Revenue expenditure on defending title to business assets is deductible when it protects an existing asset, not acquisition cost.

Litigation expenses incurred after a business had already acquired possession and title to buses under an unconditional sale were treated as revenue expenditure, not part of the cost of acquisition. Applying the Sale of Goods Act, title to specific goods in a deliverable state passed when the contract was made, so the later dispute did not convert the defence costs into capital expenditure. Expenses incurred to resist hostile claims and preserve an existing business asset were held to relate to the conduct and protection of the business, with no new asset created or capital structure improved. The expenditure was therefore allowable as a deduction under section 10(2)(xv) of the Income-tax Act.

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Issues: Whether litigation expenses incurred in defending title to buses purchased for business use were allowable as business expenditure under section 10(2)(xv) of the Income-tax Act.

Analysis: The expenditure was incurred after the assessee had acquired possession and title to the buses under an unconditional contract of sale. Applying the Sale of Goods Act, the property in specific goods in a deliverable state passed on the making of the contract, and the later dispute did not mean that the litigation formed part of the cost of acquisition. The litigation was undertaken to resist hostile claims and to preserve an existing business asset and the rights attached to it, without creating any new asset or improving the capital structure. Expenditure incurred to defend or maintain an existing capital asset is attributable to the conduct and preservation of the business, not to acquisition of capital.

Conclusion: The litigation expenses were revenue expenditure and were allowable as a deduction under section 10(2)(xv) of the Income-tax Act.

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