Actual cost for depreciation includes acquisition-linked expenses such as supervision, delivery, launching and legal charges.

Expenses directly or intimately connected with acquiring ships and bringing them to a condition for use, including travelling, supervision, launching, delivery and related legal charges, formed part of the ships' actual cost for depreciation. The expression "actual cost" was held not to be confined to the price paid to the vendor but to extend to expenditure incurred in connection with acquisition of the capital asset. The disputed amounts were therefore capital in nature and includible in the capital cost of the ships for depreciation purposes.

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Issues: Whether travelling, launching and legal expenses incurred in connection with the acquisition, supervision, launching and delivery of ships formed part of the capital cost or actual cost of the assets for depreciation purposes.

Analysis: The expenditure was incurred directly in connection with acquiring the ships and bringing them to a condition for use. Expenses connected with supervision of construction, fixation of final price, delivery, launching and related legal charges were treated as part of the acquisition cost. The governing principle applied was that the expression "actual cost" is not confined to the amount paid to the vendor but includes expenditure directly or intimately connected with the acquisition of the capital asset.

Conclusion: The disputed expenses were capital in nature and were includible in the actual cost of the ships for depreciation.

Final Conclusion: The reference was answered in favour of the assessee and the expenditure was held allowable only by being added to the capital cost of the ships for depreciation purposes.

Ratio Decidendi: Expenditure directly or intimately connected with the acquisition of a capital asset forms part of its actual cost for depreciation purposes, and actual cost is not limited to the price paid to the vendor.

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