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TMI Blog1998 (3) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... s liable to be taken into consideration in determining the net value of the assets of the business as a whole on a global basis and the value thereof is to be included having regard to the provisions of rule 2C of the Wealth-tax Rules, 1957?" The assessee during the relevant previous years for the assessment years 1974-75 to 1978-79 was a partner in three firms of which S. Natesa Iyer and Co., was one. The firm, Natesa Iyer and Co., was constituted by a deed of partnership dated September 4, 1974, and the firm consisted of three partners, by name, N. Srinivasan, S. Jayaraman and B. Virdhagiri. On March 26, 1974, a deed of release was executed by one of the partners, by name. N. Srinivasan, who retired from the partnership firm from that da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years in question. The assessee preferred appeals against the orders of assessment before the Appellate Assistant Commissioner questioning the addition made on account of his share in the goodwill. The Appellate Assistant Commissioner accepted the case of the assessee that the excess payment was made to the retiring partner as an ad hoc measure to get rid of him and unless goodwill was paid by the firm no value could be added in respect the same as per the terms of rule 2C(b) of the Wealth-tax Rules. The Appellate Assistant Commissioner took into account the nature of the business of the firm and the assets of the firm mostly consisting of sundry debtors and bank balance and held that it is not likely that the excess payment would represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is a partner and in arriving at the net wealth, addition has to be made to the book value of the assets. The Tribunal therefore held that the fact that the business has been existing for a long number of years shows that the firm has earned some reputation and goodwill and the Wealth-tax Officer was not justified in making addition of Rs. 92,000 over and above the credit balance in the capital account of the retiring partner and the Wealth-tax Officer should have determined the value of the business on a well-established and reasonable method of valuation of goodwill. In this view of the matter, the Tribunal set aside the order of the Appellate Assistant Commissioner as well as the Wealth-tax Officer and directed the Wealth-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at High Court in Harshadkumar Natverlal Dalal v. CWT [1996] 219 ITR 592. The Gujarat High Court held that according to the normal principle of accountancy goodwill does not enter the books of account as an invisible asset of any prudent businessman unless goodwill has been purchased or acquired on payment of cost. The Gujarat High Court also held that the adjustments in the global value of a business as a whole were required to be made as prescribed under the rules. The Gujarat High Court after considering rule 2C(b) and (d) of the Wealth-tax Rules held as under: "Prior to its amendment in 1964, it was left to the discretion of the Wealth-tax Officer to make such adjustments in the book value of the assets as the circumstances may require. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s abundantly clear that as on the date the rules came into force or immediately before the rules came into force, the goodwill which was self-generated was not to be adjusted in the global value of the business. Soon after the insertion of the rule, when the prescribed rules were to replace the vagaries of the discretion of the Wealth-tax Officer of determining the circumstances in which certain adjustments are required to be made the Board had already issued instructions for maintaining uniformity in this regard, vide Circular No. 5-D (WT) of 1966, dated September 18, 1966. This explanation is a contemporaneous exposition of the rule by the rule-making authority itself. Contemporaneous exposition of a statute or rule by those who are entru ..... X X X X Extracts X X X X X X X X Extracts X X X X
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