Litigation expenses incurred by an assessee for the purpose of creating, curing, or completing the assessee's title to the capital are capital expenditure, while litigation expenses incurred to protect the business of the assessee are revenue expenditure.

( 1 ) IN this reference under Section 256 (2) of the I. T. Act, 1961, the following two questions have been referred to this court as directed by this court : for the assessment year 1968-69 :"whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in holding that the legal expenses of Rs. 14,300 incurred by the assessee in connection with two suits were incurred for the purpose of the assessee's business and were as such allowable in computing the assessee's total income ?"for the assessment year 1969-70 :"whether, on the facts and circumstances of the case, the Tribunal misdirected itself in law in holding that the legal expenses of Rs. 11,500 incurred by the assessee in connection with the suits being Nos. 1684 of 1967 and 1720 of 1967 were incurred for the purpose of the assessee's business and as such were allowable in computing the assessee's total income ?"

( 2 ) THE assessee is a limited company and this reference relates to the assessment years 1968-69 and 1969-70. For these assessment years the assessee-company claimed deduction in working out the business income of legal expenses in connection with two suits, one of which was filed by two shareholders of the assessee company-against the then managing agents and others and the other of which was filed by the United Provinces Commercial Corporation Ltd. against the then managing agents and others, in which the assessee-company was also impleaded as a defendant. These expenses which were claimed as deduction amounted to Rs. 14,300 for the assessment year 1968-69 and Rs. 11,500 for the assessment year 1969-70. The ITO, however, did not accept the assessee's claim and disallowed these expenses while working out the income of the assessee-company. The assessee-company went up in appeal before the AAC. It would be helpful in view of the exhaustive manner in which the AAC dealt with the facts in this case to refer to the relevant portion of the order of the AAC. The AAC observed, inter alia, as follows :"the major items included, however, in this figure are a sum of Rs. 11. 000 and Rs. 3,300 (total Rs. 14,300) incurred for Suit No. 1684 of 1967 and Suit No. 1720 of 1967, respectively. As far as the first suit is concerned, this was filed by two shareholders of the assessee-company, namely, Chandra Shekhar Burman and Sohanlal Chaturvedi, against M/s. Steel Brothers and Co. Ltd. (the then managing agents of the assessee-company) the assessee and the then director of the assessee-company. The allegations in this plaint revolve round the point that the funds or assets of the company were being frittered away and dissipated by unwise investments or by making commitments of unsound concerns. The second suit was filed by the United Provinces Commercial Corporation Ltd. against Steel Brothers and Co. Ltd. , the assessee and chairman of the assessee-company and the allegations made in the plaint primarily relate to two points, namely, (1) alleged breach of contract in respect of sale of Steel Brothers and Co. Ltd. 's shareholding in the assessee-company, and (2) mismanagement of the funds of the assessee-company. Clearly these two suits are mainly against the managing agent and the board of directors of the appellant company. It is only incidentally that the appellant company has just been made a party to the suits. The second suit is clearly only against the managing agent for their breach of contract in respect of sale of some shares. The first suit is in the nature of a domestic quarrel between the shareholders and the management. "

( 3 ) FOR the reasons recorded by him and for the proposition of law mentioned therein, he, however, did not accept the assessee's contention and upheld the ITO's orders. Thereafter, the assessee went up in appeal before the Tribunal. The Tribunal dealt with the claim of the assessee-company and referred to the submissions made by the parties, nature of the suit, and the decision on w