Determining of cost of acquisition and taxability in the case of self generating assets - Applicability of clause (a) of sub-section (2) of section 55.

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....b-section (2) of section 55 - Regarding. Under the provisions of Income-tax Act, any profits or gains arising from the transfer from a capital assets is chargeable to tax as capital gains u/s. 45. the term 'Capital Asst' has been defined under the Act as Property of any kind held by the assessee whether or not connected with his business or profession. The term 'Transfer' has been defined to incl....

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....evant. In this decision, the Supreme Court had occasion to discuss the nature and scope of goodwill of a business. In the wake of this decision, in order to provide for a mechanism to determine the cost of acquisition in the case of self generating assets, clause (a) to sub-section (2) of section 55 was amended. Accordingly from assessment year 1988-89, "a capital asset being goodwill of a busines....

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....n. The first issue that may have to be decided in such cases is whether the capital asset in question is goodwill of a business or a right to manufacture, produce or process any article or thing. This is because the amendment made by the Finance Act, 1997 in section 55(2) enlarging the scope of a capital asset is structured in such a manner that it is either "goodwill" or "right to manufacture, pr....

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.... receipt and is not liable to tax under the head 'capital gains' upto assessment year 1997-98. it is clarified that even where such transfer, extinguishment or curtailment of such a right is complete or in part, the taxability of the consideration will remain unaffected i.e., the same will not be taxable under the head capital gains only up to assessment year 1997-98 and will become taxable from t....