CAPITAL AND REVENUE RECEIPTS

It is not easy to differentiate between capital and revenue receipts. This problem has been discussed very frequently in the courts. The following tests may be used to distinguish between capital and revenue receipts.

1. SALE OF AN ASSET

When an amount is being received due to sale of an asset, the question to be decided will be, whether it is a fixed or a circulating asset. Any receipt on account Dfa Ho of fixed asset which is meant for keeping to earn profit, is a capital receipt. On the other hand, a receipt on account of a floating or circulating asset is a revenue receipt.