THE COMMISSIONER OF INCOME-TAX,HYDERABAD-DECCAN vs MESSRS. VAZIR SULTAN & SONS

The Supreme Court held that the compensation received by the respondent for the termination of its agency outside Hyderabad State was a capital receipt and not liable to tax under the Indian Income-tax Act, 1922. The Court established that the agency agreements constituted a capital asset, integral to the respondent's business of distributing cigarettes, and the payment for termination was for the sterilization of this capital asset. The Income-tax Officer's inclusion of the sum in the respondent's total income was thus incorrect, leading to a ruling in favor of the respondent.