Going-concern takeover preserves trading debts as business debts, allowing deduction when they later become irrecoverable.

Where a business is purchased and continued as a going concern without interruption, in the same name, premises and customer base, its identity remains intact notwithstanding the change in ownership. The predecessor's trading debts may therefore become the successor's business debts, and if they later become irrecoverable they satisfy the statutory condition of being debts due to the assessee in respect of its business. On that reasoning, the debts were deductible as bad debts, and the claim was allowed.

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Issues: Whether the assessee, having purchased and continued the business as a going concern, was entitled to deduct debts that later became irrecoverable as bad debts under section 10(2)(xi) of the Income-tax Act, 1922.

Analysis: The business was taken over without interruption, in the same name, at the same premises, and with the same customer base. The identity of the business remained intact notwithstanding the change in ownership. On that basis, the trading debts of the predecessor became trading debts of the successor business, and when they were found irrecoverable in the relevant accounting years, they satisfied the statutory requirement of being debts due to the assessee in respect of its business. The contention that such debts had become capital assets was rejected in the absence of any factual basis showing that they were treated differently from other trading debts.

Conclusion: The assessee was entitled to claim deduction of the irrecoverable debts as bad debts, and the reference was answered in favour of the assessee.

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