Legal expenses defending title to business premises were held to be revenue expenditure, not capital outlay.

Legal expenses incurred in defending a pre-emption suit over immovable property used as business premises were treated as revenue expenditure, not capital expenditure. The governing test was whether the outlay created a new capital asset or improved or altered an existing one; here, the property was already an existing business asset and the litigation did not bring any new asset into existence. Defending the suit merely protected the assessee's title and did not augment the asset. The expenditure was therefore regarded as wholly and exclusively laid out for the business, and the deduction was allowable.

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Issues: Whether legal expenses incurred in defending a pre-emption suit relating to immovable property acquired and used as business premises were capital expenditure or revenue expenditure for purposes of deduction under the income-tax law.

Analysis: The governing test applied was whether the expenditure was incurred in acquiring a new capital asset or in improving or altering an existing capital asset. The disputed property was an existing business asset, and the litigation did not bring any new asset into existence. The successful defence of the suit merely repelled an attack on the assessee's title and did not improve, alter, or augment the asset. Expenditure incurred to protect business premises was treated as analogous to expenditure incurred to protect stock-in-trade, and therefore as laid out wholly and exclusively for the business, not as capital outlay.

Conclusion: The legal expenses were revenue expenditure and not capital expenditure. The deduction was allowable and the reference was answered against the Revenue.

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