Revenue expenditure on defensive compromise payment was deductible, as it protected an existing business title rather than created new asset.

A payment made to defend or preserve an existing business title is revenue expenditure, while a payment to acquire, perfect, cure or complete title to a capital asset is capital expenditure. Applying that distinction, the later compromise payment was treated as defensive and protective in character because the assessee had already acquired the business assets and the amount did not bring any new asset into existence or perfect title. The pleadings in the compromise suit were not treated as proof that the payment was balance purchase price. The sum was therefore deductible in computing business income.

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Issues: Whether the sum of Rs. 40,000 paid under the compromise decree was capital expenditure or revenue expenditure and, therefore, deductible in computing business income.

Analysis: Expenditure incurred to protect or maintain an assessee's business is revenue expenditure, whereas expenditure incurred to acquire, perfect, cure, or complete title to a capital asset is capital in nature. On the facts found, the assessee had already acquired the business assets earlier and the later payment was made to ward off an attack on that existing business title, not to bring any new asset into existence or to perfect title to the property. The pleadings in the compromise suit could not be treated as proof that the payment represented balance purchase price. The later payment had a defensive and protective character and was incurred in the course of carrying on the business.

Conclusion: The sum of Rs. 40,000 was revenue expenditure and was deductible in determining the assessee's business income.

Ratio Decidendi: A payment made to defend or preserve an existing business or title already acquired is revenue expenditure, but a payment made to acquire or perfect title to a capital asset is capital expenditure.

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