Bona fide sale consideration and goodwill valuation must rest on actual contract terms and commercial evidence, not arbitrary tax estimates.

Where a transfer is supported by a bona fide registered contract and no sham is found, the taxing authority cannot ignore the agreed consideration and substitute a notional market value for the sale of stock-in-trade. The contractual price had to be accepted, and no part of the alleged difference was taxable. Goodwill valuation must rest on recognised commercial principles, including past earnings and earning capacity, and cannot be cut down arbitrarily without relevant material. As the agreed goodwill consideration was not shown to be unreal or excessive, no portion of it was liable to tax.

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Issues: (i) whether any part of the difference alleged in respect of the sale of stock-in-trade could be treated as taxable profit when the transaction was supported by a concluded sale deed and no finding of sham was recorded; (ii) whether the entire sum of Rs. 50,000 stated as consideration for transfer of goodwill was liable to be brought to tax or whether the revenue authorities could substitute their own valuation without relevant material.

Issue (i): whether any part of the difference alleged in respect of the sale of stock-in-trade could be treated as taxable profit when the transaction was supported by a concluded sale deed and no finding of sham was recorded.

Analysis: The contractual sale price of the stock-in-trade was supported by the registered deed, and the transfer of the business name and associated rights was part of the transaction. The absence of any finding that the sale was a sham or that the stated consideration was not ially paid meant that the taxing authorities could not disregard the contract and substitute an market price merely because the assets might otherwise have fetched a higher amount.

Conclusion: No part of the alleged difference on the sale of stock-in-trade was taxable; the contractual price had to be accepted.

Issue (ii): whether the entire sum of Rs. 50,000 stated as consideration for transfer of goodwill was liable to be brought to tax or whether the revenue authorities could substitute their own valuation without relevant material.

Analysis: The valuation of goodwill had to be made on recognised commercial principles with reference to past earnings and the earning capacity of the business. The lower authorities reduced the agreed price arbitrarily, without applying the proper method of valuation or pointing to material showing that the consideration was unreal or excessive. On the facts, the agreed sum was not shown to be unreasonable.

Conclusion: No portion of the Rs. 50,000 received for goodwill was liable to tax.

Final Conclusion: The reference was answered in favour of the assessee, and the revenue authorities' attempt to tax any part of the stated consideration failed.

Ratio Decidendi: Where a transfer is supported by a bona fide contract and no sham is found, the taxing authority cannot substitute a notional market value for the agreed consideration; valuation of goodwill must rest on relevant commercial evidence and accepted accounting principles, not on arbitrary estimates.

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