Revenue expenditure on pre-incorporation business costs and technical know-how was held deductible, not capital outlay.

Expenditure incurred to secure business orders, obtain raw materials, and facilitate the carrying on of the business was treated as revenue in nature because it formed part of the ordinary profit-making process and did not create a new asset or enduring advantage. The fact that some expenses were incurred before incorporation did not alter their character where the promoters' business was taken over by the company and the related receipts were assessed in its hands. A study tour abroad undertaken to acquire technical knowledge in security printing was also regarded as revenue expenditure, as it aimed to improve the conduct of the business rather than acquire a capital asset. The disputed sums were therefore held fully deductible.

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Issues: Whether any part of the sums spent on pre-incorporation travelling, director-related expenses, and a study tour abroad could be disallowed as capital expenditure.

Analysis: Expenditure incurred to secure orders, obtain raw materials, and facilitate the carrying on of the business was held to be part of the ordinary process of profit-making and did not create any new asset or enduring advantage. The fact that the expenditure was incurred before incorporation did not change its character where the business begun by the promoters was taken over by the company and the related receipts were included in its assessment. The study tour undertaken to acquire technical knowledge in security printing was also treated as revenue expenditure, as it was directed to improving the conduct of the business and not to acquiring a capital asset or an enduring benefit.

Conclusion: No part of the sums of Rs. 23,549 and Rs. 15,455 was capital expenditure; both were allowable as revenue expenses, in favour of the assessee.

Final Conclusion: The reference was answered by holding that the disputed expenditures were deductible in full and could not be treated as capital outlay.

Ratio Decidendi: Expenditure incurred for securing business orders, obtaining business-related materials, and acquiring technical know-how for carrying on the business is revenue in nature unless it brings into existence a new asset or enduring capital advantage.

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