Revenue receipt principle: payment for ending a professional network arrangement was taxable because the business structure remained intact.

Compensation received on withdrawal from a concurrent membership arrangement was treated as revenue receipt because the association was entered into in the ordinary course of professional activity and was used to generate international client work. The termination merely ended the arrangement and facilitated transfer of clients; it did not destroy or sterilise the assessee's accountancy business or any independent capital asset. The real character of the payment was compensation for loss of future professional earnings, so it was chargeable to tax as revenue in nature and not a capital receipt.

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Issues: Whether the amount received by the assessee on withdrawal from concurrent membership of the international accounting network was a capital receipt or a revenue receipt chargeable to tax.

Analysis: The assessee's association with the international network was entered into in the course of its professional activities and enabled it to earn fees from referred international clients. On reorganisation, the arrangement came to an end and the payment was made to facilitate the orderly transfer of clients and to compensate for the loss of recurring professional work. The assessee was not prevented from carrying on the profession of accountancy, and its existing professional structure was not destroyed or sterilised. The receipt was therefore connected with the normal conduct of the profession and represented compensation for loss of future professional earnings, not for extinction of a separate capital asset or source of income. The nature of the receipt had to be tested by its real character and the effect of the termination on the assessee's profit-earning structure.

Conclusion: The amount was a revenue receipt and was chargeable to tax; the assessee's claim that it was a capital receipt failed.

Final Conclusion: The order of the appellate authority was set aside and the assessment treating the receipt as taxable was restored.

Ratio Decidendi: Compensation received on termination of an arrangement entered into in the ordinary course of professional or business activity is revenue in nature where the termination does not destroy or sterilise the assessee's profit-earning structure or source of income.

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