RECEIPTS

A receipt is a piece of paper or electronic document confirming that the seller received money
from the purchaser. The receipt typically includes the date and a description of the item the
purchaser bought. It also includes a description of the item the buyer purchased.1

When the transaction is between two businesses, receipts contain information about the method
of payment and the buyer.

It is an acknowledgment from the vendor to the buyer that the vendor has received payment for a
good or service. In this context, the word ‘good’ means ‘product.‘2

CAPITAL RECEIPTS
Capital receipts are a non-recurring incoming cash flow into your business, which leads to the
creation of a liability (a debt to be paid in the future) and a decrease in company assets (resources
that lead to capital gain). 3

Conditions4

(i) The receipts must create a liability for the government. For example, Borrowings are capital
receipts as they lead to an increase in the liability of the government. However, tax received is
not a capital receipt as it does not result in creation of any liability.

(ii) The receipts must cause a decrease in the assets. For example, receipts from sale of shares of
public enterprise are a capital receipt as it leads to reduction in assets of the government.

Sources

1. Borrowings
2. Recovery of Loans
3. Other Receipts

1
https://marketbusinessnews.com (Last Modified on 16/08/2019)
2
https://taxmantra.com (Last Modified on 19/08/2019)
3
Chaturvedi & Pithisaria, Income Tax Act with Relevant Tax Allied Acts, Lexis Nexis, 2013
4
http://www.yourarticlelibrary.com (Last Modified on 16/08/2019)

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 a) Disinvestments
b) Small Savings

REVENUE RECEIPTS
Revenue receipts are the rights of a business to compensation resulting from normal business
operations and are recorded when the business has earned the right to receive them. These
receipts are recurring and will affect the business's profit or loss on the income statement.
Generally, this means that once goods are delivered into the hands of the customer or services
have been substantially provided, the business has earned the revenue. However, rents and
interest payments received are also considered revenue receipts. Regardless of whether cash is
received or accounts receivable balance is increased, these are still called revenue receipts. 5

Few common examples are receipts from sale of goods and services, discount received from
creditors or suppliers, interests earned, dividends received, rent received, commission
received, bad-debts recovered, income from other sources, etc.

RECEIPT IN LUMP SUM OR INSTALLMENTS

In Rajah Manyain Meenak and Shamma v. C.I. T6, it was observed that, “whether any income is
received in lump sum or in instalments, it will not make any difference as regards its nature, e.g.,
an employee is to get a salary of 1,000 p.m. Instead of this he enters into an agreement to get a
sum of 36,000 in lump sum to serve for a period of three years. The receipt where it is monthly
remuneration or lump sum for 3 years is a revenue receipt. It has been decided in so many court
cases that a lump sum receipt may be an item of revenue nature and an annual receipt recurring
over few years may be a capital receipt. Thus, whether a receipt is a periodic receipt or a single
receipt is immaterial for the purposes of determining its nature. 7

DIFFERENCE BETWEEN CAPITAL RECEIPTS AND REVENUE

RECEIPTS

Receipts are just the opposites of expenses. But without receipts, there may be no existence of
the business. Not all receipts directly increase the profits or decrease the loss. But some affect the
profit or loss directly.8

There are many differences between capital receipts vs revenue receipts. Let’s look at the most
prominent ones –9

5
https://www.indiabudget.gov.in (Last Modified on 19/08/2019)
6
1956) 30 1. T.R. 286
7
http://incometaxmanagement.com (Last Modified on 19/08/2019)
8
https://www.news18.com (Last Modified on 19/08/2019)

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SERIAL BASIS OF CAPITAL RECEIPTS REVENUE RECEIPTS
NO. COMPARISON

1. Inherent meaning Capital Receipts are receipts Revenue Receipts are

that don’t affect the profit or receipts that affect the profit
loss of business. or loss of business.

2. Source Capital Receipts stem from Revenue Receipts stem from

non-operational sources. operational sources.

3. Nature Capital Receipts are non- Revenue Receipts are

recurring in nature. recurring in nature.

4. Reserve funds Capital Receipts can’t be Revenue Receipts can be

saved for creating reserve saved for creating reserve
funds. funds.

5. Distribution Not available for distribution Available for distribution of

of profits. profits.
6. Loans Capital Receipts can be loans Revenue Receipts are not
raised from banks/financial loans, but the amount
institutions. received from operations.

7. Found in Balance Sheet. Income Statement.

8. Example Sales of fixed assets. Sale of products of the

business.

CASE LAW

Maharaja Chintamani Saran Nath v/s The Commissioner Of Income-Tax10

1961 AIR 732, 1961 SCR (2) 790

Facts:- In 1945 the appellant who was a Zamindar granted licences to different parties to
prospect bauxite. Under the licence the licensee had the right to enter upon the land to

9
https://www.wallstreetmojo.com (Last Modified on 16/08/2019)
10
https://indiankanoon.org (Last Modified on 19/08/2019)

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prospect, dig and prove all bauxite lying in or within the land and to take away and appropriate
samples of bauxite in reasonable quantities not exceeding 100 tons in the aggregate. In
consideration of the premium paid, the licensees could, at their option, after giving necessary
notice and on payment of a further sum, get a mining lease for a term of thirty years. The
income-tax authorities were of the view that the licensees were not granted any interest in land
and that the amounts received by the appellant from the licensees were revenue receipts and,
therefore, assess- able to income-tax.

Judgement:- This is an appeal by special leave' against the judgment and order of the High
Court at Patna answering the question referred to it by the Income-tax Appellate Tribunal against
the assessee who is the appellant before us. The appeal relates to three assessments made on the
appellant for the respective assessment years 1945-46, 1946-47 and 1947-48.

The appellant is a Zamindar and owns considerable properties. In the accounting years he
granted licences to different parties to prospect for Bauxite. This is an appeal by special leave'
against the judgment and order of the High Court at Patna answering the question referred to it
by the Income-tax Appellate Tribunal against the assessee who is the appellant before us. The
appeal relates to three assessments made on the appellant for the respective assessment years
1945-46, 1946-47 and 1947-48.

The appellant is a Zamindar and owns considerable properties. In the accounting years he
granted licences to different parties to prospect for Bauxite. The question was answered in the
affirmative and the High Court held that there was material to support the finding of the
Tribunal, and it was a finding of fact; that the amounts received by the appellant were revenue
receipts and not capital receipts. Against this judgment the appellant has come in appeal to this
court by special leave. The question that falls for decision is whether the amounts received by the
assessee are capital or revenue receipts and for that purpose it is necessary to investigate the
nature of the grants made by the appellant. In our opinion the High Court was in error and the
question referred should have been decided in favor of the appellant. We therefore allow the
appeal, set aside the judgment and order of the High Court and answer the question in favour of
the appellant who will have his costs in this Court and the High Court.

Appeal was allowed.