Business litigation legal expenses are revenue deduction when incurred to protect existing assets during partnership dissolution.

Legal expenses incurred in partnership dissolution litigation were treated as revenue expenditure where the proceedings were incidental to the business and aimed at protecting existing assets through appointment of a receiver. Deductibility turned on the nature and purpose of the litigation in relation to the business, not on the ultimate outcome of the suit. Because the expenses were connected with continuing business operations, safeguarding assets, and completing unfinished transactions, and were not incurred to acquire a new capital asset, they were allowable as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922.

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Issues: Whether legal expenses incurred in a partnership dissolution suit, where a receiver was appointed to carry on the business and protect the firm's assets during the transitional period, were allowable as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: The expenditure arose in civil litigation connected with the business and was incurred in circumstances where the suit itself sought appointment of a receiver to continue the business and safeguard the assets of the dissolved firm. The legal proceedings were thus not confined to dissolution alone, but were also directed to protecting the business assets and completing unfinished transactions. In such civil litigation, the deductibility of legal expenses depends on the nature and purpose of the proceedings in relation to the business, and not on the ultimate result of the suit. The expenses were inseparably connected with both the dissolution and the protection of the business assets, and were not incurred for acquiring any new capital asset.

Conclusion: The legal expenses were a permissible revenue deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922, and the answer was in the affirmative in favour of the assessee.

Ratio Decidendi: Legal expenses incurred in civil litigation are deductible when the proceedings are incidental to the carrying on of the business and are directed to protecting existing business assets, and such expenses are not capital expenditure merely because they arise in a dissolution dispute.

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