Agency termination compensation is revenue income when it does not damage the trading structure or source of income.

Compensation linked to cancellation of an agency was treated as revenue because the termination did not impair the trading structure or destroy the source of income; it merely removed one trading avenue in the ordinary course of business. The agency was only one among several lines of business, was terminable at will, and the payment was calculated by reference to expected commission and profits during the transition period. No part of the amount was shown to be attributable to a restrictive covenant or loss of goodwill, as there was no enforceable non-compete undertaking or supporting material. The receipt was therefore assessable as income.

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Issues: (i) Whether any part of the compensation was received as consideration for a covenant not to carry on competing business or as compensation for loss of goodwill, and was therefore capital in nature; (ii) Whether the compensation received for cancellation of the agency was a capital receipt or a revenue receipt chargeable to tax.

Issue (i): Whether any part of the compensation was received as consideration for a covenant not to carry on competing business or as compensation for loss of goodwill, and was therefore capital in nature.

Analysis: The record did not show that the appellant had accepted any enforceable undertaking to refrain from competing in explosives, nor was there evidence that the payments were made as compensation for loss of goodwill. No formal agreement was executed, no material was placed before the revenue authorities to support attribution of any part of the sum to goodwill or a restrictive covenant, and the surrounding correspondence did not establish such a bargain.

Conclusion: The entire amount could not be treated as capital on the footing of a non-compete covenant or loss of goodwill.

Issue (ii): Whether the compensation received for cancellation of the agency was a capital receipt or a revenue receipt chargeable to tax.

Analysis: Compensation for cancellation of an agency is revenue where the termination does not impair the trading structure of the business or destroy its source of income, but merely removes one trading avenue in the ordinary course of business. Here, the appellant carried on several lines of agency and trading, the terminated agency was one among many, the agency was terminable at will, and the payment was computed by reference to anticipated commission and profits during the transition period. The cancellation did not result in loss of an enduring asset or a substantial dislocation of the business structure.

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

Final Conclusion: The compensation paid on cancellation of the agency was assessable as income, and the appeals failed.

Ratio Decidendi: Compensation for termination of an agency is revenue, not capital, where the cancellation does not impair the trading structure or destroy the source of income, but only removes a trading avenue in the normal course of business.

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