2016 (2) TMI 348

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....enue has raised four elaborate grounds in its appeal, however the crux of the issue is that the Revenue is aggrieved by the order of the Ld. CIT (A), who had erred by holding that the assessee's transaction of converting his proprietary business into a private limited company is outside the scope of 'transfer' as provided under Section 47(xiv) of the Act and therefore not liable to be taxed under the head long term capital gains. 3.1 The brief facts of the case are that the assessee is a Director in the company M/s.Indus Mobile Distributors P. Ltd., filed his return of income for the assessment year 2006-07 on 30.10.2006 admitting income of Rs. 38,49,050/-. Initially the return was accepted u/s.143(1) of the Act on 22/07/2007. Subsequent....

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....proprietorship concern was Rs. 5.80 cores, the net worth of the business without goodwill is 'nil'. In these circumstances, as the cost of acquisition of goodwill is "Nil", the goodwill of Rs. 3.47 crores has not been offered to tax by the assessee. Since, the entire goodwill should be treated as long term capital gain the said gain added to the total income of the assessee." 3.2 On appeal, the Ld. CIT (A) after deliberating the issue in detail arrived at the following conclusion:- "4.1.2 I have considered the assessee's submission as well as the contents of the assessment order. In the present case, the assessee transferred the entire business of his proprietary concern, as a going concern, to the private limited company on 27.....

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....e company is not less than fifty per cent of the total voting power in the company and his shareholding continues to remain as such for a period of five years from the date of the succession; and (c) the sole proprietor does not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company; 4.1.4 Thus, if the entire business of the proprietary concern is transferred to a private limited company and the assessee receives the consideration only by way of shares and the assessee continues to have 50% or more voting power in the company, the transaction will not be recognized as a "transfer". In the present case also, the assessee transferred his bu....

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.... 31.03.2005 the goodwill in the books was only Rs. 2,06,50,000/ - and as on 27.09.2005, the value of goodwill was Rs. 3,47,95,733/-. This could be possible only on account of additions / further costs incurred during the period). Only those expenses (advertisement, etc.) which have immediate benefit were taken to the P&L account and claimed as revenue expenditure. Hence, the goodwill of Rs. 3.47 crores appearing in the books as on 27.09.2005, was nothing but the expenses incurred in the form of advertisement and related expenses which have been capitalized by the assessee in his books. Therefore, since the goodwill of Rs. 3.47 crores was the actual expenses incurred and capitalized in the books and since the sale value of the goodwill (by i....