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TMI Blog2014 (11) TMI 589X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in the circumstances of the case, the Tribunal is justified in upholding the findings of the CIT(A) in deleting the addition made on account of technical knowhow of Rs. 78,65,000/-? 2. The assessee company was incorporated on 19.3.1976 and was carrying on business of manufacturing and selling of pharmaceutical formulations. Original assessment was made on 29.3.1990 under Section 143(3) of the Act and total income was determined at Rs. 75,02,179/-. 3. Thereafter, CIT(A) vide order dated 15.11.1990 set aside the assessment order on the issue of determination of income in respect of Rs. 79,15,000/- received by the assessee from transfer of technical knowhow. The CIT, Baroda, passed an order under Section 263 of the Income-tax Act and directed the Assessing Officer to examine the taxability of the whoe or part of the amount of Rs. 1,60,00,000/- received by the assessee on transfer of goodwill. In consequence to the directions given by the CIT(A) and CIT, Baroda, the Assessing Officer had passed order under Section 143(3) read with Section 250 and Section 263 of the Income-tax Act. In the said order the Assessing Officer concluded that instead of value of Rs. 160 lakh shown by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90,306/- out of which Rs. 1,60,00,000/- was claimed as the value of goodwill. The claim of the assessee was supported by the report of the Registered Valuers M/s. S.I. Mogul & Co., of Bombay. In the original order the Assessing Officer accepted this value. In the revised order passed in pursuance of the directions of the C.I.T. under Section 263, the A.O. Assumed the role of the valuer and determined the value of the goodwill at Rs. 64,27,000/-. So the main contention of the revenue that there would not be goodwill for a newly started business, does not survive before us. The only issue before us is whether the value of such goodwill is Rs. 1,60,00,000/- or Rs. 64,37,000/-. The question of determining the value of goodwill was referred to an Expert viz. M/s. S.I. Mogul & Co., Bombay and the Expert has worked out the value of the goodwill by applying accepted principles of accountancy i.e. the value of expected super profits over a certain number of years. In advanced accounting by Batliboi 16th Edition at pages 807 and 808 the method of valuation of goodwill has been explained as under: `Before, therefore, it can be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be paid for goodwill is at best a matter of negotiation between the buyer and the seller and also dependent on the form of purchase consideration, that is, whether it is to be paid for in cash or kind.' In Dymond's Death Duties (14th Edition) at pages 613-14 the learned Author observed as under: `With business of a substantial size, there are two common ways of computing the goodwill value, viz. the "super profits" method and the "total capitalisation" method, the two methods which are complementary and may often be used as a check upon each other, and which may theoretically give the same results may conveniently be illustrated by an example (the figures given are purely illustrative and not to be regarded as any indication of the appropriate yields in any particular case). In each case it is necessary to estimate the probable amount of the future profits (after making a reasonable allowance for management remuneration.' In Advanced Accounting by M.C. Shukla, T.S. Garewal and S.C. Gupta (third Reprint of Twelfth Revised and Enlarged Edition) the nature of goodwill and valuation thereof has been exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Departmental Valuation Officer and even when the case was restored to him by the CIT u/s. 263, he did not refer the case to the Departmental Valuation Officer and adopted his own method and arrived at erroneous conclusions. We accordingly hold that the value of goodwill determined by the Registered Valuers viz. M/s. S.I. Mogul & Co., Rs. 1,60,00,000/- being based on accepted method of accountancy and settled principles of law, is fair and reasonable and accordingly, we uphold the findings of the CIT(A). This ground fails and is accordingly dismissed." 10. So far as question No. 2 is concerned, the facts are that the assessee company received a sum of Rs. 79,15,000/- on transfer of technical knowhow. It was claimed that the amount represented capital receipt that technical knowhow was acquired in the course of day to-day business and the assessee had not paid anything to acquire such an asset. The A.O. was of the opinion that the assessee might have incurred some expenses on acquisition of such technical knowhow. He estimated such expenses at Rs. 1,00,000/- in the original assessment order but later on when the matter restored to him by the then CIT(A), he estimated such expe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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