Bad debt deduction allowed where advances formed part of regular trading activity and became irrecoverable in the claimed year.

Advances made as part of a business's regular profit-making operations, with interest and commission treated as business income, were held deductible as bad debts when written off as irrecoverable in the relevant previous year. The absence of an express clause in the partnership deed authorising the advances did not prevent them from forming part of the firm's business, because a partnership is not confined by its constitutive document in the same way as a company. The record also supported that the debts became irrecoverable only in the year claimed, so deduction under section 10(2)(ix) of the Income-tax Act, 1922 was allowed.

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Issues: Whether the amounts written off as irrecoverable were deductible as bad debts under section 10(2)(ix) of the Income-tax Act, 1922, and whether the advances were made in the course of the assessee's normal trading activities.

Analysis: The advances were shown to be part of the assessee's regular profit-making activity, carried on over a number of years, with interest and commission being earned and treated as business income. The absence of an express clause in the partnership deed authorising such advances did not preclude them from being part of the firm's business, since a partnership is not confined in the same manner as a company by its constitutional documents. The record also supported the finding that the debts became irrecoverable only in the relevant previous year and not earlier.

Conclusion: The debts were deductible under section 10(2)(ix), and the question was answered in the affirmative in favour of the assessee.

Ratio Decidendi: Where advances are made as part of the regular profit-making operations of a business and are treated as business income, amounts written off as irrecoverable in the relevant previous year are deductible as bad debts, even if the governing deed does not expressly mention that line of activity.

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