Sale of surplus loom-hours was a capital receipt, not income, because the assessee parted with a proprietary right.

Receipts from the sale of surplus loom-hours were treated as capital receipts because the assessee disposed of a right forming part of its fixed profit-making structure, rather than carrying on trade in loom-hours. No interest in the looms or machinery was transferred, and the transaction was not a temporary exploitation of a commercial asset while ownership continued. The governing distinction is that proceeds from sale of a capital asset are capital in nature, whereas income arises when a commercial asset is merely used without parting with ownership. The principle on casual or non-recurring receipts did not change that character, and the receipts were not taxable as income.

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Issues: Whether the amounts received by the assessee from the sale of surplus loom-hours were revenue receipts liable to tax, or capital receipts not chargeable to tax.

Analysis: The receipts arose from the disposal of a right to work the looms for allotted hours under the association agreement. No business of trading in loom-hours was carried on by the assessee, and the transaction did not amount to a temporary letting out of a commercial asset while retaining ownership. The assessee parted with the surplus loom-hours themselves, and no interest in the looms or machinery was transferred. A receipt from sale of a fixed capital asset is capital in nature, whereas income arises where a commercial asset is merely exploited by permitting use while ownership continues. The principle governing casual or non-recurring receipts under section 4(3)(vii) did not alter the character of the receipt, since the real question was whether the proceeds were income or capital.

Conclusion: The receipts from the sale of loom-hours were capital receipts and were not taxable as income.

Ratio Decidendi: Proceeds from the sale of a capital asset, or of a transferable right constituting part of the assessee's fixed profit-making structure, are capital receipts; income arises only from the exploitation of a commercial asset without parting with ownership.

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