Self-generated goodwill and capital gains tax: Bombay HC follows B.C. Srinivasa Setty and rules for the assessee.

Self-generated goodwill was held not to attract capital gains tax on sale where the computation mechanism under the Income-tax Act could not be applied as contended by the Revenue. The Bombay HC applied the Supreme Court ruling in CIT v. B. C. Srinivasa Setty and answered the reference in favour of the assessee, holding that the amount attributed to goodwill was not liable to capital gains tax.

---

---

Issues: Whether the amount received on sale of goodwill was liable to capital gains tax where the goodwill was self-generated.

Analysis: The reference arose under section 256(1) of the Income-tax Act, 1961. The assessee had sold the business and a part of the consideration was attributed to goodwill. The Court held that the issue was directly covered by the Supreme Court decision in CIT v. B. C. Srinivasa Setty, which treats self-generated goodwill as an asset for which capital gains computation is not attracted in the manner contended by the Revenue.

Conclusion: The amount received on sale of goodwill was not liable to capital gains tax, and the question was answered in favour of the assessee.

---