Loan-raising expenses treated as capital expenditure when borrowing creates an enduring business advantage and is not deductible.

Expenditure incurred to secure a business loan was treated as capital expenditure where the borrowing created an enduring advantage for the business and was incurred once and for all. The allowance under section 10(2)(xv) depended on whether the payment was laid out wholly and exclusively for business and whether its true character was capital or revenue. On the stated facts, part of the borrowed funds discharged capital liabilities and there was no material to support the claim that the balance was working capital. The loan-raising expenses were therefore not deductible in computing business profits.

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Issues: Whether expenditure incurred in obtaining a loan for the business was an allowable deduction as revenue expenditure, or was capital expenditure not deductible.

Analysis: The allowance under section 10(2)(xv) depended on whether the expenditure was laid out wholly and exclusively for the business and whether its character was capital or revenue. The borrowing in question created an asset or advantage for the business for the duration of the loan, and the expenditure was incurred once and for all in securing that borrowing. The record further showed that at least part of the borrowed sum was used to discharge capital liabilities, while the inference that the balance was for working funds was unsupported by material. On these facts, the expenditure was attributable to the capital field.

Conclusion: The expenditure on obtaining the loan was not allowable as revenue expenditure and was held to be capital expenditure.

Final Conclusion: The reference was answered against the assessee, and the loan-raising expenses were held not deductible in computing business profits.

Ratio Decidendi: Expenditure incurred to secure borrowing that confers an enduring business advantage is capital expenditure and is not deductible as money laid out wholly and exclusively for the purposes of business merely because the loan is repayable.

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