Legal expenses to preserve an existing income-yielding office were held deductible as revenue expenditure, not capital outlay.

Legal expenses incurred solely to preserve an existing income-yielding office were held to be allowable, because the litigation was directed at retaining the source of fees and not at securing any separate personal object. The expenditure did not bring into existence a new asset or enduring advantage; it merely maintained an existing source of income. It was therefore not capital expenditure and was deductible as revenue expenditure.

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Issues: (i) whether the legal expenses incurred in defending the suit to unseat the assessee were incurred solely for the purpose of earning the income derived from his office, and (ii) whether those expenses were in the nature of capital expenditure.

Issue (i): whether the legal expenses incurred in defending the suit to unseat the assessee were incurred solely for the purpose of earning the income derived from his office.

Analysis: The expenditure was incurred to preserve an already existing source of income, namely the assessee's seat on the Local Board, and there was no finding of any separate personal object such as protection of honour or reputation. The fact that the office may also have carried rights, privileges, or status did not detract from the finding that the litigation was defended to retain the income-yielding office. The decisive consideration was that the sole purpose was to preserve the source from which the fees arose.

Conclusion: The expenditure was incurred solely for the purpose of earning the income and the issue was answered in favour of the assessee.

Issue (ii): whether those expenses were in the nature of capital expenditure.

Analysis: The governing test was whether the outlay brought into existence an asset or advantage of enduring benefit, as distinct from merely preserving an existing asset. The assessee did not acquire any new asset or fresh advantage by resisting the challenge; he only maintained and preserved the office already held. Expenditure directed to the maintenance of an existing source of income was therefore not capital expenditure.

Conclusion: The expenses were not capital expenditure and the issue was answered in favour of the assessee.

Final Conclusion: The reference was answered for the assessee, and the deductible nature of the legal expenses was upheld.

Ratio Decidendi: Legal expenses incurred solely to preserve an existing income-yielding office or source are allowable as revenue expenditure when they do not create a new asset or enduring advantage and are not capital in nature.

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