Trade-mark defence costs as revenue expenditure where payments protect business use and create no enduring asset.

Litigation expenses and compromise payments made to defend alleged trade-mark infringement were treated as revenue expenditure because they were incurred in the ordinary course of business to protect the assessee's trade mark. The payments did not create an asset or enduring advantage, and they were not penalties for a proved breach of law. They were therefore regarded as laid out wholly and exclusively for the purposes of the business and allowable as a deduction under the amended income-tax law.

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Issues: Whether the amounts spent by the assessee in defending and compromising litigation relating to alleged trade-mark infringement were admissible deductions in computing business profits under the amended income-tax law.

Analysis: The expenditure was incurred in the course of carrying on the assessee's business and was directed to protecting the use of the trade mark in that business. It did not result in acquisition of an asset or an enduring advantage, and it was not a payment by way of penalty for any proved breach of law. The compromise payment and the legal expenses were therefore treated as expenditure laid out wholly and exclusively for the purposes of the business and not as capital outlay.

Conclusion: The expenditure was allowable as a deduction under Section 10(2)(xii) of the Indian Income-tax Act, 1922, in favour of the assessee.

Final Conclusion: The reference was answered for the assessee, and the re-assessment issue did not survive for decision.

Ratio Decidendi: Litigation expenses and compromise payments incurred in the ordinary course of business to protect a trade mark are revenue expenditure if they are laid out wholly and exclusively for the purposes of the business and do not create an enduring asset.

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