Capital loss on funds advanced for a new venture is not deductible as business loss or bad debt.

Money advanced for a proposed new brick-kiln venture was treated as part of the assessee's capital investment in a new undertaking, so the resulting loss was capital in nature and not incidental to the existing business. It therefore did not qualify as a deductible business loss or bad debt under section 10(2), and section 10(1) also did not apply. The amount written off was accordingly not allowable as a deduction, and the reference was answered against the assessee.

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Issues: Whether the sum of Rs. 15,700 written off by the assessee was a permissible deduction as a bad debt or allowable business loss.

Analysis: The amount represented money advanced for a proposed new brick-kiln venture and was treated as part of the assessee's capital investment in that new undertaking. The loss arose from the investment itself and not from the business already carried on by the assessee. On that footing, the loss was capital in nature and not incidental to the existing business, so it could not fall within section 10(2). For the same reason, section 10(1) also did not apply.

Conclusion: The amount was not an allowable deduction as a bad debt or business loss and the answer to the referred question was in the negative, against the assessee.

Ratio Decidendi: A loss on money advanced as capital for a new venture is a capital loss, not a deductible business loss or bad debt, when it is not incidental to the business already carried on.

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