TaxTMI 
TaxTMI 
2001 (8) TMI 85
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.... as follows: The assessee, a registered firm, started film exhibition business with effect from October 9, 1969. The land was acquired in the year 1967 and later a building was constructed thereon and the cinema theatre was being run under the name and style of Apsara cinema at Delhi-U.P. border, since October 9, 1969. After running the cinema hall for some years, the assessee sold the same to Star Exhibitors and Agencies (P.) Ltd. for a total consideration of Rs.9 lakhs. On the date of sale, the book value of various assets including cinema building, machinery, etc., was Rs.6,78,974. The assessee claimed goodwill of Rs.2,09,268 and, brokerage to the extent of Rs.31,500 paid with the result that according to it, there was a loss of Rs.19,742 in this transaction. The Income-tax Officer (in short "the ITO"), did not accept the assessee's contention. He found that there was no goodwill attached to the cinema business run by the assessee. He found that during the assessment years prior to the sale, the profits of the business for previous three years were as under: --------------------------------------------------------------------------- Assess....
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.... for 4 1/2 months 1970-72 6,24,100 for full year 1971-72 5,70,170 for full year 1972-73 49,49,490 for about 11 months -------------------------------------------------------------------------------- The Income-tax Officer worked out the average yearly profit of the assessee for the three years immediately preceding the date of sale which came to Rs.67,000. The capital investment of the partners in the firm was Rs.7 lakhs a....
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.... the reputation and connections formed with the customers together with the circumstances which make connections durable. It is the component of total value of the undertaking which is attributable to the ability of the concern to earn profits over a course of years because of its reputation, location and other features (see Khushal Khemgar Shah v. Mrs. Khorshed Banu Dadiba Boatwaua, AIR 1970 SC 1147). Goodwill is one thing which distinguishes an old established business from a new business at its first start. If there is one attribute common to all cases of goodwill it is the attribute of locality, for goodwill has no independent existence. It cannot subsist itself. It must be attached to a business. Destroy the business and the goodwill perishes with it, though elements remain which may perhaps be gathered up and be revived again. (see IRC v. Muller and Co.'s Margarine Ltd. [1901] AC 217 (HL)). A some what similar view was expressed by the apex court in Rustom Cavasjee Cooper v. Union of India [1970] 40 Comp Cas 325 ; AIR 1970 SC 564 . Goodwill is sometimes valued on the basis of a certain number of years' purchase of the average profits of the past three or four or five years....
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.... Normal profit = 6,00,000 x 8 48,000 ---------------------- 100 ---------------- Super profit ....