Capital receipts on assignment of copyright and goodwill cannot be recast as professional income where the agreement is an outright transfer.

A practising barrister who had written only one book was not treated as carrying on the profession of an author, so receipts from the agreement were not assessable as professional income. The agreement was construed as an outright assignment of copyright and sale of goodwill for a lump sum; the consideration was therefore capital in nature and not taxable as revenue income, and the goodwill component was not chargeable as capital gains because there was no cost of acquisition. Section 10(3) could not be invoked to tax capital receipts, as it is not a charging provision. The appellate orders were sustained and the receipts were held outside assessment as professional or taxable revenue income on the facts found.

---

---

Issues: (i) Whether the amounts received under the agreement were taxable as professional income of an author. (ii) Whether the amounts received for assignment of copyright and sale of goodwill were capital receipts not chargeable to tax, including as capital gains. (iii) Whether the receipts could be brought to tax under section 10(3) of the Income-tax Act, 1961.

Issue (i): Whether the amounts received under the agreement were taxable as professional income of an author.

Analysis: The assessee was a practising barrister and had written only one book. Writing a book on company law was held to be unconnected with the profession of law. The receipt did not arise in the course of carrying on the profession, and there was no basis to treat the assessee as an author by profession. Past treatment of similar royalty receipts also supported the consistent view that the receipts were not professional income.

Conclusion: The receipts were not assessable as professional income and this issue was decided in favour of the assessee.

Issue (ii): Whether the amounts received for assignment of copyright and sale of goodwill were capital receipts not chargeable to tax, including as capital gains.

Analysis: The agreement was construed according to its clear terms, which showed an outright transfer of copyright and goodwill for a lump sum. The Court treated the transaction as an assignment and sale of capital assets, not a mere licence to use them or a disguised royalty arrangement. Since the assessee was not engaged in the trade or profession of dealing in such property, the consideration was treated as capital in nature. The receipt referable to goodwill was also held not chargeable as capital gains because there was no cost of acquisition. The receipt referable to copyright was likewise held to be capital realisation.

Conclusion: The receipts from transfer of copyright and goodwill were capital receipts and not taxable as capital gains on the facts of the case; this issue was decided in favour of the assessee.

Issue (iii): Whether the receipts could be brought to tax under section 10(3) of the Income-tax Act, 1961.

Analysis: Section 10(3) was held to exclude only income of a casual and non-recurring nature and could not be used to tax receipts that were in truth capital receipts. The provision was not a charging section, and capital gains were dealt with separately under section 45. The additional ground based on section 10(3) was therefore misconceived.

Conclusion: The receipts could not be assessed under section 10(3); this issue was decided in favour of the assessee.

Final Conclusion: The orders of the appellate authority were sustained, the department's challenge failed, and the receipts were held to be outside assessment as professional income or taxable revenue income on the facts found.

Ratio Decidendi: Where a non-professional author makes an outright assignment of copyright and sale of goodwill for a lump sum under an unambiguous agreement, the consideration is capital in nature and cannot be recharacterised as professional income or royalty merely by looking at the substance of the transaction.

---