Court rules against assessee on tax avoidance scheme, finds capital gains tax due, exempts goodwill.

The court held that the transaction was a device to avoid tax, ruling against the assessee and holding him liable for capital gains tax on the value of the business transferred. However, the court ruled in favor of the assessee regarding the goodwill amount, stating that it should not be taxed.

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Issues:
1. Whether the transaction by the assessee is a sham or device to avoid taxRs.
2. Whether the goodwill amounting to Rs. 2,72,500 is included in the deviceRs.

Analysis:
1. The assessee, a partner in a dissolved firm, took over its assets and liabilities as a going concern. Subsequently, he entered into a partnership where the value of his assets was treated as his capital contribution. The partnership deed allowed the assessee to withdraw most of the capital amount credited to his account, including the value of goodwill. The Assessing Officer concluded that the arrangement was a pre-meditated attempt to avoid capital gains tax. The Commissioner and Tribunal upheld this view, considering the transactions a device to evade tax. The court referred to a relevant case where it was stated that if a transfer to a partnership is a ruse to convert assets into money for the benefit of the assessee while evading tax, authorities can examine the genuineness of the transaction. In this case, the court found that the partnership was a device to convert the asset into money, and not a genuine contribution to the firm's capital. Therefore, the first issue was answered against the assessee, holding him liable for capital gains tax on the value of the business transferred.

2. Regarding the goodwill amount, the Assessing Officer did not levy tax on it, as the statute did not provide for capital gains tax on self-generated assets during that assessment year. The court ruled in favor of the assessee on this issue, stating that the goodwill should not be taxed. Therefore, the second question was answered in favor of the assessee and against the Revenue.

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