|CORAM:||R. K. Panda (AM), Suchitra Kamble (JM)|
|SECTION(S):||28, 4, 45, 48|
|CATCH WORDS:||capital vs. revenue receipt, compensation|
|DATE:||October 23, 2018 (Date of pronouncement)|
|DATE:||November 13, 2018 (Date of publication)|
|FILE:||Click here to view full post with file download link|
|S. 4: Law on whether compensation received on closure/ termination of business activity resulting in loss of source of income, impairing its profit making structure or sterilization of profit making apparatus can be assessed as a revenue receipt or it is a capital receipt which is not chargeable to tax explained after referring to important judgements on the subject|
Where, on a consideration of the circumstances, payment is made to compensate a person for cancellation of a contract which does not affect the trading structure of his business, nor deprive him of what in substance is his source of income, termination of the contract being a normal incident of the business, and such cancellation leaves him free to carry on his trade (freed from the contract terminated), the receipt is revenue : where by the cancellation of an agency the trading structure of the assessee is impaired, or such cancellation results in loss of what may be regarded as the source of the assessee’s income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt.