Law:

Section:

Section 28(i) of the Income-tax Act, 1961 - Business income - Chargeable as - Assessment year 1986-87 - Whether one test for ascertaining as to whether what was a capital receipt or a revenue receipt is to find out whether assessee had snapped his link with profit-making apparatus - Held yes - Assessee-company received compensation on termination of its distributorship - Assessee treated said receipt as a capital receipt - Assessing Officer levied tax thereon treating it as a revenue receipt -Pursuant to termination agreement, source of income was totally severed whereby profit-earning apparatus could never be utilized by assessee and entire trained manpower and customer network were handed over to other party to agreement - Further, assessee had a well-developed large- scale organization and marketing network and had given a go by to enjoyment of good profits that it had in all those years till date of termination of agreement - Whether termination of agreement had materially crippled structure of assessee's profit-making apparatus and, therefore, what was received was only a capital receipt - Held, yes CASES REFERRED TO P.H. Divecha v. CIT [1963] 48 ITR 222 (SC) [Para 5] and CIT v. T.I. & M. Sales Ltd. [2003] 259 ITR 116 / 129 Taxman 444 (Mad.) [Para 5]. Mrs. Pushya Sitharaman for the Applicant. Philip George and M.P. Senthilkumar for the Respondent. JUDGMENT S.R. Singharavelu, J. - The substantial questions of law involved in this case are as follows : "(i )Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the sum of Rs. 8.6 lakhs received by the assessee and covered by the termination agreement cannot constitute the income of the assessee ? (ii)Whether, on the facts and in the circumstances of the case and having regard to the existing provisions of section 28(ii)( c) of the IT Act, the Tribunal is right in law in deleting the sum of Rs. 8.6 lakhs from the income of the assessee on the ground that the compensation received by the assessee is capital in nature ?" 2. The assessee is a company and the assessment year involved is 1986-87. The assessing authority found from the balance sheet that the…

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