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Issues: Whether the amount of Rs. 20,000 received on termination and modification of the monopoly arrangement was a capital receipt or a revenue receipt.
Analysis: The agreement under which the assessee obtained monopoly purchasing rights was entered into in the ordinary course of its business as dealers in electric goods. Its termination did not destroy or sterilise the assessee's profit-making apparatus, nor did it extinguish any fixed capital asset of the business. The assessee continued its business in the same line and the payment was made as compensation for withdrawal of trading advantages under a business contract. Since the receipt arose from business, it was not excluded by section 4(3)(vii), and there was no need to decide the question under section 10(5A)(d).
Conclusion: The receipt was a taxable revenue receipt and not a capital receipt. It was includible in the total income of the assessee.
Final Conclusion: The reference was answered in favour of the Revenue, and the assessee was held liable to tax on the amount received.
Ratio Decidendi: Compensation received for cancelling or modifying a business contract entered into in the ordinary course of trading is revenue income unless the contract constitutes a capital asset or its extinction destroys the profit-making structure of the business.
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