Composite lump-sum receipts must be apportioned between revenue and capital components; only the revenue part is taxable.

A composite lump-sum received on release of contractual rights had to be apportioned where it covered both revenue and capital elements. The part referable to profits already earned for past services retained its revenue character and was taxable as such, while the components relating to surrender of royalty rights and a right of pre-emption were capital in nature. The taxing authority could not treat the whole receipt as revenue merely because one component was taxable. The receipt was therefore a mixed one, requiring reasonable allocation between taxable revenue and non-taxable capital elements.

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Issues: Whether the lump sum of Rs. 28,779 received on release of rights under the agreements was wholly a revenue receipt as remuneration for services rendered, or whether it also contained capital elements requiring apportionment.

Analysis: The agreements showed that the consideration for the release was not confined to one item. Part of the amount related to the assessee's entitlement to 50 per cent of the profits attributable to services already rendered, and that component retained its revenue character. The same release also covered the surrender of rights to royalties and the right of pre-emption, both of which were capital rights. Where a composite payment is made for distinct rights, some revenue and some capital, the taxing authority cannot treat the whole receipt as revenue merely because one component is taxable. The proper course is to apportion the lump sum between the respective components on a reasonable basis.

Conclusion: The sum of Rs. 28,779 was not wholly remuneration for services rendered and was not wholly a revenue receipt; it had to be apportioned, with only the part attributable to past services assessable as revenue and the balance treated as capital.

Final Conclusion: The reference was answered by holding that the receipt was a mixed one containing both taxable revenue and non-taxable capital elements, and the matter required apportionment accordingly.

Ratio Decidendi: Where a single payment is made in consideration of the surrender of multiple rights, the amount must be apportioned between revenue and capital components, and only the part referable to revenue rights is taxable.

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