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Taxability of goodwill - whether sum received by the company from its collaborators on account of goodwill not exigible to tax as held by Tribunal - Held that:- Basis for valuation of goodwill in this case was three fold: (a) the assessee, though established in 1984 in a sense was continually engaged in business since 1975, when Sehgal Cables started functioning (that concernís business was assimilated by the assessee); (b) the assessee had unexecuted orders worth ₹ 4.87 crores in hand, when the collaboration agreement was signed; its profit for one year offset the loss for the previous year; (c) the assessee held a manufacturing monopoly over one product, i.e wireless harness. As is evident from the Supreme Courtís ruling in S. C. Cambatta, there is no stipulated matrix of factors which are to be taken into consideration. Whilst the length of time for which a business might operate, its profitability, etc. are relevant, equally whether, and to what extent it has competition in respect of the business activities it undertakes, the market acceptability and demand for the product or services in question, capital employed, unique expertise developed, etc. too are all relevant. The ITATís view therefore has some basis in law. It is worthwhile to recollect that the Supreme Court, in Commissioiner of Income Tax v. Srinivasa Setty [1981 (2) TMI 1 - SUPREME Court] held that since goodwill is a self-generating asset, its transfer would not give rise to a capital gain.

The weight attached by the ITAT to the monopoly enjoyed by the assessee in respect of the product manufactured, the continuous functioning - since the business of Sehgal Cables had been taken over by the assessee (thus Ąthe probability that the old customers would resort to the old places‟ adverted to in Srinivasa Setty [supra]); the large volume of orders at hand when the collaboration transaction took place, were sufficient basis for valuation. This Court also notices that the AO and CIT (A) did not advert to the report of M/s R. K. Khanna nor cared to call that firm. In the circumstances, it cannot be held that the valuation of goodwill made by the assessee was unreasonable or untenable in law. - Decided in favour of assessee.





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