2019 (12) TMI 1248 - AT - Income Tax

Assessee's Receipt for Goodwill Transfer Assessed as Long-Term Capital Gains

The Tribunal determined that the Rs. 75 lakhs received by the assessee was for the transfer of goodwill, a capital asset, and should be assessed under ... Assessment of goodwill under the head capital gain - capital asset within the meaning of Section 2(14) - HELD THAT:- Assessee is an individual who was engaged in the business of mining in the state of Jharkhand for over 40 years. The assessee had therefore garnered substantial experience, reputation and credentials in the business of mining which was a valuable intangible asset. M/s GEMPL had sought to use the name and credentials of the assessee to pursue its object of conducting mining activities in Jharkhand. Although, the assessee continued to use his name in his personal business but he had transferred partial right to GEMPL permitting them to use his name and credentials as a part the company. In the circumstances the receipt of ₹ 75,00,000/- was towards transfer of goodwill which is a capital asset within the meaning of Section 2(14) of the Act and therefore transfer of such capital asset was rightly offered to tax u/s 45 of the Income Tax Act by the assessee. Considering all we are of the view that the amount received by the assessee on account of goodwill is a capital asset and liable to tax under the head capital gain. Therefore, we direct the Assessing Officer to assess the goodwill under the head capital gain. - Decided in favour of assessee. Issues Involved:1. Whether the sum of Rs. 75 lakhs received by the assessee is assessable under the head 'other sources' or 'Long Term Capital Gains'.2. Whether the authorities erred in not appreciating that Rs. 75 lakhs was received as consideration for transfer of an intangible asset.3. Whether the authorities were justified in not allowing the assessee's claim for exemption under Section 54EC of the Income Tax Act.Issue-wise Detailed Analysis:1. Assessability of Rs. 75 lakhs under 'Other Sources' or 'Long Term Capital Gains':The assessee received Rs. 75 lakhs from M/s. Good Earth Minmet Pvt. Ltd. (GEMPL) and treated it as capital gain on the sale of self-generated goodwill. The Assessing Officer (AO) disagreed, stating that the sum was not self-generated goodwill since no goodwill was shown in the balance sheet, and no existing business or right to conduct business was transferred. The AO assessed the amount as income from other sources. The Commissioner of Income Tax (Appeal) [CIT(A)] upheld the AO's decision. However, the Tribunal found that the payment was made for the transfer of goodwill, a recognized capital asset, and thus should be treated as Long Term Capital Gains.2. Consideration for Transfer of Intangible Asset:The Tribunal noted that the assessee had over 40 years of experience in mining, which constituted a valuable intangible asset. M/s. GEMPL, a new company, required the assessee's credentials to bid for mining rights. The assessee allowed GEMPL to use his name and credentials for Rs. 75 lakhs, which was deemed as consideration for the transfer of goodwill. The Tribunal emphasized that the payment was for the transfer of the assessee's name, reputation, and credentials, not for the right to conduct business, making it a capital asset transfer.3. Exemption under Section 54EC:The assessee claimed exemption under Section 54EC, stating that the Rs. 75 lakhs was invested in specified capital assets. The AO and CIT(A) did not allow this claim, as they did not classify the receipt as capital gains. The Tribunal, however, directed the AO to assess the Rs. 75 lakhs under the head capital gains, thereby validating the assessee's claim for exemption under Section 54EC.Conclusion:The Tribunal concluded that the Rs. 75 lakhs received by the assessee was for the transfer of goodwill, a capital asset, and should be assessed under Long Term Capital Gains. Consequently, the assessee's appeal was allowed, and the AO was directed to assess the amount under the head capital gain, making the assessee eligible for exemption under Section 54EC.