Discuss with logical reasoning whether the following are capital or revenue receipts/expenses: (a) An amount of ₹1,60,000 was spent by a company for sending its production manager abroad to study new methods of productio

S. No. Correct Answer Reason (a) Revenue Expenditure Amount spent by a company for sending its production manager abroad to study new methods of production is revenue expenditure to be allowed as a deduction because the new knowledge and exposure of that manager will assist the company in improving its existing methods of production etc. (b) Capital Receipts Receipt in substitution of a source of income is a capital receipt. Therefore, the amount received by B & Co. from C & Co. for premature termination of an agency contract is a capital receipt though the same is taxable under Section 28(ii)(c) of the Income tax Act, 1961. (c) Capital Expenditure This is a capital expenditure, as any expenditure incurred by a person to free himself from a capital liability is a capital expenditure. In the given case, the payment of ₹60,000 for cancelling the order for purchase of the machinery has helped the assessee to become free from an unnecessary capital liability. (d) Revenue Receipt Receipt of lump sum royalty in lieu of future royalties is a revenue receipt, as it is an income from royalty. (e) Revenue Receipt The amount of ₹3,60,000 received for not resigning from the directorship is a reward received from the employer. Therefore, it is a revenue receipt.