Capital receipt for surrender of trade mark and manufacturing rights must be apportioned on proper evidentiary basis.

Compensation for surrender of trade mark user rights and the right to manufacture under an established brand was treated as capital in nature because it represented relinquishment of a source of income and part of the profit-making structure, not ordinary trading receipts. The receipt could not be characterised as revenue merely because other business activities continued. The consideration, however, required apportionment between goodwill/trade mark rights and the manufacturing right, and the assessee's own bifurcation was found unsupported by material, requiring recomputation on a proper basis.

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Issues: Whether the amount of Rs. 55 lakhs received for surrender of trade mark user rights and for giving up the right to manufacture ice-cream under the brand name "Kwality" was a capital receipt or a revenue receipt, and what portion of that amount was assessable to tax.

Analysis: The receipt arose from the assessee's relinquishment of its user rights in the trade marks and its right to manufacture ice-cream under the established brand name, which had constituted a source of income and part of its profit-making structure. Applying the settled principles that compensation for loss of a capital asset or loss of source of income is capital in nature, the receipt could not be treated as revenue merely because the assessee continued some other business activities. The later arrangement and surrounding facts showed that the payment was connected with surrender of valuable rights, not with ordinary trading profits or a mere cancellation of a trading contract. However, the consideration required apportionment between surrender of goodwill/trade mark rights and cessation of manufacturing rights, and the Tribunal found the assessee's original bifurcation unsupported by material.

Conclusion: The receipt of Rs. 55 lakhs was held to be a capital receipt, but only Rs. 15 lakhs was attributed to goodwill/trade mark rights and the balance was treated as consideration for surrender of the manufacturing right, to be recomputed accordingly.

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