Bad debt deduction depends on factual assessment; later write-off is not conclusive and time-bar does not fix badness.

Whether a debt has become bad and deductible is primarily a question of fact, depending on the assessee's state of mind and all surrounding circumstances. A later write-off is only a relevant circumstance and is not conclusive; equally, a time-barred debt is not automatically bad, and the mere age of the debt does not determine when it became irrecoverable. A Tribunal finding based on admissible and relevant evidence will not be disturbed unless a legal principle is violated. The 1939 amendment was held to have codified the pre-existing position rather than changed the law.

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Issues: Whether the question when a debt becomes bad and deductible as a bad debt under Section 10(2)(xi) of the Indian Income-tax Act, 1922 is a question of fact or law, whether the assessee's write-off is conclusive, and whether any question of law arose from the Tribunal's finding.

Analysis: The determination whether a debt has become bad, and when it became bad, depends upon the assessee's state of mind and all surrounding circumstances, and is therefore primarily a question of fact for the income-tax authorities and the Tribunal. The mere fact that the debt was written off in a later year is only a relevant circumstance and is not conclusive. A time-barred debt is not necessarily bad, and the age of the debt by itself does not fix the point of badness. The Tribunal's finding, being based on admissible and relevant evidence, could be interfered with only if a legal principle had been violated. The contention that the 1939 amendment changed the law was rejected, as the amendment merely codified the pre-existing position.

Conclusion: The issue was answered against the assessee. The Tribunal's finding that the debt had become bad before the accounting year was a finding of fact, no question of law arose, and the application for reference was liable to be dismissed.

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