Business loss from joint borrowing held deductible when repayment arose from a recognised commercial financing practice.

A loss arising from repayment of a joint business borrowing was held deductible where the borrowing formed part of a recognised commercial financing practice and was integral to the assessee's business. The Court treated the liability as business-connected because the joint and several arrangement enabled funds to be obtained at a lower interest cost, and the loss arose directly from that transaction when the co-borrower became insolvent. The loss was not regarded as remote or capital in nature, and the presence of custom and mutuality distinguished the earlier authorities. The deduction was therefore allowable as a business loss under section 10(2)(xv) of the Income-tax Act.

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Issues: Whether the loss suffered by the assessee on repayment of a joint borrowing, where the co-borrower became insolvent, was deductible as a business loss under section 10(2)(xv) of the Income-tax Act.

Analysis: The borrowing was found to have been made in accordance with a recognised commercial practice in Bombay of financing business through joint and several liability. The arrangement enabled the assessee to obtain funds at a lower rate of interest and was integral to the conduct of its business. The loss arose directly from the business-linked borrowing transaction and was not a remote or capital loss. The essential elements of custom and mutuality, absent on the facts of the earlier distinguishable authorities, were found to exist here.

Conclusion: The loss was allowable as a business deduction and was rightly treated as deductible under section 10(2)(xv); the decision was in favour of the assessee.

Ratio Decidendi: Where a borrowing is undertaken in the course of and as part of a recognised commercial practice of business financing, a loss arising from the borrower being compelled to discharge the full liability because the joint promisor fails to pay is a deductible business loss if it is sufficiently connected with the business and not merely capital in nature.

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