Borrowing of money jointly be the assessee book seller.

Viswanatha Sastri, J.-The question of law that has been referred by the Appellate Tribunal is in these terms:

“Whether in the circumstances of this case as found by the Tribunal, the respondent (assessee) is entitled in law to the deduction of the two sums of Rs. 658 and Rs. 5,049, in hisassessment for 1943-44?”

The assessee, a bookseller, seeks to deduct these two sums of Rs. 658 and Rs. 5,049 in the computation of his profits for the assessment year 1943-1944 in the following circumstances. During a period of about 37 days ranging from 13th July, 1939 to 20th Auguts, 1939 the assessee and one Lakshmana Aiyar jointly borrowed from sundry money-lenders and a Co-operative Bank, a sum of Rs. 16,200 out of which a sum of Rs.10,450 was taken and utilised by the assessee for his business needs and the balance of Rs. 5,750 was taken by Lakshmana Ayyar. The joint borrowing of the assessee and Lakshmana Ayyar was necessitated by the business needs of both the borrowers and by the insistence of money-lenders who required the joint security of two persons for simple loans advanced by them. Lakshmana Ayyar failed in his business and the assessee had to repay the creditors the whole of the joint borrowings. He had also to spend a sum of Rs. 658 in an unsuccessful attempt to recover the amount due from Lakshmana Ayyar in respect of his share of the joint borrowing. He had also to pay Rs. 5,049 to the creditors on account of Lakshmana Ayyar’s share of the joint loans.

The Appellate Tribunal, differing from the Income-tax Officer and the Appellate Assistant Commissioner, allowed the assessee to deduct these two sums in the computation of his business profits for the year of account 1942 — 1943.

Mr. Rama Rao Sahib, the learned advocate for the Commissioner of Income-tax, contends that this decision of the Tribunal is erroneous in law. The Tribunal does not say whether the deduction was allowed as a bad debt whose deduction is authorised by section 10(2)(xi) of the Income-tax Act or whether it was allowed as a business loss which had to be set off against the receipts in arriving at the true measure of the profits and gains of the bookselling business in the year of account. These are possible grounds on which the claim of the assessee could be sustained and the learned advocate for the assessee has relied on these two grounds here. He also relied upon section 10(2)(xv) of the Income-tax Act as justifying the deduction of the two sums now in question.

So far as the last contention is concerned, it cannot be said that there has been, in this particular case, any expenditure not being in the nature of a capital expenditure laid out or expended wholly and exclusively for the purposes of the business in the year of account. The payment made by the assessee to the original creditors of the assessee and Lakshmana Ayyar was before the year of account. On such payment Lakshmana Ayyar became liable to pay the assessee that portion of the debt which was payable by Lakshmana Ayyar but which was paid by the assessee. In these circumstances, it could not be said that there was any expenditure in the year of account laid out wholly and exclusively for the purposes of the business of the assessee.

Section 10(2)(xi) of the Act deals with the allowance for bad and doubtful debts. It is contended that when the assessee paid off in full the joint debts of himself and Lakshmana Ayyar he became entitled to recover from Lakshmana Ayyar the amounts paid by him in excess of the amounts utilised by him and therefore there was a debt due from Lakshmana Ayyar to the assessee by reason of such over-payment. The contention is that on the discharge of the joint liability by the assessee, he became a creditor of Lakshmana Ayyar and the latter became his debtor in respect of the sums paid by him in excess of his own share of the liability. Lakshmana Ayyar having become an insolvent the debt became a bad debt. It has been argued that the debt became a debt due to the assessee in re

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