Loan converted into shares held as capital investment, not trading stock, so bad debt deduction failed.

A money-lender's conversion of a loan into shares was treated as a capital investment, not a trading asset, where the shares were acquired in new companies, were not taken as security for the advance, and were not purchased as part of any share-trading activity. The court noted that the transaction was intended to close the loan arrangement and replace it with corporate shareholding, and that no debt remained outstanding after the conversion. As a result, the claimed bad debt deduction failed because there was no subsisting debt to write off, and the assessee was denied relief.

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Issues: Whether the shares acquired by the assessee in satisfaction of the loan transaction were held as a capital investment or as a trading asset acquired in the course of its money-lending business, so as to entitle the assessee to deduction of the amount written off.

Analysis: The original advance was a financing transaction, but the subsequent acquisition of shares in the newly floated company and its managing agency company was not compelled by any security arrangement or recovery necessity. The shares were not taken as collateral for the loan, the monies used were not spare funds awaiting lending, and the acquisition was of unquoted shares in new concerns, indicating an intention to close the loan transaction and substitute it with an investment in corporate shareholding. The claimed deduction under the bad debt provision also failed because no debt remained outstanding after the conversion of the loan into shares.

Conclusion: The shares were held as capital investment and not as trading assets. The assessee was not entitled to the deduction claimed, and the question was answered against the assessee.

Ratio Decidendi: Where a money-lender converts a loan into an outright acquisition of shares not taken as security and not acquired as part of a share-trading activity, the resulting holding is a capital investment and not a business trading asset.

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