1982 (7) TMI 128 - AT - Income Tax

Summary

Issues:
Assessment of income from profession based on the sale of goodwill and outstanding fees.

Analysis:
The appeal pertains to the assessment year 1977-78, where the only ground raised is the inclusion of Rs. 15,000 as income from profession by the Appellate Assistant Commissioner (AAC). The assessee, a consulting engineer, assigned his profession along with goodwill for Rs. 85,000 due to age and health reasons. The Income Tax Officer (ITO) bifurcated the consideration, estimating outstanding fees at Rs. 25,000 and the balance as goodwill price. The ITO taxed the goodwill amount as capital gains but did not tax the outstanding fees. In appeal, the AAC relied on a Supreme Court ruling stating that goodwill cannot be taxed as a self-generated asset but included the outstanding fees as income from profession. The AAC enhanced the tax liability by taxing Rs. 15,000. The assessee contended that the AAC could not enhance tax under a head not taxed by the ITO initially.

The Tribunal held that the ITO's intention was to tax only the goodwill, not the outstanding fees, as evident from the assessment order. The ITO did not process or tax any amount under income from profession or business. Referring to various legal precedents, the Tribunal emphasized that the AAC cannot enhance tax by discovering new sources of income not considered by the ITO. The Tribunal highlighted that for taxing an amount for the first time in appeal, the ITO must have applied his mind to the specific income source's taxability, which was not the case here. The Tribunal concluded that the AAC's enhancement of Rs. 15,000 as income from profession is unsustainable. Therefore, the appeal was allowed in favor of the assessee, overturning the AAC's decision to tax the amount.

In summary, the Tribunal ruled in favor of the assessee, holding that the AAC's enhancement of Rs. 15,000 as income from profession was not valid as the ITO did not intend to tax that amount initially. The Tribunal emphasized that tax authorities cannot introduce new sources of income for taxation during the appeal process and must have considered the taxability of the specific income source in the original assessment.