Business litigation expenses for patent defence were deductible because the primary purpose was protecting trade interests.

Expenditure on litigation over alleged patent infringement was held to be deductible as a business expense because the controlling test was whether it was incurred wholly and exclusively for the business. On the facts, the litigation was brought to defend the assessee's manufactured goods and business interests, and no non-business purpose was shown. The fact that the assessee lost the litigation did not change the character of the expenditure for tax purposes, so the deduction was allowable in favour of the assessee.

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Issues: Whether the expenditure incurred in litigation concerning alleged infringement of patent rights was allowable as a business deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: The deductibility of the amount depended on whether the expenditure was incurred wholly and exclusively for the business. The decisive factor was the primary purpose of the litigation. On the facts found, the litigation was undertaken by the assessee to defend its manufactured goods and business interests, and the expenditure was not shown to have been incurred for any purpose outside the business. The loss of the litigation did not alter the character of the expenditure for tax purposes.

Conclusion: The expenditure was allowable as a business deduction and the question was answered in the affirmative, in favour of the assessee and against the revenue.

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