Compensation for technical know-how impairment treated as capital receipt, not revenue, where settlement related to a capital advantage.

Compensation received in settlement of claims relating to technical know-how was treated as capital in nature because it was connected with a capital advantage rather than the ordinary course of business. The payment was made by another company for know-how made available through the assessee's employees, and the receipt was not regarded as revenue arising from trading operations. Applying the principle that compensation for impairment of a capital asset or capital advantage retains capital character, the amount was held to be a capital receipt and not a revenue receipt.

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Issues: Whether the sum of Rs. 32,500 received by the assessee as compensation in settlement of claims relating to its technical know-how was a capital receipt.

Analysis: The payment was made by the other company in settlement for the technical know-how which had been made available through the assessee's employees, and the receipt was not treated as revenue arising from the ordinary course of business. Applying the principle that compensation received for impairment of a capital asset or capital advantage is capital in nature, the receipt was held to retain its capital character.

Conclusion: The amount of Rs. 32,500 was a capital receipt and not a revenue receipt.

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