Business defence litigation costs deductible where expenses protect company structure without affecting capital assets or capital structure.

Litigation expenses, consultation fees and travelling expenses incurred in defending a suit challenging company resolutions were treated as revenue expenditure deductible under section 10(2)(xv). The court held that defending the validity of resolutions recasting the articles of association and appointing managing agents was necessary to preserve the normal conduct and continuity of the business. Because the expenditure was laid out wholly and exclusively for business purposes and did not alter the capital structure or create or enhance a capital asset, it was not capital in nature and remained allowable as a business deduction.

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Issues: Whether litigation expenses, consultation fees and travelling expenses incurred in defending a suit challenging the company's resolutions were allowable as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: The suit challenged a resolution recasting the articles of association and another appointing managing agents. The articles governed the conduct of the company's business, and defending their validity was necessary to preserve the normal running of the business. The expenditure was incurred to protect the business structure and to prevent disruption of business affairs, and therefore it was laid out wholly and exclusively for the purpose of business. It was not expenditure of a capital nature, as the litigation did not alter the capital structure or result in acquisition or enhancement of a capital asset.

Conclusion: The expenditure was allowable as revenue expenditure under section 10(2)(xv), in favour of the assessee.

Ratio Decidendi: Expenditure incurred in defending litigation that directly protects the conduct and continuity of the assessee's business, without affecting its capital structure, is deductible as revenue expenditure if it is laid out wholly and exclusively for the purposes of business.

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