Discontinued business expenses: litigation costs after cessation of trade were not deductible as business expenditure.

Litigation expenses incurred after a speculative gur business had been discontinued were held not to be deductible as business expenditure because no business was carried on during the relevant assessment years. The facts showed no fresh transactions after the Government ban, no new business activity, and only winding up, realisation of assets, and settlement of pending contracts. The claim that the business was merely dormant or suspended was rejected, as the material pointed to cessation rather than temporary inactivity. On that basis, expenses incurred in defending civil suits after discontinuance were outside the course of an existing business and were not allowable under section 10(2)(xv) of the Indian Income-tax Act, 1922.

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Issues: Whether litigation expenses incurred in defending civil suits after the assessee's speculative business in gur had been stopped were deductible as business expenditure, when the finding was that no business was carried on during the relevant assessment years and the business had been discontinued.

Analysis: The assessee's business depended on fresh speculative transactions or clearing-house dealings in gur. After the Government ban, no fresh transactions were entered into, no other business was started, and the members formed another company for carrying on business in other commodities. The facts also showed that the pending contracts were squared up and that the company was engaged only in winding up and realisation of assets, not in carrying on business. On those findings, the litigation expenses were not incurred in the course of an existing business. The contention that the business was merely dormant or suspended was rejected because the material showed discontinuance, not temporary inactivity. The authorities relied on by the assessee did not apply on these facts.

Conclusion: The litigation expenses were not allowable as business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922, because the assessee had ceased to carry on business during the relevant years.

Final Conclusion: The reference was answered against the assessee and in favour of the Revenue, with costs awarded to the department.

Ratio Decidendi: Where a business has been discontinued and the assessee is only realising assets or winding up past transactions, expenses of litigation incurred thereafter are not deductible as business expenditure for want of carrying on business.

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