Dissolution expenses from a business partnership were treated as revenue expenditure, not capital outlay, in film-production operations.

Expenditure incurred to dissolve a partnership formed in the course of the assessee's ordinary film-production business was held to be revenue in nature. The partnership arrangement was treated as one mode of carrying on the business, and its separate form did not by itself convert the dissolution cost into capital expenditure. As the outlay was incurred in the course of business and was not shown to be for acquiring an enduring asset or advantage, it was deductible in computing total income. The question was answered in favour of the assessee.

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Issues: Whether the expenditure incurred on dissolution of the partnership firm, formed in the course of the assessee's film-production business, was capital in nature or was allowable as revenue expenditure in computing the assessee's total income.

Analysis: The partnership was entered into by the assessee in the course of carrying on its regular business of producing and exploiting feature films. The dissolution expenditure was not claimed as a deduction from partnership profits, but as an item of business expenditure incurred by the assessee in the course of its own business activities. The assessee's film production through a partnership arrangement was treated as one of the modes of carrying on its business, and the fact that the partnership was separate in form did not, on these facts, convert the dissolution expense into a capital outlay. The ultimate issue was whether the expenditure was laid out for carrying on the assessee's business and not for acquisition of an enduring asset or advantage.

Conclusion: The expenditure on dissolution of the firm was allowable as revenue expenditure and the question was answered in favour of the assessee.

Ratio Decidendi: Expenditure incurred for dissolving a partnership entered into as part of the assessee's ordinary business operations is deductible as revenue expenditure where it is not shown to be capital in nature or incurred for acquiring an enduring advantage.

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