Capital receipt on agency termination distinguished from business income under the Indian Income-tax Act, 1922.

Compensation received on termination of an agency business is analysed as a capital receipt where it is paid for the compulsory cessation of the agency rather than as a return from carrying on business in the relevant year. Income under the Indian Income-tax Act, 1922 is treated as a periodical monetary return from a definite source, so a termination payment is distinguished from ordinary profits. The statutory heads of income are read as covering receipts derived from business activity, not a solatium for ending that activity, and the capital-sum exemption provision does not expand the ordinary meaning of income to tax such a receipt.

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Issues: Whether compensation received for termination of the agency business constituted income, profits or gains taxable under the Indian Income-tax Act, 1922, or was a capital receipt not liable to tax.

Analysis: The receipt was held to be compensation for the compulsory cessation of the agency and not the product of carrying on the business in the relevant year. Income under the Act was treated as a periodical monetary return arising from a definite source, and the compensation was distinguished from profits earned in the ordinary course of business. The statutory heads of income, including business income and other sources, were construed as covering receipts derived from the carrying on of business and not a sum paid as a solatium for its termination. The exemption provision for certain capital sums did not enlarge the ordinary meaning of income so as to bring such a receipt within charge.

Conclusion: The compensation was not taxable income but a capital receipt, and the answer to the referred question was in favour of the assessee.

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