Income-tax treatment follows real commercial character: bad debts, statutory investment loss, capital loss, and logo royalty were all allowed.

Income-tax computation turns on the real commercial character of the item and the treatment in the income-tax books, not its presentation in company-law accounts. Bad debts written off in the income-tax books were allowable despite a different company-law treatment. Diminution in the value of securities held to meet statutory liquidity requirements was treated as a business loss and allowed. A genuine long-term capital loss on sale of unquoted shares to a group concern, made under regulatory compulsion and without proof of sham, was also allowable. Recurring non-exclusive royalty for use of a logo was held to be revenue expenditure because it conferred no enduring capital asset.

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Issues: (i) Whether the deletion of the disallowance made towards bad debts was justified when the amounts had been written off in the income-tax books but not in the company-law books; (ii) Whether the diminution in the value of securities held to satisfy statutory liquidity requirements was allowable as a business deduction; (iii) Whether the long-term capital loss on sale of shares to a group concern was rightly allowed to be carried forward; (iv) Whether royalty paid for non-exclusive use of a logo was revenue expenditure.

Issue (i): Whether the deletion of the disallowance made towards bad debts was justified when the amounts had been written off in the income-tax books but not in the company-law books.

Analysis: The assessee maintained separate accounts for income-tax purposes and company-law purposes. The regular assessment had to be computed on the basis of the income-tax books, and the record showed that the relevant debts had been actually written off in those books. The existence of a provision in the company-law accounts did not control the computation under the Income-tax Act. The earlier orders in the assessee's own case and the principle that write-off of bad debts is sufficient for allowance supported the assessee's claim.

Conclusion: The deletion of the disallowance on account of bad debts was and the issue was decided in favour of the assessee.

Issue (ii): Whether the diminution in the value of securities held to satisfy statutory liquidity requirements was allowable as a business deduction.

Analysis: The securities were held by a non-banking finance company as part of a statutory investment requirement linked to its deposit-taking business. Their classification as investments in the balance-sheet did not alter their real character for tax purposes. Since the securities were held in the course of business and the diminution represented a business loss, the claim was supported by the governing statutory framework and the nature of the holding.

Conclusion: The disallowance was not sustainable and the issue was decided in favour of the assessee.

Issue (iii): Whether the long-term capital loss on sale of shares to a group concern was rightly allowed to be carried forward.

Analysis: The shares were not quoted on the stock exchange, the transaction was a genuine commercial arrangement, and the assessee was compelled to divest the shares in accordance with regulatory directions. The revenue did not establish any sham or substitute computation. The mere fact that the purchaser was a sister concern did not justify disallowance of the loss.

Conclusion: The long-term capital loss was allowable and the issue was decided in favour of the assessee.

Issue (iv): Whether royalty paid for non-exclusive use of a logo was revenue expenditure.

Analysis: The royalty was recurring, turnover-based, non-exclusive, and did not confer ownership or transferable rights in the logo. The payment secured only user rights in the ordinary course of business and did not bring into existence an enduring capital asset. On that basis, the expenditure was revenue in character.

Conclusion: The royalty was deductible as revenue expenditure and the issue was decided in favour of the assessee.

Final Conclusion: The Revenue's challenges to the relief granted by the first appellate authority failed on all substantive issues, and the tax additions/disallowances in dispute were not restored.

Ratio Decidendi: For regular income-tax computation, the decisive test is the treatment in the income-tax books and the real commercial character of the item, not its presentation in company-law accounts; a genuine write-off of bad debts, business-linked diminution in statutory investments, a bona fide capital loss, and recurring non-exclusive royalty are each to be allowed according to their true tax character.

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