TaxTMI 
TaxTMI 
1985 (3) TMI 133
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.... Court by their Reference Appeal No. 90 dated 5-10-1983 were pleased to hold that the transaction has to be examined on the lines indicated in the judgment. Their Lordships held in CIT v. Chandan & Bharat Enterprises [1985] 151 ITR 441 (Bom.) that the transaction did result in transfer but the extent of capital gains liable to tax has to be determined by the Tribunal after hearing the parties. Accordingly, the matter was remanded to the Tribunal. In compliance with this remand order, we have heard the parties afresh. 3. Shri Jairaman, on behalf of the assessee, took us through the basic facts once again. There was a firm called Chandan & Bharat Enterprises which started its activity in August 1964. The business of the firm was purchase and sale of real estate. It entered into various agreements and contracts regarding land and construction of ownership flats. Some of the transactions were mere agreements for purchase and some others were agreements for sale of flats. During the period 1964-65 the price spiral was not as steep as in the later years. Between August 1964 and March 1965, when the assessee entered into the agreement to give the entire business to the private limited ....
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....oodwill transfer basis, there are no capital gains liable to tax. 5. In reply Shri Sathe invited our attention to the agreement dated 26-3-1965 and highlighted the following aspects. The limited company had taken over not just the assets individually but all machinery, office furniture, livestock, utensils, etc., as also all book debts actionable claims and in particular full benefit of all pending contracts and agreements to which the assessee-firm was entitled, in connection with its running business. Thus, when a running business is transferred, it cannot be accepted without strong proof that the transfer has actually been made at book value. In this connection there is no proof. The argument based on alleged stagnant market in 1964-65 is not acceptable. Further, the agreement clearly provided for payment of sum of Rs. 1 lakh and not shares of the face value of Rs. 1 lakh. It is true that the clause also mentions that the liability for the said Rs. 1 lakh shall be discharged by the allotment of shares of the face value of Rs. 1 lakh but from this also it cannot be said that the value of the shares allotted is any different from the face value. Further, as there was provision ....
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....emicals (P.) Ltd. v. P. N. Mittal, Competent Authority, IAC [1980] 126 ITR 1 (Guj.) at p. 22. According to Shri Sathe, this was the view of the AAC when he upheld the capital gain computation and this was fully supported by the decision of the Gujarat High Court. Shri Sathe conceded that when there is slump sale, no reclassification into transfer of stock-in-trade and other items is possible in view of the Supreme Court's judgment in CIT v. Mugneeram Bangur & Co. [1965] 57 ITR 299. In Mugneeram Bangur & Co.'s case there was no capital gains tax whereas in the case before us we are concerned with a case where there were actual short-term capital gains liable to tax. Therefore, even assuming that there was any goodwill, no part of the sale price is attributable to goodwill. Thus, the entire difference is to be made liable to short-term capital gains tax. 7. Without prejudice to the above, Shri Sathe invited our attention to the grounds of appeal raised before the Tribunal where the question of transfer on account of alleged goodwill was never taken up. The relevant ground of appeal reads as under : "The learned ITO had erred in treating the amount of Rs. 72,760 (being the amoun....
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....lied upon by the departmental representative, Shri Jairaman's contention was that undisputedly the take over of the business involves transfer of assets which are capital assets. The real question is whether the assets which have a cost and for which definite time of acquisition existed could have fetched as high a sum as Rs. 1 lakh when all that the assessee-firm had was a few agreements for purchase of lands and a few more agreements for sale of flats. Regarding the limitation allegedly imposed by the grounds of appeal of the assessee, Shri Jairaman submitted that since the ground specifically refers to the contention that the sum of Rs. 72,768 is not assessable to tax, the grounds are comprehensive enough to cover all the legal issues arising out of take over of the business by the limited company. Accordingly, it was submitted that the original order of the Tribunal in favour of the assessee warrants no change. 9. We have examined the facts and arguments. The following issues are to be decided, viz, --- "1. What is the value of the consideration received, Rs. 27,268 or Rs. 1 lakh or some other figure ? 2. If the value is not Rs. 27,268, does the consideration for the t....
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....with the circumstances making the connections durable. It is that component of the total value of the undertaking which is attributable to the ability of the concern to earn profits over a course of years or in excess of normal amounts because of its reputation, location and other features. Goodwill is, therefore, the value of the attraction to customers arising from the same and the reputation for skill, integrity, efficient business management and efficient service. [Emphasis supplied]. 13. Goodwill, thus, exists when its business is better than that of other business (with less or nil goodwill). The existence of super profits is not the same thing as existence of goodwill. In revenue terms, goodwill means that additional value over and above the tangible assets which a reasonably prudent buyer would give for the business as a going concern. 14. Now in this case the business was in existence for hardly eight months and had no fame about its name. It had not fetched any income. There was no specific reputation or connection with any customer or class. The assessee did not acquire any clout for attracting customers by proving its efficiency, etc. It had no specific location b....