Trading receipt rule for managing agency relinquishment: voluntary surrender in the ordinary course is taxable revenue, not capital.

Where an assessee's business consists in acquiring, holding and disposing of managing agencies, compensation received on voluntary relinquishment of one agency in the ordinary course of that business is a trading receipt. The Calcutta HC treated the payment as arising from a composite commercial arrangement, noting that the managing agency was part of the assessee's ordinary trading operations and not a sterilised capital asset. Because the resignation was voluntary and did not amount to a forced cessation or material impairment of the business structure, the receipt was held to be revenue in nature and assessable to tax.

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Issues: Whether the sum of Rs. 3,50,000 received for relinquishing the managing agency was a capital receipt or a revenue receipt assessable to tax.

Analysis: The assessee's main business was the carrying on and dealing in managing agencies, as shown by its memorandum, its existing multiple managing agencies, and the wide powers under the managed company's articles. The impugned payment arose out of a composite commercial arrangement under which the assessee voluntarily resigned one managing agency while also selling its shareholding and securing repayment of loans. The managing agency was not a destroyed or sterilised capital asset in the hands of the assessee, but part of its ordinary trading operations. The agreement for managing agency itself permitted resignation, and the facts showed no compulsory cessation or material impairment of the assessee's business structure. On the principles distinguishing a capital asset from a trading asset, compensation received in the ordinary course of a business of acquiring and dealing in managing agencies is a trading receipt.

Conclusion: The receipt of Rs. 3,50,000 was a revenue receipt and was assessable to tax.

Ratio Decidendi: Where the assessee's business itself consists in acquiring, holding, varying, and disposing of managing agencies, a payment received on the voluntary relinquishment of one such agency in the ordinary course of that business is a trading receipt and not a capital receipt.

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