Business deductions and loan characterisation upheld where advances were recoverable debts, litigation protected trading assets, and partition was not a sale.

Advances made to an associated firm were treated as loans in the course of the assessee-firm's money-lending business, not as capital contributions, because the partnership terms and surrounding conduct showed the amounts were recoverable debts carrying interest. Litigation expenditure and remuneration paid to Shri R. K. Saran were allowable deductions, as the litigation was undertaken to protect business interests, recover loan amounts, and preserve security. The sum of Rs. 10,614 was not taxable profit under the capital allowance provision, because the house was allotted on partition and such allotment was not a sale. The issues were resolved in favour of the assessee.

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Issues: (i) Whether the advances made by the assessee-firm to the associated firm were loans in the course of money-lending business or capital contributions of the Daga group; (ii) Whether the litigation expenditure and remuneration paid to Shri R. K. Saran were admissible deductions under section 10(2)(xv); (iii) Whether the sum of Rs. 10,614 constituted taxable profit under section 10(2)(vii).

Issue (i): Whether the advances made by the assessee-firm to the associated firm were loans in the course of money-lending business or capital contributions of the Daga group.

Analysis: The partnership terms treated further advances beyond the agreed contribution as debts carrying interest, and the assessee-firm acted as banker to the partnership. The surrounding conduct, including the treatment of the amounts in the commercial arrangements and the later compromise decree, supported the character of the amounts as advances recoverable as loans rather than as capital subscribed by the partners.

Conclusion: The advances were loans made in the course of the assessee-firm's money-lending business and were not capital contributions.

Issue (ii): Whether the litigation expenditure and remuneration paid to Shri R. K. Saran were admissible deductions under section 10(2)(xv).

Analysis: The litigation was undertaken to protect and preserve the assessee-firm's business interests, to recover substantial loan amounts, to safeguard security, and to prevent dissipation of assets that directly affected its business. Expenditure incurred for preserving trading assets or averting danger to the business is allowable when laid out wholly and exclusively for the purposes of the business. The services of Shri R. K. Saran were found necessary for conducting that litigation.

Conclusion: The litigation expenses and the remuneration paid to Shri R. K. Saran were allowable deductions under section 10(2)(xv).

Issue (iii): Whether the sum of Rs. 10,614 constituted taxable profit under section 10(2)(vii).

Analysis: The provision applies only where a building, machinery or plant is sold, discarded, demolished or destroyed. The house in question was not sold; it was allotted on partition for adjustment of shares among family members. A partition allotment cannot be equated with a sale for the purposes of the provision.

Conclusion: The sum of Rs. 10,614 did not constitute taxable profit under section 10(2)(vii).

Final Conclusion: All three reference questions were answered in favour of the assessee, resulting in full success for the assessee and costs awarded against the revenue.

Ratio Decidendi: Expenditure incurred by a business to protect or preserve its commercial assets and recover business-related advances is deductible if it is laid out wholly and exclusively for the purposes of the business; a mere partition allotment is not a sale within the capital allowance provision.

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