Trading receipt rule: compensation for transfer of a business contract was taxable as revenue income.

Compensation received for transferring or cancelling a contract entered into in the ordinary course of business is a revenue receipt, not a capital receipt, even where the contract is substantial or concerns a single transaction. The assessee's parachute purchase contract was part of his trading operations, so the consideration received for its transfer was taxable as trading income. The alternative argument that the payment represented relinquishment of partnership rights also failed, because the record did not establish a completed partnership and the later arrangement treated the earlier understanding as cancelled, with the assessee transferring the contract individually for consideration. The receipt was therefore liable to income-tax.

---

---

Issues: Whether the sum of Rs. 1,87,000 received by the assessee for transferring the benefit of the parachute purchase contract was a revenue receipt liable to income-tax.

Analysis: The contract in question was entered into by the assessee in the ordinary course of his business as a trader in the relevant goods. The amount received was not for transfer of a capital asset or of a source of income in the nature of a managing agency or selling agency, but was consideration for transferring a business contract that formed part of the trading operations. The plea that the amount represented consideration for relinquishment of partnership rights also failed, as the arrangement of 31 October 1946 did not establish a completed partnership on the record, and in any event the later arrangement treated the earlier understanding as cancelled and proceeded on the footing that the assessee individually transferred the contract to Pokhraj Hirachand for consideration.

Conclusion: The receipt of Rs. 1,87,000 was a trading receipt and not a capital receipt; it was liable to income-tax.

Final Conclusion: The reference was answered in the affirmative in favour of the revenue, and the assessee was held liable to tax on the amount received.

Ratio Decidendi: Compensation received for transfer or cancellation of a contract entered into in the ordinary course of business is a revenue receipt, even if the contract is substantial or related to a single transaction.

---