt arising in the ordinary course of business and capable of forming part of trading assets if recovered. On the facts, the write-off arose from mixed dealings, including agency advances, speculative losses, and monetary advances, so part of it could not be treated as money lent in a money-lending business. The later advances were found to be accommodation payments made to support a failing firm, not transactions in the regular course of business. The amount also failed as a business loss, because a substantial part had already been allowed earlier and the remaining advances were not proved to be incidental to business. The deduction was therefore rejected.

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Issues: Whether the sum written off by the assessee was a bad or doubtful debt incurred in the course of its money-lending business, or alternatively a trade loss deductible in computing business income.

Analysis: A deduction for bad and doubtful debts under the relevant provision is available only where the amount represents a proper debt arising in the course of the business and capable of swelling the trading assets when good. The sum in question arose out of mixed dealings between the assessee and the Bombay firm, including advances made as agent, losses in speculative transactions, and monetary advances. Part of the amount could not, therefore, be treated as money lent in a money-lending business. The surrounding circumstances showed that the later advances were made to support a failing firm and were merely accommodation payments, not advances made in the regular course of business. Nor was the amount shown to be a trade loss incidental to carrying on the assessee's business, especially when a substantial part had already been allowed in an earlier year and the remaining advances were not proved to have been made in the ordinary course of business.

Conclusion: The sum was neither a bad or doubtful debt in the money-lending business nor a deductible business loss, and the answer to the referred question was against the assessee.

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