Trading arrangement compensation was revenue receipt where partnership business continued and no capital asset was extinguished.

Compensation received on retirement from a partnership was treated as revenue where it arose from surrender of rights in an ordinary trading arrangement rather than from extinction of an independent capital asset. The partnership business continued, its structure remained intact, and the payment represented compensation for termination of a commercial arrangement together with past profits. Where cancellation of a business contract is a normal incident of trade and does not impair the profit-making structure or source of income, the receipt is revenue in character and falls within taxable income under section 10 of the Income-tax Act, 1922.

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Issues: Whether the sum of Rs. 35,01,000 received by the assessee on retirement from the partnership was a capital receipt or a revenue receipt assessable under section 10 of the Income-tax Act, 1922.

Analysis: The receipt was referable not to the extinction of an independent capital asset in the hands of the assessee, but to the surrender by the partners of their rights in a business arrangement entered into in the ordinary course of trade. The partnership continued in existence, its business structure was not destroyed, and the amount represented compensation for termination of a trading arrangement together with past profits. Where cancellation of a business contract is a normal incident of commercial activity and does not impair the trading structure or source of income, the compensation is revenue in character.

Conclusion: The amount was a revenue receipt and was assessable under section 10 of the Income-tax Act, 1922.

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