Debenture issue expenses for borrowing funds are revenue expenditure when incurred wholly for business purposes.

Expenditure incurred for issuing debentures to raise borrowed funds was treated as revenue expenditure where the borrowing was incidental to carrying on business and the outlay was wholly and exclusively for that purpose. The fact that the loan was ultimately applied to acquire or support capital assets did not make the expenditure capital in nature. Because the debenture-issue expenses did not create an asset or enduring advantage, they were deductible in computing business profits and allowable under section 10(2)(xv) of the Indian Income-tax Act, 1922. The alternative question on actual cost did not arise.

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Issues: Whether expenditure incurred in connection with the issue of debentures for raising a loan was deductible as revenue expenditure in computing business profits.

Analysis: The relevant principle was that expenditure incurred for obtaining the use of borrowed money is not capital expenditure merely because the loan is secured for business purposes involving capital assets. The object with which the loan is ultimately used is irrelevant where the borrowing itself is incidental to carrying on business and the expenditure is laid out wholly and exclusively for that purpose. On the facts, the debenture-issue expenditure was incurred to raise borrowed funds and did not create an asset or advantage of enduring nature.

Conclusion: The expenditure was allowable as revenue expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922, and the answer was in the affirmative, in favour of the assessee.

Final Conclusion: The reference was answered in favour of the assessee, and the alternative question on actual cost did not arise for decision.

Ratio Decidendi: Expenditure incurred for raising borrowed money through debentures is revenue in nature if it is laid out for business purposes, and the ultimate object for which the loan is used does not determine its deductibility.

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