Business protection litigation costs are revenue expenditure, and refund interest runs until actual payment.

Litigation expenditure incurred to defend possession and protect business use of premises, without acquiring or perfecting title to an asset, is revenue expenditure and deductible in nature. Refund interest is payable under section 244A up to the date the refund is actually granted, not merely up to the date of intimation or earlier computation. The note therefore treats the legal fees as allowable business expenditure and recognises interest on refund until actual payment, both points being resolved in favour of the assessee.

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Issues: (i) Whether legal expenditure incurred in contesting acquisition proceedings concerning premises used for the assessee's business was capital expenditure or revenue expenditure under section 37(1) of the Income-tax Act, 1961. (ii) Whether interest on refund under section 244A of the Income-tax Act, 1961 was payable up to the actual date of refund.

Issue (i): Whether legal expenditure incurred in contesting acquisition proceedings concerning premises used for the assessee's business was capital expenditure or revenue expenditure under section 37(1) of the Income-tax Act, 1961.

Analysis: The expenditure was incurred to defend possession and protect the assessee's business use of the property from which it carried on operations, and not to acquire, improve, extend, or perfect title to any asset. The assessee was not the owner of the property, and the litigation was directed to safeguard the continuity of its business. Applying the settled distinction between expenditure incurred to create or improve a capital asset and expenditure incurred to protect the business, the legal fees were held to be revenue in nature.

Conclusion: The disallowance was unsustainable. The expenditure was allowable as revenue expenditure and the issue was decided in favour of the assessee.

Issue (ii): Whether interest on refund under section 244A of the Income-tax Act, 1961 was payable up to the actual date of refund.

Analysis: Interest under section 244A is linked to the date on which the refund is actually granted, not merely to the date of intimation determining the refund. Since the refund was granted on the later actual payment date, interest had to be computed up to that date and not curtailed earlier.

Conclusion: The assessee was held entitled to interest up to the actual date of refund, and the matter was sent back only for giving effect to that computation, in favour of the assessee.

Final Conclusion: The appeal succeeded on both substantive grounds, with the litigation expenditure treated as deductible revenue expenditure and refund interest directed to run until actual payment.

Ratio Decidendi: Litigation expenditure is revenue expenditure when it is incurred to protect the assessee's business and possession, rather than to acquire or perfect title to a capital asset, and refund interest under section 244A runs until the date the refund is actually granted.

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