Question

5. M, who was carrying on agency
business, recived a sum of Rs Lakh from
his principal for termination of agency.
Compensation so received shall be
Exempt as it is capital receipt
Deduction allowed
Taxable as income from other
sources
Fully taxable as business
income
plz past ​

Answer 1

Explanation:

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Answer 2

We are provided with a few options and we have to decide which is the appropriate option for the question asked which is how should termination of agency be charged. The most appropriate option is ' fully taxable as business income.'

• The agency is a business that is carried on between the principal and the agent.
• When the principal wants to terminate the agency he has to pay an amount to the agent for this termination.
• This amount can be either taken as capital expenditure or revenue expenditure.
• No matter how the agency treats this expense it is definitely chargeable under the income tax act.
• It will be chargeable under business income as the relationship between principal and agent is that of a business.
• Therefore, the correct answer will be ' fully taxable as business income.'

PROJECT CODE: #SPJ3