Revenue expenditure on overdraft facilities is deductible when it merely secures business use of borrowed funds without creating an enduring asset.

Expenditure incurred on stamps and registration charges for obtaining or renewing overdraft facilities was treated as revenue expenditure, because it was paid to secure the use of money for business purposes and did not create an enduring asset. The distinction between initial procurement of the facility and its renewal was held to be immaterial where the outgoing merely facilitated short-term borrowing. In the absence of any express prohibition, such business expenditure was deductible in computing taxable income, and it was not to be regarded as capital outlay.

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Issues: Whether expenditure incurred for stamps and registration charges for obtaining overdraft facilities from a bank was an allowable deduction as revenue expenditure under section 10(2)(xv) of the Income-tax Act, 1922.

Analysis: The expenditure was incurred to procure overdraft facilities for the assessee's business. Such facilities are ordinarily for a limited period and renewable from time to time, and the outgoing did not bring into existence any asset of an enduring nature. The distinction sought to be drawn between expenditure for entering into the agreement for the first time and expenditure for its renewal was held to be unwarranted. The governing principle was that an expenditure made to obtain the use of money for business purposes, where no express prohibition exists, is deductible in computing taxable income.

Conclusion: The expenditure was held to be wholly laid out for the purposes of the assessee's business and was an allowable deduction.

Final Conclusion: The reference was answered in favour of the assessee, and the impugned expenditure was treated as deductible business expenditure rather than capital outlay.

Ratio Decidendi: Expenditure incurred to obtain the use of money for business, including overdraft facilities, is revenue expenditure and deductible unless it results in the acquisition of an enduring asset.

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