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6. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the bad debts of Rs. 18,335 (Rupees eighteen thousand three hundred and thirty-five) had arisen out of the assessee's business and could be allowed in the assessment year 1956-57 ?" Mr. Joshi, learned counsel for the revenue, contends that the Tribunal was in error in allowing deduction of the said two amounts as bad debts under section 10(2)(xi). He argues that when a business of a going concern is sold as a going concern, the purchasers are not successors of the old business; that the trading debts of the old firm do not become the trading debt of the purchaser and that they do not retain the character and Colours of trading debts in the hands of the purchaser. On the other hand, those trading debts become capital assets in his hands. The loss, if any, suffered by the purchaser in the matter of recovery of these debts is a capital loss and, therefore, not deductible. Mr. Joshi, in the alternative, contends that in fact there had been no loss. Bad debts were already taken into account at the time of purchase of good will and outstandings and that the assessee had not paid Rs. 1,03,286 as consideration of the purchase of bad debts. On the other hand, the assessee had paid a total consideration of Rs. 1,50,000 for purchasing goodwill of the business, trade name of the former business, to occupy the premises in which the business was carried on and the right to use the telephone, etc. The consideration, which, on a proper analysis, could be said to have been paid by the assessee for purchasing the outstandings, would not exceed Rs. 60,000 to Rs. 70,000. Mr. Joshi contends that the assessee had already recovered more than Rs. 60,000 out of the out standings. The assessee, therefore, is not entitled to claim any deduction for the alleged bad debts.

7. Mr. Palkhivala, learned counsel for the assessee, on the other hand, contends that when the running business is taken over as a running business, the trading debts purchased by the purchaser remain as trading debts in his hands. They are the debts in respect of the business, which the purchaser carries on. They are the debts in respect of the business, which the purchaser carries on. He, therefore, is entitled to claim deduction in respect thereof under section 10(2)(xi).

8. As regards the second contention, Mr. Palkhvala contended that here is no material on record to show that it had been the case of the department at any time that the assessee had not paid full consideration of Rs. 1,03,286-3-3 for purchasing the outstadnings. In the alternative, he argued that, even assuming that he paid any less consideration, that had no relevance in deciding the question as to whether the assessee is entitled to claim deduction under section 10(2)(xi). He placed reliance on decisions in commissioner of Income-tax v. Dharmaraja Jadar, C.J. Sheth v. Commissioner of Income-tax, and Mettur Sandalwood Oil co. v. Commissioner of Income-tax.

10. To attract the provisions of clause (xi), the following facts must be established :

(1) The assessee's accounts in respect of his business are not kept on cash basis :

(2) that certain debts have become bad or irrecoverable in the year of account; and (3) that the debts that have bad irrecoverable are due to the assessee in respect of his business.

11. It is not disputed that the books of account of the business of the Bombay High Supply Co. in respect of its business throughout have not been kept on the cash basis. It is also not in dispute that the assignment of the business to the present assessee was as a going concern. The same business that was being carried on formerly by four partners in now being carried on by three of them under the same name, in the same premises and in respect of the same articles. The customers of the old business, who were indebted to the old business, have continued to be the customers of the new business and it is some of them who have failed to make good the payments in respect of the dues which they owed to the old partnership for the goods purchased by them form it. It is also not disputed that the respective two amounts have become irrecoverable in the said two years of account. The question to be considered is whether those debts, which have become irrecoverable, can be said to be "debts due to the assessee in respect of that party of his business". It cannot be disputed that the debts were due to the assessee. It is true that formerly the debts were due to the old firm form these customers, who had purchased the goods form the old firm, but, by reason of the assignment, the assessee had become entitled to recover the dues form those customers. It can, therefore, hardly be disputed that the debts were due to the assessee. The only question, therefore, that remains is whether the debts were "in respect of that part of his business". Mr. Joshi, laying emphasis on the word "his", argued that the its were in respect of the business of the old partnership. The debts were to in respect of the business carried on by the assessee after the assignment. The assessee therefore, is not entitled to claim any deduction. It is not possible for us to accept the argument of Mr. Joshi. The argument overlooks the fact that the assessee has purchased the business of the old partnership as a going concern. The identity of the business has not undergone any change. The continuity of business has not in any manner been interrupted. The business has been carried on in the name of the Bombay High Supply Co. before as well as even now. The only change that has taken place is that formerly four persons were partners of the business concern and now only three out of the four have remained as partners of the firm. To the old business the three partners of the assessee-firm were not strangers. The trading debts of the old partnership have become the trading debts of the business of the assessee. Some of hose debts have now become bad, some of the customers having failed to pay the same. In the circumstances, in our opinion, the condition "debts due to the assessee in respect of that part of his business" also has been satisfied. We find support in the three decisions cited by Mr. Palkhivala for the view taken by us.

18. As regards Mr. Joshi's contention that the outstandings purchased by the assessee were capital assets in his hands, we find it difficult to accept it in the absence of any evidence showing that the assessee had treated these trading debts in any manner different form that in which he has treated the other trading debts, which he had purchased in the auction sale, later on confirmed by the deed of assignment dated 30th january, 1953. As regards the second contention of Mr. Joshi, it would be necessary to state a few more facts to appreciate the said contention. These facts have been summarised in paragraph 7 of the statement of the case, which runs :