TMI Blog1994 (12) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Whether, on the facts and in the circumstances of the case, the inference that the goodwill of the firm was not the property of the firm merely because the goodwill belonged exclusively to the applicant and, hence, the capital gain is taxable in the hands of the applicant is valid in law, even though prior to the sale, the partnership had given due credit to the applicant in respect of the goodwill ?" The relevant assessment year is 1970-71 and the corresponding previous year ended on March 31, 1970. The assessee, an individual, was a partner in the firm of Industrial Supplies Corporation along with one P. J. Kumbhani as per deed of partnership dated October 26, 1953. The said Kumbhani retired from the said partnership and, as such, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of the business carried in the partnership. On April 30, 1969, the said reconstituted partnership firm entered into an agreement with a limited company incorporated under the provisions of the Companies Act, 1956, whereunder the reconstituted partnership firm agreed to sell its entire business along with all assets and liabilities to the company on the terms and conditions mentioned therein. Pursuant to the said agreement, a sale deed was executed on March 31, 1971, and the goodwill was valued at Rs. 2,75,000. According to the Income-tax Officer, the assessee became liable to pay the capital gains tax on the sum of Rs. 2,55,000 since the goodwill was valued at Rs. 2,75,000 and the cost of acquisition was taken at Rs. 20,000. The con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the capital asset and the cost of any improvement thereto. Goodwill is property or an asset of a business. It is a capital asset. Acquisition of the goodwill of a business is, without doubt, acquisition of a capital asset. But merely because it is a capital asset, gains arising on its transfer would not automatically be liable to tax. Charging section 45 and the computation provision contained in section 48 are but one integral whole and unless and until it is possible to determine in terms of money the cost of acquisition of the goodwill as also the cost of additions or improvements thereto, the charging section is not attracted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisition was incurred by the assessee. In view of the fact that cost of acquisition of the share of the said Kumbhani in the goodwill was available and no cost of acquisition in the self-generated share of the assessee therein was available, it was not right for the Tribunal to hold that the assessee was liable to pay capital gains tax on the said entire sum of Rs. 2,55,000. In view of the judgment of the Supreme Court in CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 and to synchronise conflict of opinion of the various High Courts on the aspect as to whether capital gains tax is leviable on transfer of goodwill, in our opinion, since the cost of acquisition of half share of the said Kumbhani in the goodwill was ascertained and available ..... X X X X Extracts X X X X X X X X Extracts X X X X
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