TaxTMI 
TaxTMI 
1987 (12) TMI 20
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....ed of conveyance ? " We answer question No. 2, in the light of the decision of the Full Bench of this court in Parthas Trust v. CIT [1988] 169 ITR 334, in the affirmative, that is, against the assessee and in favour of the Revenue. Question No. 1 relates to the sale of goodwill arising from the transfer of assets effected by the assessee in the accounting year previous to the assessment year 1976-77. The assessee's books of account disclosed that the assets of its business included the goodwill purchased by the assessee in 1971, and the value of the goodwill in relation to the business at Changanacherry and Kottayam was specifically shown as Rs. 90,000. The cost of acquisition of the goodwill relating to the Changanacherry business, which alone is in question here, was determined by the Tribunal to be the proportionate part of Rs. 90,000 which was directed to be computed by the concerned officer. The books of account for the year relevant to the assessment year in question disclosed that the assessee transferred the assets of the Changanacherry business to a certain firm and the goodwill of that business was valued at Rs. 1,00,000. The Income-tax Officer, however, found th....
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....in question in 1971, including that of the goodwill, had been clearly recorded in the books of account, and the proportionate cost of the goodwill of the Changanacherry business is easily ascertainable. It is no longer disputed either by the Revenue or by the assessee that the sale price of the goodwill of the Changanacherry business was Rs. 1,00,000. The difference between the sale price and the proportionate cost price of the goodwill, according to the Revenue and as found by the Tribunal, represents the capital gains chargeable to tax under section 45. Appearing for the assessee, Shri M. P. Vinod, submits that the Supreme Court has clearly stated in CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294, that the computation provisions relating to the charge under section 45 of the Income-tax Act, 1961, are inapplicable to goodwill and, therefore, the goodwill in question is not amenable to be charged under section 45. Counsel further relies upon the decision of the Bombay High Court in Evans Fraser & Co. Ltd. v. CIT [1982] 137 ITR 493 and submits that, in respect of goodwill, the computation mentioned under section 48 in relation to the cost of improvement is unworkable, for such c....
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....ated to the transfer of a newly started business and the goodwill in question there was a self-generated asset. Nevertheless, this court had significantly noticed the difference between the incidence of sale of the goodwill of such a business and that of a business which had been earlier purchased by the assessee and subsequently sold by him. This court stated (p. 93): " It is possible to envisage a case where a person purchases the goodwill of a business or profession for a definite amount and without any further addition to its value by his own efforts later on sells it for a higher price and thereby secures a determinate profit or gain. In such a case, goodwill is hardly distinguishable from any other capital asset and there is nothing in section 45 or other relevant provisions of the Income-tax Act that excludes such profits or gains from liability to assessment. Section 45 reads : "45. Capital gains.-(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 53, 54, 54B, 54D, 54E and 54F, be chargeable to income-tax under the head " Capital gains ", and shall be deemed to be the inc....
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....chargeable gains which have arisen. By refusing to claim any such deduction, no assessee can defeat the operation of section 45. In the present case, there is no claim for expenditure in connection with the transfer or for the cost of any improvement to the assets in question. Disagreeing with the assessee's counsel who submits that the cost of improvement in relation to goodwill cannot be computed, Shri Sudeer Gopi, to whom we are indebted for the valuable help rendered as amicus curiae, submits that the principles of accountancy are no longer what they were when the courts regarded that the cost of improvement in relation to goodwill could not be computed. He submits that such cost is now determinable. What one should ask in the present case is not whether the cost of improvement is determinable, but whether the assessee has claimed any cost and whether it has been disallowed. Since the assessee has not claimed any expenditure or cost, it is unnecessary to enquire whether these two elements mentioned under clauses (i) and (ii) of section 48 are capable of determination in relation to goodwill. But what is significant is that the computation of capital gains under section 48....