Litigation expense is capital when it secures title to a leasehold asset, but revenue when it only protects existing business rights.

Litigation expenditure is capital when incurred to create, cure or complete title to a capital asset, but revenue when incurred merely to protect an existing business or its assets. Applying that test, expenses relating to the assessee's own suit for specific performance of the renewal clause were directed toward securing a further lease term and completing title to capital, while only the litigation initiated by the State had a protective character. On the admitted facts, apportionment on a 50% basis was justified, and that portion was not deductible as a revenue expense.

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Issues: Whether 50% of the litigation expenses incurred in the kyanite suit was capital expenditure and therefore not deductible in computing the assessee's income.

Analysis: The deduction depended on whether the expenditure was incurred to preserve and protect the existing business and assets, or to create, cure, or complete the assessee's title to a capital asset. The litigation arising from the assessee's own suit for specific performance of the renewal clause was directed towards securing a further lease term and thus towards completing title to capital, whereas only the litigation initiated by the State had a protective character. On the admitted facts, the apportionment of the expenses on a 50% basis was justified.

Conclusion: The 50% attributable to the assessee's kyanite suit was capital expenditure and was not admissible as a revenue deduction; the question was answered in favour of the Revenue and against the assessee.

Ratio Decidendi: Litigation expenditure incurred to create, cure, or complete title to a capital asset is capital expenditure, whereas expenditure incurred to protect an existing business or its assets is revenue expenditure.

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