TMI Blog1998 (12) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... iness was converted into partnership business by taking two other partners namely, Shri Hemant Manilal Mehta and Shri Pankaj Manilal Mehta. This partnership continued upto asst. yr. 1980-81. A trust known as the Mehta Trust came into existence with nine beneficiaries and four trustees by setting Rs. 1,000 by Smt. Kamalaben Parekh on 20th Aug., 1979. The said trust was admitted as partner with 40 per cent share in the aforesaid partnership firm on 22nd Sept., 1979. Within short period, the individual partners retired and the trust became the sole proprietor of the said business. The trust carried on the business as sole proprietor in the asst. yrs. 1981-82 to 1984-85. Again, on 19th March, 1984, the business was converted into partnership fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 79 (SC). It was further observed by him that goodwill of the business when the trust was admitted as partner in the year 1979, was not more than Rs. 5,000 to Rs. 10,000 and the profitability of the business increased during the period when the trust carried on the business as sole proprietor. Therefore, the creation of the goodwill was within the framework of the law and interest was an allowable expenditure in the hands of the assessee-firm. Aggrieved by this order, the Revenue has preferred these appeals. 4. The learned Departmental Representative Mr. Bhake has reiterated the reasonings given by the AO in his order. In addition, he also relied on the decision of Bombay High Court in the case of Smt. Nayantara G. Agarwal vs. CIT (1994) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been considered by us carefully. The question to be considered is whether there was any colourable device adopted by the assessee to avoid the payment of tax. In our opinion, the colourable device is an arrangement by which the tax which is legitimately due to the exchequer is avoided by adopting dubious methods. If the dubious methods are adopted, then it is the duty of the Court/Tribunal to find out the true nature and the effect of the transaction and tax the real person on the income which was sought to be avoided. Therefore, there cannot be any dispute to the legal principle laid down by the Hon ble Supreme Court in the case of McDowell Co. Ltd. and in the case of Smt. Nayantara G. Agarwal decided by the Bombay High Court which were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the business by trust to the firm which escaped the tax under the IT Act. The only allegation of the AO is that creation of goodwill is mere paper transaction. In our opinion, such allegation is arbitrary and not based on any material on the record. CIT(A) has given his finding that at the time when the trust became the partner, the goodwill of the business was hardly between Rs. 5,000 to Rs. 10,000 and the profitability increased during the time when the business was run by the trust as sole proprietor. The Revenue has not been able to challenge this finding. On the contrary, the assessee has given the working of the goodwill determined by it. The quantification of the goodwill on the facts of the case has not been challenged before us. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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