Outright assignment in voluntary winding up treated as capital receipt where liquidator transfers rights without reservation.

An outright assignment by a liquidator in a members' voluntary winding up of the company's lease and related rights, effected without reservation of recurring interests or arrangements for the liquidator to continue the trade, constitutes realisation of a capital asset; accordingly a lump sum receipt realised by the company in those circumstances is a capital receipt rather than a revenue receipt. The Companies Act powers permitting realisation for beneficial winding up and the absence of annuity, periodic returns, or agency arrangements are determinative of the capital nature of the payment.

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Issues: (i) Whether the sum of Rs. 5,00,000 received by the assessee in liquidation was a capital receipt or a revenue receipt?

Analysis: The dispositional documents show an outright assignment and transfer of the benefit, rights and advantages under the lease and compromise, including full power to demand and realize royalties, conveyed forever and free from encumbrances. The transaction occurred in a members' voluntary winding-up and was effected by the liquidator exercising powers of realisation and transfer under the Companies Act. Relevant statutory limitations permit a liquidator to carry on business only insofar as necessary for beneficial winding-up; absent reservation of continuing rights or evidence that the liquidator carried on the trade through agents or retained recurring interests, an outright sale or assignment by the liquidator in voluntary winding-up is a realisation of capital assets. Authorities on liquidation and realisation distinguish (a) transactions where the liquidator preserves ongoing profit-streams or operates through agents (revenue receipts) from (b) transactions where the liquidator sells the whole asset or transfers rights without reservation (capital receipts). The present facts disclose no reservation of rights, no annuity or periodic return to the liquidator, and no arrangement under which third parties carried on the business on behalf of the liquidator; instead there was a complete assignment for a lump sum consideration to realise the company's assets.

Conclusion: The sum of Rs. 5,00,000 was a capital receipt and not a revenue receipt in the hands of the assessee.

Ratio Decidendi: An outright assignment or sale by a liquidator in a voluntary winding-up of the company's rights and assets, effected without reservation of recurring interests or arrangements by which the liquidator continues to carry on the business, results in a capital receipt rather than a revenue receipt.

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