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3. The Nellore firm was dissolved on July 14, 1969, when Sri Annaji Rao died. However, the Ongole firm continued. A credit balance of Rs. 1,33,394 representing the capital advances arid undrawn share of profits together with accrued interest was found in the account of the deceased partner, Sri Annaji Rao, in the books of the Nellore firm. The legal representatives of the deceased, Annaji Rao and Sri Kuppu Rao, agreed on September 2, 1959, to receive a sum of Rs. 95,000 from the other partners of the Nellore firm in settlement of the credit balance of Rs. 1,33,394 referred to above on the ground that there were difficulties in realising the outstandings of the Nellore firm.

4. For the assessment year 1960-61, relevant to the accounting year ending with March 31, 1960, the sum of Rs. 38,394 (i.e., difference between Rs. 1,33,394 and Rs. 95,000), was claimed by the assessee-firm as a bad debt deductible from its profits and gains earned in that year. The Income-tax Officer, on a scrutiny of the terms of the agreement dated September 2, 1959, and the relevant entries in the accounts of the assessee and the Nellore firm, rejected the assessee's claim holding that there was no bad debt at all satisfying the requisite conditions laid down in the Act and it was only a capital loss. The appeal to the Appellate Assistant Commissioner proved unfruitful. On further appeal to the Tribunal, the contention advanced on behalf of the assessee was two-fold : (1) that the loss of Rs. 38,394 was admissible as a bad debt, as the assessee represented by Sri Annaji Rao was carrying on the business of being a partner in the Nellore firm to which advance by way of capital was made, and (2) that the assessee who was assessed on accrual basis was a partner of the Nellore firm which was registered under the Act and the deemed profits have not reached the assessee and, hence, it is entitled to set off the amount of Rs. 38,394 in the year of adjustment. The Tribunal, on a consideration of the entire facts and circumstances, found that the assessee was merely a partner in the Nellore firm but it was not carrying on the business of being a partner in a firm and that it was carrying on money-lending business. It was further held that the profits earned by the Nellore firm have been ascertained and credited to the account of the assessee represented by Sri Annaji Rao, one of its partners and, hence, it was not right to state that the profits earned by the assessee in the Nellore firm did not reach it; that the assessee, subsequent to its allocation, had deposited the income receipts in the capacity of a depositor as the assessee had complete control and domain over the amounts standing in the account of Sri Annaji Rao in the books of account of the Nellore firm and that the loss was not a business loss or a loss of revenue nature, but it was a capital loss. The Tribunal agreeing with the view expressed by the Appellate Assistant Commissioner and the Income-tax Officer dismissed the appeal. Hence, this reference at the instance of the assessee.

24. We are, therefore, clear in our mind that the assessee was not established to be a money-lender carrying on money-lending business and the transactions in question cannot be termed as amounting to money-lending business. Even otherwise, the assessee cannot succeed unless it is established that the debt was irrecoverable. In order to succeed in showing that the claim was a bad debt under Section 10(2)(xi), the onus is on the assessee to prove the requisite ingredients of a bad debt. It is the assessee that had to lead evidence that the debt has become bad and irrecoverable in the year of account. The Nellore firm has in fact been benefited by these amounts in the bargain. In all probability, the Nellore firm would have recovered these amounts. In any event, there is no material to show that any amounts due and payable to the Nellore firm on the date of dissolution have become bad and irrecoverable debts. The amounts now sought to be claimed as bad debts by the assessee are not referable to any particular year of account. The question of a bad debt does not arise in the case of a partner vis-a-vis a firm. The firm may have some debts but they are not proved to be bad and irrecoverable in the year of account. That is a matter that has not been agitated before the income-tax authorities and the Tribunal or decided by them. That apart, the agreement was voluntarily entered into by the heirs of the deceased partner two months after his death. They have voluntarily agreed to receive Rs. 95,000 cash towards the amount of Rs. 1,33,394 standing in the account of the deceased partner, Annaji Rao, in the books of account of Nellore firm. The Nellore firm had continued its business subsequent to the dissolution of the firm due to the death of Annaji Rao. There is no material on record to establish that the other three partners in the Nellore firm are not solvent, but the positive evidence that they continued the business of the Nellore firm subsequent to the death of Annaji Rao would disprove the claim of the assessee that the debt was bad and irrecoverable. Further, the terms of the agreement clearly disclose that they have voluntarily agreed to take the lesser amount of Rs. 95,000. Judged from any angle, we are satisfied that there is no bad and irrecoverable debt at all.

25. The next ground advanced by the counsel that the amount should be allowed as business loss is equally devoid of any merit. It is not the business of the assessee to advance monies to the Nellore firm. The amount in question can, under no stretch of reasoning, be held to be stock-in-trade of the assessee-firm. The assessee was carrying on the business of distributing the oil products of Burmah-Shell. It also derived share income from the Nellore firm. It also returned an income of Rs. 1,214 as interest on securities. The assessee did not incur any loss in the course of carrying on its business. The assessee had voluntarily agreed to receive Rs. 95,000 towards the amount due to it by the Nellore firm. The assessee has released its rights in the Nellore firm for a sum of Rs. 95,000 in full settlement and discharge of its claims. In order that a loss can be claimed as business loss, it must be established that it springs directly from the carrying on of the business and is incidental to it. See Badridas Daga v. Commissioner of Income-tax, , and Commissioner of Income-tax v. Nainital Bank Ltd., We may notice the legal position succinctly summarised by the learned judge, Subba Rao J. (as he then was), speaking for the court, in Commissioner of Income-tax v. Nainital Bank Ltd. at page 715 thus :