Characterisation of loss: lease and compromise payments were capital in nature, not allowable as business or bad debt deductions.

The issue concerns whether payments and write-offs arising from a lease and subsequent compromise in Rangoon fall within the assessee's money lending business for deduction as business loss or bad debts. The document concludes those lease transactions were undertaken outside the ordinary money lending business and that mere book entries do not establish a business nexus. Consequently, the losses from the lease and settlements are characterised as capital losses and are not allowable as business deductions or bad debts in computing the Rangoon business profits.

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Issues: Whether the assessee was entitled to deduct Rs. 22,712 and Rs. 1,335 in computing the profits of his Rangoon business as allowable business loss or bad debts properly written off under Section 66(3) of the Income-tax Act.

Analysis: The Court examined whether entering into and carrying the lease of a large building in Mogul Street, Rangoon, and the subsequent compromise payment and litigation loss formed part of the assessee's ordinary money-lending business. The Court found that the lease transaction and the compromise payment were undertaken in the hope of recovering rent from sub-lessees and were transactions outside the assessee's money-lending business. The fact that the assessee recorded the write-off in the books of his money-lending business did not create a business nexus where none existed. Consequently, the loss arising from the lease and settlements could not be treated as a trading or business loss or as bad debts properly written off in the course of the money-lending business.

Conclusion: The claim for deduction of Rs. 22,712 and Rs. 1,335 as business loss or bad debts is rejected; the loss is a capital loss and not allowable as a business deduction in computing the assessee's Rangoon business profits.

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