Bad debt treatment turns on whether a zarpeshgi payment is a loan or lease premium, and when recovery becomes barred.

A zarpeshgi payment linked to an agricultural lease was treated as premium for leasehold rights, not as a loan in a money-lending business, so the resulting loss could not be claimed as a bad debt. In contrast, a decretal debt was treated as becoming bad only when recovery became legally barred and the remedy to realise it had effectively become irrecoverable; mere earlier failure in execution was insufficient. The discussion turns on the character of the payment, the agricultural nature of the transaction, and the point at which a debt becomes irrecoverable for tax purposes.

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Issues: (i) Whether the loss arising from the zarpeshgi transaction could be claimed as a bad debt in money-lending business. (ii) Whether the decretal debt of Rs. 41,000 became bad in the relevant accounting year when the remedy for recovery became barred.

Issue (i): Whether the loss arising from the zarpeshgi transaction could be claimed as a bad debt in money-lending business.

Analysis: The nature of the zarpeshgi arrangement was examined in the light of earlier decisions on the same assessee and a similar lease deed. The governing question was whether the payment to the lessor was a loan or only premium for the leasehold. On the facts, the transaction was treated as one relating to agricultural property, and the amount advanced was held not to be a loan in a money-lending business. If the payment was premium and not a loan, the income from the leasehold retained its agricultural character and the resulting loss could not be brought to tax as a bad debt.

Conclusion: The claim was not allowable as a bad debt in money-lending business and this issue was decided against the assessee.

Issue (ii): Whether the decretal debt of Rs. 41,000 became bad in the relevant accounting year when the remedy for recovery became barred.

Analysis: The Court applied the principle that a debt becomes bad when it becomes irrecoverable, though the point of irrecoverability depends on the surrounding facts. The debt was not treated as bad merely because execution had earlier failed; the assessee still had the legal remedy to execute the decree until the limitation period expired. As there was nothing to show that recovery had become impossible before the expiry of that period, the debt was held to have become bad only when the remedy became barred in the relevant accounting year.

Conclusion: The debt became bad in the relevant accounting year and this issue was decided in favour of the assessee.

Final Conclusion: The references were disposed of by rejecting the assessee's claim on the zarpeshgi loss and accepting the assessee's claim on the bad debt of Rs. 41,000, while declining to answer the questions that were treated as redundant or not called for decision.

Ratio Decidendi: A zarpeshgi payment found to be premium for an agricultural lease, and not a loan in money-lending business, cannot give rise to an allowable bad debt; conversely, a debt ordinarily becomes bad when recovery is legally barred and the right to realise it has effectively become irrecoverable.

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