Bad debt timing and branch office expenses: factual proof governs deduction, and integrated branch costs may be allowable business expenditure.

A bad debt deduction turns on whether the debt was in fact irrecoverable and when that irrecoverability arose, which is a question of fact to be decided on the evidence before the Tribunal; on the materials relied on, the finding that the debt had become bad before the relevant year was sustained. Branch expenses at Kanpur and Calcutta were allowable as business expenditure where the head office and branches were engaged in the same business and the outgoings were incurred to maintain staff and premises for recovering outstanding amounts; the Tribunal treated them as part of the business operations and allowed the claim.

---

---

Issues: (i) Whether there was evidence to support the Tribunal's finding that the debt had become bad before the relevant accounting year; (ii) Whether the expenses of the branches at Kanpur and Calcutta were allowable as business expenses for the year under consideration.

Issue (i): Whether there was evidence to support the Tribunal's finding that the debt had become bad before the relevant accounting year.

Analysis: The allowance of a bad debt depends on whether the debt is in fact irrecoverable and when it became irrecoverable. That is a question of fact to be decided on the materials before the Tribunal, and not by the assessee's mere assertion. The Tribunal relied on circumstances showing that the debtor had no assets, no interest was thereafter charged, no recovery steps were taken, and the debt had been carried forward until an acknowledgment was obtained. Those materials were sufficient to sustain the finding that the debt had become irrecoverable before the year in question.

Conclusion: The question was answered in the affirmative, against the assessee.

Issue (ii): Whether the expenses of the branches at Kanpur and Calcutta were allowable as business expenses for the year under consideration.

Analysis: Where the head office and branch offices carry on the same business, the expenditure incurred for maintaining staff and premises at the branches for realising outstanding amounts forms part of the business expenditure. On the facts found, the Tribunal's order showed only branch offices, not separate businesses, and the expenses were connected with the conduct of the same business.

Conclusion: The question was answered in the affirmative, in favour of the assessee.

Final Conclusion: The reference was disposed of with one question answered for the Department and one for the assessee, resulting in mixed success to both sides.

Ratio Decidendi: Whether a debt has become irrecoverable, and when it became so, is a question of fact to be determined on the evidence before the Tribunal, while expenditure incurred for maintaining branch offices engaged in the same business may be deductible as business expenditure.

---