Law:

Section:

Section 28(i) of the Income-tax Act, 1961 - Business income - Chargeable as - Assessment year 1960-61 - Assessee entered into an agreement with a firm under which assessee agreed to advance capital to firm and in consideration thereof firm agreed to pay twenty five per cent share from profits - Due to differences arising between parties earlier agreement was terminated before due date - In consideration of premature termination of agreement, firm had to pay certain amount to assessee - Whether termination of aforesaid agreement amounted to premature determination of a capital asset and any amount received for such premature determination must be regarded as a capital receipt - Held, yes FACTS The assessee entered into an agreement with a firm under which the assessee agreed to advance capital to the said firm for the purpose of its business and development to the extent of rupees one lakh. The said agreement provided that in consideration of such advance, the firm was to give to the assessee a twenty-five per cent share from the profits of the firm. The agreement was for a period of five years. However, differences arose between the said firm and the assessee and by another agreement dated 16-12-1959, the parties cancelled the earlier arrangement. In consideration of the said termination, the firm had to pay to the assessee the sum of Rs. 50,000 by way of compensation for such earlier determination of the said agreement. This amount of Rs. 50,000 was to be paid on 30-12-1959. The ITO was of the view that this sum was received in the financial year 1959-60 and was properly assessable in the assessment year 1960-61. As the assessment for the said year had already been completed, the ITO reopened the assessment for the year 1960-61. On appeal, the AAC confirmed the order of the ITO. On second appeal, the Tribunal confirmed the action of the ITO in reopening the assessment. On merits, the Tribunal held that the payment of Rs. 50,000 made under the later agreement was being made for the premature cutting off of the source of income and therefore, it must be held to be for the loss of a capital asset and, hence, a capital receipt which would not constitute taxable…

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