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Issues Involved:
1. Whether the debt of Rs. 2,68,385 was incurred in the course of the money-lending business of the assessee. 2. Whether the sum of Rs. 2,68,385 can be claimed as a trade or business loss by the assessee. Detailed Analysis: 1. Debt Incurred in the Course of Money-Lending Business: The assessee, a partnership firm, sought to write off Rs. 2,68,385 as a bad debt in its money-lending business for the assessment year 1953-54. This amount represented the balance due from a Bombay firm, Bojaji Sobhachand, with which the assessee had various transactions, including advances, speculative transactions, and monetary advances. The Income-tax Officer disallowed the claim, stating that the advances were accommodation in nature and not connected to the assessee's business. The Appellate Assistant Commissioner and the Appellate Tribunal upheld this view, noting that the transactions were not linked to the normal business activities of the assessee. The Tribunal's reference under section 66(2) of the Act questioned whether the debt was incurred in the course of the money-lending business. The judgment clarified that for a debt to be deductible as a bad debt under section 10(2)(xi), it must represent a loss incurred in the course of the business and should have been a trading debt. The judgment cited various precedents, including the Allahabad High Court's decision in Gayaprasad and Chotey Lal, which emphasized that a loan implies a condition for return or repayment. The judgment concluded that the sum of Rs. 2,68,385 did not solely represent a loss in the money-lending part of the assessee's business and could not be considered a bad debt. 2. Claim as Trade or Business Loss: The assessee argued that the sum should be considered a trade loss, as it was incurred in the course of its entire business with the Bombay firm. The judgment noted that for a loss to be deductible as a trade loss, it must be incidental to the carrying on of the business. The judgment referenced the Supreme Court's observation in A.V. Thomas & Co. Ltd. v. Commissioner of Income-tax, which stated that a debt must be related to business or result from it to be claimable as a bad or doubtful debt. The judgment found that a substantial part of the sum had already been allowed as a trade loss in the previous year, and the rest of the advances were made to save the declining Bombay firm, not in the regular course of business. The judgment emphasized that the assessee's business was not to save crashing firms, and the advances made during the latter part of S.Y. 2007 and during S.Y. 2008 could not be regarded as moneys lent or advances made in the course of business. Consequently, the sum could not be treated as a business or trade loss. Conclusion: The judgment concluded that the assessee had not demonstrated that the sum of Rs. 2,68,385 was either a bad or doubtful debt in its money-lending business or a loss sustained in the course of its business. The question referred to the court was answered in the affirmative, against the assessee, who was ordered to pay the costs of the reference.
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