Debenture issue costs as capital expenditure: borrowing to raise permanent funds was not deductible under the income-tax law.

Expenditure incurred in issuing debentures to raise funds was treated as capital expenditure because the borrowing formed part of the business's capital structure rather than an ordinary trading outlay. The court distinguished money raised on a permanent or capital footing from short-term banking or trading accommodation, holding that the later use of the borrowed funds did not change the character of the borrowing itself. As a result, the debenture-issue expenditure was not deductible under section 10(2)(xv) of the Indian Income-tax Act, 1922.

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Issues: Whether the expenditure incurred in issuing debentures for raising funds of Rs. 3 lakhs constituted capital expenditure and was deductible under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: The expenditure was incurred for raising money by debentures, and the character of the outgoing depended on whether the borrowing produced a capital receipt or merely temporary trading accommodation. Money raised on a permanent or capital footing, even by borrowing, enlarges the capital structure of the business, whereas short-term banking or trading facilities are of a different character. The manner in which the borrowed funds were later applied did not alter the character of the borrowing itself. Raising debenture finance was treated as part of the arrangements by which capital is found, not as an ordinary incident of carrying on the business.

Conclusion: The expenditure was capital in nature and was not deductible under section 10(2)(xv) of the Indian Income-tax Act, 1922, in favour of Revenue.

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