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TMI Blog1989 (9) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Jadaobai also left a will executed by her which was registered on 22nd October, 1953. According to the will, all movable and immovable properties were given to Smt. Ujjambai. However, the properties, movable and immovable, given before her death, became the sole properties of the recipient. Shri Parmanand Patel joined the partnership with Smt. Ujjambai under the partnership deed dated 21-6-1961 and was entitled to 50% profit. Thereafter Shri Sravankumar, son of Shri Parmanand Patel, joined the partnership and a fresh partnership deed was drawn on 19-9-1963. According to the said partnership, the profit-sharing ratio of the partners was as follows: (1) Smt. Ujjambai - 6 (2) Shri Parmanand Patel - 8 (3) Shri Sravankumar Patel - 2 It was indicated in the deed dated 21st June 1961 that Smt. Ujjambai may, if she wishes to retire from the firm, do so at any time leaving the business to be carried on by the said Shri Parmanand Patel on his own account and the said Shri Parmanand Patel shall be liable to pay the said Smt. Ujjambai the amount then standing to her credit and no value shall be placed upon the goodwill including the firm name and trade marks. More or less, the same clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the payment made by the assessee for the use of the goodwill was a revenue expenditure. Subsequently, the Assessing Officer disallowed the payment made for the assessment year 1975-76 at Rs. 36,292. The Commissioner of Income-tax (Appeals), following the earlier order of the Tribunal for the assessment year 1971-72 and others, allowed the appeal of the assessee. The Tribunal, vide its order in ITA No. 213/Jab./1979, after quoting the earlier order in extenso did not agree with the CIT(Appeals) on the ground that Shri Parmanand Patel has not paid any amount towards the goodwill of the firm and, therefore, the payment made by the assessee to Shri Parmanand Patel was for extra commercial consideration. Similar payments made for the assessment years 1977-78 and 1978-79 were also disallowed by the Assessing Officer and the CIT(Appeals), following the decision of the Tribunal for the assessment year 1975-76 (ITA No.213/Jab./1979) did not allow the claim of the assessee. When the matter came before the Tribunal, the Bench found contradictory decisions on the point and, consequently, the point was referred to the Hon'ble President for constituting a larger Bench. The Hon'ble Preside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the Hon'ble High Court and if not what is the correct position. Shri Dastur explained the circumstances under which the said observation was made by the Hon'ble High Court for calling for the supplementary Statement of the case. He further, by filing will of Smt. Jadaobai indicated that all the movable and immovable assets were bequeathed by Smt. Jadaobai to Smt. Ujjambai. Further, he clarified that he is going to argue the case that on the basis of the partnership deed, Shri Parmanand Patel was given certain amount for the use of the goodwill. 5. Shri Dastur, after replying to the said query of the Departmental Representative, urged that if the various partnership deeds and documents are carefully perused, it is clear that Shri Parmanand Patel joined the partnership with Smt. Ujjambai on 21-6-1961. There was no clause about the sharing of the assets including goodwill and, therefore, section 48 of the Partnership Act would apply for the division or share of the assets in the event of dissolution or retirement. Shri Parmanand Patel was sharing the profit at 50%. Further, it was indicated in the deeds dated 21-6-1961 and 19-9-1963 that the goodwill was exclusively owned by Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s about the allowance of Rs. 30,000 per annum paid to Shri Parmanand Patel for the use of the goodwill. He joined the firm in 1961 on the death of his adopted mother, Smt. Jadaobai, who died on 12-4-1961 with Smt. Ujjambai and subsequently his son Shri Sravankumar also joined the firm on the basis of the partnership deed dated 19-9-1963. He became a Minister in the Government of Madhya Pradesh and, therefore, he retired from the partnership on 24-10-1964. A memorandum of agreement was executed between him and the remaining partners and it was provided therein to pay him a sum of Rs. 50,000 per annum for the use of the goodwill. Shri Parmanand Patel, in between, again joined the firm and retired and subsequently the payment was reduced to Rs. 30,000 per annum. As mentioned earlier, the Tribunal passed one order for the assessment years 1970-71 to 1974-75 and another order for the assessment year 1975-76 and subsequently the Bench did not follow the earlier order passed by the predecessor-Bench, though the earlier order was accepted by the Department. A reference was made to the Hon'ble High Court against the said order (ITA No. 213/Jab./79) and the High Court has called for a supple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness. It has been described in terms of a magnet as the 'attracting force'. In terms of comparative dynamics, goodwill has been described as the 'differential return of profit'. Philosophically it has been held to be intangible. Though immaterial, it is materially valued. Physically and psychologically, it is a 'habit' and sociologically it is a 'custom'. Biologically, it has been described by Lord Macnaghten in Trego v. Hunt as the 'sap and life' of the business. Architecturally, it has been described as the 'cement' binding together the business and its assets as a whole and a going and developing concern. It has been zoologically explained by Rich J. in Federal Commissioner of Taxation v. Williamson, quoted at pages 39-40 of the 4th edition of The Valuation of Company Shares and Business by Adamson and Coorey in these terms: 'In Whiteman Smith Motor Company v. Chaplin the types were zoologically classified into cats, dogs, rats and rabbits. The cat prefers the old home to the person who keeps it, and stays in the old home although the person who has kept the home leaves, and so it represents the customer who goes to the old shop whoever keeps it, and provides the local goodwil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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