TMI Blog1976 (7) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... roviso to section 12B(2) of the Indian Income-tax Act, 1922 ?" The question relates to the assessments of the assessee, Shri Daulatran Nayar (HUF), and his seven other partners for the assessment year 1960-61, for which the accounting year is the year which ended on 31st March, 1960. The assessee was a partner of the firm carrying on business in the name and style of M/s. India Woollen Textile Mills. There were seven other partners in this firm and each of the partners had equal share in the profits and losses of the firm. It appears that the business carried on by the firm was taken over by a limited company of the same name as from July 1, 1959. As a result of this transaction the firm charged and received the sum of Rs. 5 lakhs toward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as by his other partners and the Appellate Assistant Commissioner accepted the assessee's contention that the assessee and his partners were entitled to the substitution of the fair market value of the asset as on January 1, 1954, for the "actual cost" as envisaged in the third proviso to section 12B(2). The Appellate Assistant Commissioner determined such fair market value at a figure higher than Rs. 5 lakhs and, therefore, according to him, there was no capital gain at all made on the sale of the goodwill at Rs. 5 lakhs. He, accordingly, held that no capital gains tax was chargeable and allowed the appeals. In second appeal the Tribunal confirmed the Appellate Assistant Commissioner's order. Both the Accountant Member and the J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee by acquisition from a third party or that it must come from an external source and since the goodwill in the instant case was not acquired from an external source, the proviso cannot be invoked. It is not possible to accept any of these submissions of Mr. Joshi for the reasons which we shall presently indicate. It will be necessary to set out the relevant provisions of section 12B(2) and the relevant proviso. Section 12B(2) runs thus: "The amount of a capital gain shall be computed after making the following deductions from the full value of the consideration for which the sale, exchange, relinquishment or transfer of the capital asset is made, namely: (i) expenditure incurred solely in connection with such sale, exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer on irrevocable trust, its actual cost allowable to him for the purposes of this section shall be its actual cost to the previous owner thereof, and the provisions of sub-section (2) shall apply accordingly; and where the actual cost to the previous owner cannot be ascertained, the fair market value at the date on which the capital asset became the property of the previous owner shall be deemed to be the actual cost thereof: Provided that where the capital asset became the property of the assessee-- (i) before the 1st day of April, 1956, under a deed of gift or on the partition of a Hindu undivided family, the actual cost allowable to him shall be the fair market value of the capital asset on the date of the gift or the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f that property by the assessee from a third party or acquisition for some price paid. There is nothing in the third proviso to limit the operation of that expression in the manner suggested by Mr. Joshi. The capital asset can become the property of the assessee within the meaning of the third proviso, even if it is acquired by self-generation as in the instant case here, where the goodwill which is unquestionably a self-generating asset has come to be acquired by the firm. If that be the correct interpretation of the expression "became the property of the assessee" occurring in the third proviso, then there will be no difficulty in coming to the conclusion that the capital asset, which is in the instant case the goodwill of the firm, had b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et value as on January 1, 1954, in place of the "actual cost" has been made and is available to the assessee. There is no reason why the same expression occurring in the third proviso to sub-section (2) should not be construed similarly. Having regard to the language that has been employed in the third proviso to section 12B(2) and having regard to the provisions which are to be found in sub-section (3) of section 12B it seems to us clear that on its proper interpretation the expression "became the property of the assessee" occurring in the third proviso to section 12B(2) would include a case of acquisition of capital asset for which no actual cost in terms of money has been paid by the assessee. In this view of the matter, it is quite clea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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