Surrender of enduring service rights treated as capital receipt, not taxable employment income.

The Bombay HC treated the assessee's right under the company's articles to special remuneration as an enduring contractual right, not mere payment for services actually rendered. Because the assessee ceased to perform services and surrendered that right altogether, the amount received was consideration for extinction of the service contract and relinquishment of an enduring asset. It was therefore characterised as capital receipt rather than income from employment or revenue receipt, and was not taxable as revenue income.

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Issues: Whether the sum of Rs. 1 lakh received by the assessee for surrendering his right to special remuneration under the company's articles of association was a capital receipt or a revenue receipt.

Analysis: The right under the articles was treated as a lasting contractual right to render services and to receive a stipulated share of surplus profits in return. The payment was not held to be remuneration for services actually rendered, because the assessee ceased to render services and gave up the right altogether. The sum was therefore regarded as consideration for the extinction of the contract of service and the surrender of an enduring right, rather than as income from employment or service.

Conclusion: The amount of Rs. 1 lakh was a capital receipt and not taxable as revenue income.

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