Litigation to perfect share title and secure voting rights was capital expenditure, forming part of actual share cost.

Legal expenses incurred after purchase of shares to secure registration in the purchaser's name and to remove restrictive voting arrangements were treated as capital expenditure. Because the litigation was directed to perfecting title and enhancing the value of the shareholding, the expenses were held to be incurred for acquiring, curing, completing, or improving a capital asset. They therefore formed part of the actual cost of the shares for capital gains computation under section 12B(2)(ii).

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Issues: Whether legal expenses incurred in proceedings for rectification of the share register and for invalidating restrictive voting arrangements were expenditure of a capital nature, and whether such expenditure formed part of the actual cost of the shares under section 12B(2)(ii).

Analysis: The expenses were incurred after purchase of the shares to compel registration in the assessee's name and to secure voting rights attaching to the shares. On the facts found, the shareholding was not fully perfected until registration was obtained, and the litigation to rectify the register was therefore directed to curing and completing title. The proceedings concerning voting rights were likewise aimed at removing restrictions that materially reduced the worth of the block of shares and thus enhanced the value of the capital asset. Expenditure incurred for acquiring, curing, completing, or improving title, or for enhancing the value of a capital asset, is capital expenditure and is includible in actual cost for the purpose of computing capital gains or loss.

Conclusion: The legal expenses were capital expenditure and had to be included in the actual cost of the shares under section 12B(2)(ii); the question was answered in favour of the assessee.

Ratio Decidendi: Litigation expenses incurred to perfect title to a capital asset or to enhance its value form part of its actual cost and are capital in nature for capital gains computation.

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