Revenue expenditure principle: amalgamation expenses and worker housing contributions were deductible as business outgoings.

Legal expenses incurred for amalgamation of a complementary business were treated as revenue expenditure because the amalgamation was necessary for the smooth and efficient conduct of business and did not bring a capital asset into existence in the assessee's hands. A contribution made for construction of workers' tenements was also treated as revenue expenditure because the housing board retained ownership, no capital asset accrued to the assessee, and the outlay was directed to business efficiency through labour welfare. Both disputed amounts were therefore deductible in computing business income, and the rejection of the reference application was upheld.

---

---

Issues: (i) Whether legal expenses incurred for amalgamation of a complementary business were deductible as revenue expenditure; (ii) Whether contribution made for construction of tenements for workers was allowable as business expenditure.

Issue (i): Whether legal expenses incurred for amalgamation of a complementary business were deductible as revenue expenditure.

Analysis: The expenditure was incurred in connection with amalgamation of a company engaged in complementary business and the amalgamation was found necessary for the smooth and efficient conduct of the assessee's business. The expense was incurred in the course of carrying on the business and was not treated as acquisition of a capital asset in the relevant sense.

Conclusion: The expenditure was allowable as revenue expenditure.

Issue (ii): Whether contribution made for construction of tenements for workers was allowable as business expenditure.

Analysis: The contribution was made to a housing board for construction of tenements which remained the property of the housing board. No ownership rights or capital asset accrued to the assessee, and the benefit was directed to efficient conduct of the business through a contented labour force. The case was closer to authorities treating such welfare-linked outlay as revenue in nature rather than as capital expenditure yielding an enduring asset to the assessee.

Conclusion: The contribution was allowable as revenue expenditure.

Final Conclusion: The rejection of the reference application was upheld and both disputed amounts were held deductible in computing business income.

Ratio Decidendi: Expenditure incurred wholly and exclusively in the course of carrying on business is revenue in nature where it does not bring into existence a capital asset or enduring advantage in the hands of the assessee.

---