Cancellation payment treated as trading receipt where agency arrangement remained part of ordinary business operations.

A payment received for cancelling an agency and secretarial agreement was treated as a trading receipt because the arrangement was entered into in the ordinary course of business and formed part of trading operations. Its cancellation did not destroy or materially impair the company's profit-making apparatus, so the sum was revenue in character. The fact that the payment came from a third party and exceeded the ordinary value of the agreement did not change its tax treatment. The receipt was therefore chargeable to tax as income rather than capital.

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Issues: Whether the sum received for the cancellation of the agency and secretarial agreement was a trading receipt assessable under Schedule D of the Income-tax Act, 1918, or a capital receipt.

Analysis: The payment was made in consideration of the resignation from an agency and secretarial arrangement entered into in the ordinary course of the company's business. The agreement formed part of the company's trading operations and its cancellation did not destroy or materially cripple the company's profit-making apparatus. The fact that the amount was paid by a third party and exceeded the ordinary value of the agreement did not alter its character in the recipient's hands. Applying the established line of authority on cancellation payments, the receipt was properly treated as arising from trade rather than as compensation for loss of a capital asset.

Conclusion: The sum was a revenue trading receipt chargeable to tax and not a capital receipt.

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