Bad debt deduction survives business succession when inherited trade debts remain commercially linked to the continuing business.

A successor continuing a dissolved partnership's business with the same stock-in-trade, assets and liabilities could deduct inherited trade debts as bad debts when they became barred and irrecoverable during the accounting year. The Court treated the arrangement as succession to the existing business, not the creation of a new capital asset, so the commercial character of the debts was preserved despite their having originally arisen in the predecessor firm. The deduction was therefore allowable in the successor's hands.

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Issues: Whether the assessee, as successor to a dissolved partnership business, was entitled to deduct as bad debts amounts that had originally been due to the firm but became irrecoverable during the accounting year.

Analysis: The business of the dissolved firm was continued by the assessee with the same stock-in-trade, assets, and liabilities. On those facts, the transaction was treated as succession to the business and not as the creation of a new and unrelated capital asset. The debts remained trade debts of the continuing business, and the fact that they had originally arisen in the hands of the predecessor firm did not deprive the successor of the right to write them off when they became barred and irrecoverable during the year of account.

Conclusion: The deduction was allowable, and the issue was answered in favour of the assessee.

Ratio Decidendi: Where a business is continued by a successor after dissolution of a partnership, trade debts inherited with the business retain their commercial character and may be written off as bad debts when they become irrecoverable in the successor's hands.

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