Capital expenditure on new route permits not deductible as revenue expense for an existing transport business.

Legal expenses incurred to obtain fresh bus route permits were treated as capital expenditure because each permit was regarded as a separate asset needed before business could be carried on in relation to that route. The expense was not laid out for the purpose of an existing business, but at the stage of acquiring the basis for commencing that segment of the transport business. Accordingly, the deduction was not admissible under the revenue-expenditure provision.

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Issues: Whether legal expenses incurred for obtaining new bus route permits were admissible as revenue expenditure in computing business income under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: The expense was incurred to secure fresh route permits, and each permit was treated as a separate asset necessary before any business could be carried on in relation to that route. Expenditure incurred to acquire such a permit was therefore not laid out for the purpose of an existing business but was incurred at the stage of acquiring the basis for commencing that part of the transport business. It was held to be expenditure of a capital character rather than revenue expenditure.

Conclusion: The deduction was not admissible and the answer was against the assessee.

Final Conclusion: Legal expenses incurred in obtaining a new route permit were held to be capital in nature and not allowable as a deduction under the revenue-expenditure provision.

Ratio Decidendi: Expenditure incurred to acquire a new statutory permit necessary to commence a distinct segment of business is capital expenditure, not expenditure laid out wholly and exclusively for the purpose of an existing business.

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