TMI Blog2013 (1) TMI 681X X X X Extracts X X X X X X X X Extracts X X X X ..... RT] 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. Also see Oberoi Hotel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from DTTI in terms of release agreement with DTTI is capital receipt or revenue receipt? 2. The assessee is a firm of chartered accountants. From the year 1983, under an informal understanding it was getting referred work from M/s Gupta Chaudhary Ghose, Chartered Accounts of Calcutta who were doing the work in Calcutta which was referred to them by Deliotte Haskins Sells ( DHS‟), a firm of chartered accounts based outside India. The understanding between the assessee-firm and the chartered accountants firm in Calcutta was limited to the work in Delhi and surrounding areas only. It may also be added that DHS was part of the chartered accountants firm by name Deliotte Touche Tohmatsu International , based in USA. The informal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount did not represent professional income. It is emphasised that for 13 years (1983-1996) the assessee-firm was carrying out the referred work which was quite lucrative and the arrangement with DHS through the Calcutta firm constituted the source and once that source got terminated, the compensation received can only be capital in nature. 5. We think that there is a good deal of force in the contention of the assessee. In Kettlewell Bullen Co. Ltd. v. CIT: (1964) 53 ITR 261 the Supreme court drew a distinction between the compensation received for injury to trading operations arising from breach of contract or from the exercise of sovereign rights and compensation received as solatium for loss of office. It was held that the compens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value. We are, therefore, unable to agree with the High Court that the amount received by the appellant was in the nature of a revenue receipt. 6. The ratio of the above judgment applies to the present case. The Tribunal seems to have been troubled by the fact that despite the termination arrangement with DHS the assessee did not cease to carry on the profession. This aspect of the matter has also been answered by the Supreme Court in the above judgment and it has been held that the fact that the assessee continued its business or its usual operations even after termination of the agencies was of no consequence. What appears to be the ratio of the judgment is that if the receipt represents compensation for the loss of a source of income, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts entering into such arrangements with international firms of chartered accountants, as the assessee in the present case had done, with the same frequency and regularity with which companies carrying on business take agencies, simultaneously running the risk of such agencies being terminated with the strong possibility of fresh agencies being taken. In a firm of chartered accountants there could be separate sources of professional income such as tax work, audit work, certification work, opinion work as also referred work. Under the arrangement with DHS there was a regular inflow of referred work from DHS through the Calcutta firm in respect of clients based in Delhi and nearby areas. There is no evidence that the assessee-firm had entered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncy without any protest presumably because such termination of agencies was part of the normal course of its business . It was on account of this distinction that the ultimate decision went in favour of the revenue. The facts of the case before us, as noted earlier, are not in pari materia with those in Best Co. (P) Ltd. (supra). In our view the facts are more akin to the case of Kettlewell Bullen Co. Ltd. (supra) and, therefore, the ratio laid down in that case is more appropriate to be applied to the present case. 9. In the result we answer the substantial question of law by holding that the amount of Rs.1,15,70,000/- received by the assessee in terms of the release agreement dated 14.11.1996 represents a capital receipt, not asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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