Compensation for surrender of a managing agency is capital receipt when it replaces an enduring income-producing asset.

Compensation for surrender of a managing agency is treated as a capital receipt where the agency forms part of the holder's enduring profit-making structure and the payment is made for parting with that asset rather than for trading profit. The decisive test is whether the amount is paid for loss of a capital asset or as income from a commercial transaction. On the stated facts, the assessee gave up rights of enduring value under a scheme to transfer the agency to another party, and the continued holding of other agencies did not change the character of the receipt. The amount was therefore capital in nature and not taxable as revenue income.

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Issues: Whether compensation received for relinquishing the managing agency of a company was a capital receipt or a revenue receipt assessable to income-tax.

Analysis: The receipt arose from an arrangement under which the assessee agreed to resign its managing agency in consideration of a lump sum and related benefits. The decisive test was whether the amount was paid for loss of a capital asset or as profit in a trading transaction. A managing agency may be a capital asset in the hands of the holder, and compensation for its cancellation is capital where the termination impairs the assessee's trading structure or destroys an enduring source of income. On the facts, the payment was part of a scheme to transfer the managing agency to another party, and the assessee parted with rights of enduring value. The fact that the assessee continued other agencies did not alter the character of the receipt.

Conclusion: The compensation was a capital receipt and was not taxable as revenue income.

Final Conclusion: The question referred was answered against the Revenue, and the assessee succeeded in the appeal.

Ratio Decidendi: Compensation received for cancellation or surrender of an agency is capital where the agency constitutes an enduring asset or part of the profit-making structure of the assessee, and the payment is made for parting with that asset rather than as a trading receipt.

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