Law:

Section:

Section 4 of the Income-tax Act, 1961-Capital or revenue receipt-Assessee-company carried on four different businesses under its own industrial licenses-It transferred to another company one business of manufacture of diesel engines for consideration of Rs. 24 lakhs-Whether impugned consideration constituted taxable revenue receipt-Held, on facts, no Facts The assessee-company was engaged, inter alia, in the manufacture of diesel engines (this was one of the four businesses carried on by it under different collaboration agreements with foreign companies) under an industrial license obtained on 9-12-1955 from the Government of India. The said business was being carried on in collaboration with a foreign company M under agreement dated 16-3-1956. After obtaining Government's approval, it executed a separate an agreement with another company P for transfer to P of its undertaking pertaining to the manufacture of diesel engines. The agreement stipulated, inter alia, that, in consideration of the assessee having agreed to cancel its license dated 9-12-1955 and to terminate by mutual consent the license granted under agreement dated 16-3-1956 with M, P would pay it Rs. 24 lakhs. The ITO assessed the said receipt of Rs. 24 lakhs as its revenue income, holding (i ) that the giving up of diesel engine manufacturing business by surrendering its license did not affect its business structure; and (ii) that it continued to carry on its other businesses with no apparent mishap. The AAC upheld the ITO's action. On second appeal, the Tribunal treated it as a capital receipt, holding, inter alia, (i) that it was clearly established that the licenses formed the framework of the assessee's business and their surrender affected the framework; (ii) that there was no substance in the AAC's finding that the transaction was a normal incident of the assessee's business; and (ii) that the opportunity to make profits under the collaboration agreement, taken in conjunction with the industrial license, was a capital right. On reference: Held In the instant case, the agreement between P and the assessee expressly provided that for the remaining period of the license granted by M to the…

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