Irrecoverable interest on a partner's capital account was not a deductible trading loss or bad debt.

Interest written off as irrecoverable from a partner's capital account was not allowable as a deduction either as a bad debt or as a trading loss. The amount, though credited and taxed in earlier years, arose from a debit balance in the partner's capital account and not from an ordinary trading transaction of the firm. Because the successor firm had taken over the business with its assets and liabilities, the sum formed part of the capital structure inherited on succession, so it lacked the character of a trading debt or revenue loss deductible in computing business profits.

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Issues: Whether the sum written off as irrecoverable interest charged to a partner's capital account was allowable as a deduction either as a bad debt or as a trading loss.

Analysis: The amount represented interest credited and taxed in earlier years, but it arose from the debit balance in a partner's capital account and not from an ordinary trading transaction of the firm. The firm had succeeded to the business with its assets and liabilities, and the amount in question formed part of the capital structure taken over by the successor firm. On that footing, the sum could not be treated as a trading debt or as a revenue loss deductible in computing business profits.

Conclusion: The deduction was not allowable and the answer was against the assessee.

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