Business deduction for residential rent denied, while genuine bad debt write-off allowed on proof of non-recovery and futility.

Rent paid for leased premises restricted to residential use was not deductible as a business expense because no permission for office use was shown and the evidence indicated that the premises were mainly used by the chairman and family members, with only limited board meetings held there; mere occasional business meetings did not convert the property into official accommodation. The write-off of the outstanding amount was allowable as a bad debt or business loss because the records showed prolonged non-recovery, dispute over liability, substantial repayment of principal, and futility of legal recovery action. The result was disallowance of the rent claim and allowance of the write-off.

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Issues: (i) Whether the rent paid for the premises at 77, Sundar Nagar, New Delhi was allowable as a business deduction. (ii) Whether the write-off of the outstanding amount as bad debt was allowable.

Issue (i): Whether the rent paid for the premises at 77, Sundar Nagar, New Delhi was allowable as a business deduction.

Analysis: The premises were taken on lease on terms restricting use to residential purposes unless prior permission was obtained for office or commercial use. No such permission was shown. The material on record showed that the premises were mainly used by the chairman and family members, while only a few board meetings were held there and the company had other offices at Delhi and Jaipur. On these facts, the mere holding of some board meetings in residential premises did not convert them into official accommodation or justify the rent as a business deduction.

Conclusion: The deduction for rent was not allowable. The Revenue succeeded on this issue.

Issue (ii): Whether the write-off of the outstanding amount as bad debt was allowable.

Analysis: The debtor's statement and the account records showed that the advances had been made with interest debited over time, but the debtor had consistently disputed liability to pay interest and had repaid the principal substantially. The outstanding amount had been settled after prolonged non-payment, and a legal recovery action would have been futile. The conditions for allowing the claim were treated as satisfied, and the write-off was accepted as a genuine business loss of the relevant nature.

Conclusion: The bad debt claim was allowable. The Revenue failed on this issue.

Final Conclusion: The assessment was sustained with respect to the rent disallowance, while the allowance of the bad debt write-off was upheld, resulting in only partial success for the Revenue.

Ratio Decidendi: A deduction for rent is not allowable where leased residential premises are not shown to have been converted into official business accommodation, and a bad debt/write-off claim is allowable where the surrounding facts show genuine non-recovery and futility of legal recovery action in the course of business.

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