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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: Whether goodwill that was self-generated and had no actual cost in money could still attract substitution of fair market value as on 1 January 1954 under the third proviso to section 12B(2) of the Indian Income-tax Act, 1922.
Analysis: The expression "became the property of the assessee" in the third proviso was construed broadly and was held not to be confined to property acquired from a third party or acquired for a price. A capital asset could become the property of the assessee even by self-generation. Section 12B(3) reinforced this reading, because it contemplated substitution of fair market value where capital assets came by succession, inheritance, or devolution and no price in money was paid. On that construction, the fact that goodwill was self-generating and had no actual cost did not exclude the assessee from the benefit of the proviso.
Conclusion: The assessee was entitled to substitute the fair market value of the goodwill as on 1 January 1954 for its actual cost under the third proviso to section 12B(2), and the answer was in favour of the assessee.
Ratio Decidendi: The phrase "became the property of the assessee" in the third proviso to section 12B(2) includes capital assets acquired without payment of price, including self-generated goodwill, so fair market value on 1 January 1954 may be substituted where actual cost is nil.
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