When a firm faces a legal suit claiming that the factory site belongs to the plaintiff, it incurs legal expenses to defend the case. The question is whether these legal expenses are revenue or capital expenditure.



The answer to whether the legal expenses are revenue or capital expenditure depends on the nature of the suit and whether the factory site is a capital asset or a revenue asset.

If the suit is related to the ownership of the factory site and the factory site is a capital asset, then the legal expenses incurred to defend the suit will be treated as capital expenditure. This is because the factory site is a long-term asset, and any expenses incurred to defend the ownership of the site will benefit the firm in the long term.

On the other hand, if the suit is related to the use of the factory site and the factory site is a revenue asset, then the legal expenses incurred to defend the suit will be treated as revenue expenditure. This is because the factory site is a short-term asset, and any expenses incurred to defend the use of the site will benefit the firm in the short term.



In conclusion, whether the legal expenses incurred to defend a suit claiming that the firm's factory site belongs to the plaintiff is revenue or capital expenditure depends on the nature of the suit and whether the factory site is a capital asset or a revenue asset. It is important for firms to correctly classify these expenses to ensure accurate financial reporting and tax compliance.

It is a capital expenditure as it is a part of construction of plantiff