Litigation expenses to defend title to business assets are revenue expenditure when they do not acquire or improve a capital asset.

Litigation expenses incurred in a suit to establish title to buses already claimed for the transport business were treated as revenue expenditure, because the decisive test was the nature and purpose of the proceedings, not the final outcome. The suit did not bring into existence, acquire, or improve any capital asset; it only defended an existing business claim of title. The absence of possession did not turn the expense into capital expenditure or into cost of curing a defective title for acquisition purposes. The expenditure was therefore laid out wholly and exclusively for the business and was deductible under section 10(2)(xv) of the Income-tax Act, 1922.

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Issues: Whether litigation expenses incurred in a suit to establish title to buses and recover possession of them were capital expenditure or revenue expenditure deductible under section 10(2)(xv) of the Income-tax Act, 1922, and whether they were laid out wholly and exclusively for the assessee's business.

Analysis: The expenditure was incurred in connection with a suit whose object was to sustain the assessee's claim of title to buses already claimed to have been acquired for the transport business. The decisive test was the nature and purpose of the litigation, not its ultimate result. Applying the settled principle that expenditure is capital only where it brings into existence, acquires, or improves a capital asset, the suit did not create any new asset or improve an existing one. It was directed to defending an existing claim of title, and the absence of possession did not convert it into expenditure for acquiring a capital asset or for curing a defective title. The expenditure was incurred in the course of the business and for asserting rights connected with that business.

Conclusion: The litigation expense was revenue expenditure and was deductible under section 10(2)(xv); the question was answered in the negative, in favour of the assessee.

Ratio Decidendi: Legal incurred to defend or establish title to an already claimed business asset is revenue expenditure if it does not acquire or improve a capital asset, and its deductibility depends on the nature and purpose of the proceeding, not on its final outcome.

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