Bad debt deduction available where allotted partnership debt is treated in books as a loan of the continuing money-lending business.

A debt allotted to a taxpayer on division of partnership outstandings can qualify as a bad debt if it is thereafter adopted in the books as part of the taxpayer's continuing money-lending business. The decisive factor is the substance of the account treatment: opening a separate debtor's account, carrying the amount as a loan, and crediting later recoveries indicate that the debt has been treated as a business advance rather than a capital asset from the old partnership. On that footing, an irrecoverable write-off falls within section 10(2)(xi) of the Indian Income-tax Act, 1922, and the deduction is admissible.

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Issues: Whether the amount written off by the assessee could be treated as a bad debt deductible under section 10(2)(xi) of the Indian Income-tax Act, 1922, on the footing that the debt had become part of the assessee's money-lending business after the partition and division of the partnership outstandings.

Analysis: The debt had been allotted to the assessee on division of the partnership accounts and was thereafter entered in the books of the assessee's separate money-lending business as a debt due from the debtor. The account treatment, including the opening of a separate debtor's account and the crediting of subsequent recoveries, supported the conclusion that the amount was being treated as a loan of the new business and not merely as a capital asset brought in from the old partnership. On that footing, the sum written off answered the statutory description of a debt arising in the ordinary course of the money-lending business.

Conclusion: The deduction was admissible under section 10(2)(xi) of the Indian Income-tax Act, 1922, and the assessee's claim succeeded on this issue.

Ratio Decidendi: Where, on a division of partnership outstandings, the allotted debt is in substance adopted and treated in the books as a loan of the assessee's continuing money-lending business, the resulting irrecoverable amount is deductible as a bad debt under section 10(2)(xi) of the Indian Income-tax Act, 1922.

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