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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Nature of Business

Arjun Industries Ltd pays Rs 40 lakh to its agent, Mehta Agencies, for terminating the agency for part of its business activities in India. Mehta Agencies asks how the receipt is taxed under the Income-tax Act, 2025. Which treatment follows from section 26?

The Rs 40 lakh is chargeable as profits and gains of business or profession. Section 26 includes compensation received by a person holding an agency in India for any part of another's business activities in connection with termination of the agency, so it is not a tax-free capital receipt.

  1. AChargeable as profits and gains of business or professionCorrect
  2. BChargeable as income from house property
  3. CExempt as a capital receipt
  4. DChargeable only as income from other sources

Explanation

Section 26(2)(b)(ii) includes compensation received by a person holding an agency in India for part of another person's business activities, in connection with termination of the agency, within business income. Treating it as a capital receipt ignores this specific inclusion.

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