TMI Blog2005 (11) TMI 378X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Sri Basawaraj Doddappa Appa. Their sister Smt. Shantala V. Nisty is the wife of Sri S.V. Nisty, an Advocate of Gulbarga. The residence of the advocate was searched under section 132 of the Income-tax Act on 12-8-1998. The assessees have been deriving income as partners in a firm named M/s. Nisty Automotives, the partners of which are : ( i )Sri Surendra Koralli, ( ii )Smt. Shantala S. Nisty, ( iii )Sri Veerabhadrappa Nisty, and ( iv )Prabhuraj B. Appa. Shri Prabhuraj B. Appa has a brother by name Shri Lingraj B. Appa. He was a partner in another firm named M/s. Nisty Automotives (Two Wheelers Division). Shri Lingraj B. Appa retired from partnership firm M/s. Nisty Automotives (Two Wheelers Division) with effect from 1-4-199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm or his right, there it has been extinguished consequent to his retirement from the firm, the evaluation of goodwill is not disputed. This is supported by Supreme Court decision in the case of A.L.A. Firm v. CIT [1991] 189 ITR 285, the assets of the firm must be valued on the real basis. Even when a partner retires and in the case of assessee the amounts paid is on such evolution and repeatedly admitted to be on account of goodwill. Further, in case of self-generated goodwill, cost of acquisition cannot be ascertained, has been removed with an amendment to section 55 of the Income-tax Act, 1961. Therefore, he submitted that the order of assessment is to be restored. On the other hand, learned counsel for assessee submitted that the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onditions are fulfilled. It is a fact that the goodwill is a capital asset. Then it is to be seen whether such goodwill is an asset in the hands of the assessee or in the hands of firm from which the assessee has retired. In our opinion, the goodwill is an asset, of the firm and not of the individual partner. Even though goodwill is a capital asset, it cannot be held as capital asset in the hands of a partner - assessee in this case. Even assuming that it is a capital asset in the hands of the assessee, it has to be seen whether the other conditions are fulfilled. In this sequence, the second condition i.e. , whether the capital asset has been transferred is to be examined. The assessee has stated that he has received amount in excess of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve held that the amount received by the assessee on his retirement from the firm, being his share of the difference between the market value and book value of the assets, are not liable to tax as capital gains. The CBDT in its Circular No. 495, dated 22-9-1987 has made it very clear that to tax the capital gain on transfer of goodwill is only to cover those cases where goodwill is actually transferred and in the instant case, there is no actual transfer of goodwill. 6. Taking into consideration all these facts and legal dictums, we are of the opinion that there is no transfer of goodwill and therefore, the excess amount received by the assessees are not taxable. In that view of the matter, we confirm the order of learned CIT(A) granting ..... X X X X Extracts X X X X X X X X Extracts X X X X
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