Capital receipt treatment for compensation paid to reduce managing agency remuneration; payment was not taxable as revenue income.

Compensation received for agreeing to a substantial reduction in managing agency remuneration was treated as a capital receipt, not revenue income. The payment was made to release the company from onerous remuneration terms, and the reduction from a higher profit share to a lower one caused a real and enduring injury to the assessee's profit-making structure. The continued existence of the managing agency did not alter the character of the receipt, because the payment compensated for deterioration of the capital apparatus rather than for ordinary income loss. The amount was therefore not liable to tax as revenue income.

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Issues: Whether the sum of Rs. 7,50,000 received by the assessee for agreeing to a reduction in managing agency remuneration was a capital receipt or a revenue receipt liable to tax.

Analysis: The payment was described as compensation for releasing the company from onerous remuneration terms, and the surrounding circumstances showed that it was not a mere advance or part-payment of salary-like remuneration. The managing agency continued, but the agreed reduction from 20% to 10% of profits caused a real and enduring injury to the assessee's profit-making apparatus. A payment made to compensate for deterioration in that capital structure is not revenue merely because the agency relationship subsists.

Conclusion: The sum was a capital receipt in the hands of the assessee and was not liable to tax as revenue income.

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