Goodwill valuation must reflect the full business asset, not just leasehold value or locality, when assessing tax liability.

Goodwill must be valued as a composite business asset, taking into account reputation, customer connection, mode of conduct, service, standing, and the power to attract custom, rather than being confined to locality or leasehold value alone. The Tribunal applied too narrow a test by treating leasehold value as the principal measure and ignoring other relevant factors that bear on goodwill, so the legal test was misapplied. That error raised a question of law fit for reference, and the High Court ought to have required a statement of the case.

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Issues: Whether the Tribunal applied the correct legal test in valuing goodwill for excess profits tax purposes and whether a question of law arose requiring a reference to the High Court.

Analysis: Goodwill is not confined to the value of a leasehold or to locality alone. It is a composite asset derived from several elements, including reputation, connection, mode of conduct of the business, service, standing, and the power to attract custom. The Tribunal had approached the matter too narrowly by treating the leasehold value as the principal, and in effect the only, measure of goodwill. That approach ignored relevant considerations which necessarily enter into the valuation of goodwill in a business such as a theatre or restaurant. Since the legal test governing goodwill was not correctly applied, the controversy raised a question of law fit for reference.

Conclusion: The Tribunal erred in law in its approach to goodwill, and the High Court ought to have required a statement of the case on the question raised.

Final Conclusion: The assessee succeeded on the legal issue concerning valuation of goodwill, and the matter was remitted for proper consideration according to law.

Ratio Decidendi: Goodwill must be valued as a composite business asset by considering all relevant factors that attract custom, and not by restricting the inquiry to locality or leasehold value alone.

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