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Issues: Whether the sum written off by the assessee, arising from his having stood surety in a joint borrowing that was used wholly for another person's business, was allowable as a bad debt or trading loss in computing the profits of his timber business.
Analysis: The assessee's claim depended on showing that the surety transaction was an incident of his own timber business. The Court held that no part of the borrowing went into that business and that the debt was not a trading debt of the timber trade. The alleged Bombay custom was not proved in its full scope, because the materials showed only joint borrowing on security to obtain finance at lower interest, not a reciprocal and essential practice of standing surety for others as part of carrying on the assessee's own business. The custom accepted in the money-lending case concerning Nattukottai Chettiars was distinguished, as that case involved mutuality and an essential business practice absent here.
Conclusion: The loss was not deductible as a bad debt or trading loss of the assessee's timber business and was a capital loss. The answer was against the assessee.
Ratio Decidendi: A loss arising from standing surety for another's borrowing is deductible only if the suretyship is shown to be an essential incident of the assessee's own business and the debt is a trading debt of that business; otherwise it is a capital loss.
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