Bad debt deduction allowed where partnership loans became business assets and were written off as irrecoverable.

Debts acquired on dissolution of a partnership and later entered in the assessee's money-lending business were treated as debts made in the ordinary course of that business. Because the revenue had also treated the loans as business assets and taxed the interest received on them, their origin in the earlier partnership did not prevent deduction. Once the debts were written off in the books and their irrecoverability was accepted, the sum was allowable as a bad debt deduction under Section 10(2)(xi) of the Income-tax Act, 1922.

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Issues: Whether the sum of Rs. 8,855, being debts acquired on dissolution of a partnership, renewed by the debtors and written off as irrecoverable, was allowable as a deduction under Section 10(2)(xi) of the Income-tax Act, 1922.

Analysis: The debts had been allotted to the assessee's family on dissolution of the earlier partnership, entered as assets of its own money-lending business, and thereafter treated by the revenue as part of that business, including taxation of the interest received on them. The debts were written off in the books, and their irrecoverability was accepted. In these circumstances, the Court held that the loans were to be regarded as having been made in the ordinary course of the assessee's business, and the fact that they had originated in the former partnership did not prevent the deduction.

Conclusion: The deduction was allowable under Section 10(2)(xi) of the Income-tax Act, 1922, and the answer was in favour of the assessee.

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