Ordinary course of business test limits business debt treatment for an isolated advance outside a company's normal operations.

An isolated advance by a sugar manufacturer to a connected firm was held not to be a debt due in the ordinary course of business merely because the company's memorandum allowed lending. The relevant test was the nature of the company's actual business, not the existence of an enabling object clause. Since the company's normal activity was manufacture and sale of sugar, it had never previously advanced money to outsiders, and the transaction was a one-off advance, the Tribunal's view that it was outside the ordinary course of business was upheld. The advance therefore could not be treated as business debt capital for excess profits tax purposes.

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Issues: Whether a solitary advance made by the assessee company to a firm in which its managing agents were partners constituted a debt due in the ordinary course of business within rule 1(1)(b) of Schedule II to the Excess Profits Tax Act so as to increase capital for excess profits tax purposes.

Analysis: The relevant enquiry was not whether the company had power under its memorandum to lend money, but whether the particular advance was made in the ordinary course of the company's business. The mere existence of an enabling object in the memorandum did not make every intra vires act a business act. The company's normal business was the manufacture and sale of sugar, it had never previously advanced money to outsiders, and the transaction in question was an isolated advance to a connected firm. On those facts, the Tribunal's conclusion that the advance was not part of the company's business was treated as a finding properly reached on the evidence.

Conclusion: The advance did not constitute a debt due in the ordinary course of business within rule 1(1)(b) of Schedule II to the Excess Profits Tax Act. The answer to the referred question was in the negative and the assessee failed.

Final Conclusion: The assessee was held not entitled to treat the isolated advance as business debt capital for excess profits tax purposes, and the adverse tax treatment was sustained.

Ratio Decidendi: An isolated transaction, though within the company's objects, does not by that fact alone become part of its business; whether it is in the ordinary course of business depends on the nature of the company's normal operations and the surrounding facts.

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