Trading contract termination compensation is revenue receipt where no capital asset or enduring source of income is transferred.

Compensation received on termination of a hotel operating licence was treated as revenue in nature because the arrangement was a trading contract entered into in the ordinary course of business. No right, title or interest in the hotel property was created in favour of the operator, and the licence fee was linked to gross turnover. The settlement and consent terms merely ended that commercial arrangement and did not involve transfer or extinguishment of a capital asset or enduring source of income. The receipt was therefore assessable as business income and not as long-term capital gain.

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Issues: Whether the sum received on termination of the hotel operating licence agreement was a capital receipt liable to capital gains tax or a revenue receipt assessable as business income.

Analysis: The operating arrangement was examined in its entirety and found to be a trading contract entered into in the ordinary course of business. No right, title or interest in the hotel property was created in favour of the operator; the arrangement only authorised operation of the hotel on agreed commercial terms, with licence fee linked to gross turnover. The settlement and consent terms merely brought the trading arrangement to an end and compensated the operator for termination of that business arrangement. The receipt was not referable to transfer or relinquishment of any capital asset or enduring source of income. The agreement was contrasted with cases involving loss of a capital asset or source, and with the statutory concepts of capital asset, transfer, and licence.

Conclusion: The amount received on termination of the operating licence was a revenue receipt and not a long-term capital gain; the answer was in favour of the Revenue and against the assessee.

Ratio Decidendi: Compensation received for termination of a trading contract entered into in the ordinary course of business is revenue in nature unless it is shown to be for transfer or extinguishment of a capital asset or enduring source of income.

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