1984 (3) TMI 111

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....clause 14 of the partnership deed provided for the computation of goodwill in case a partner retired or died. The Assistant Controller observed that the firm had been earning profits and that the business was being carried on in a commercial locality. Consequently, the said firm had acquired goodwill. He estimated the value of the goodwill at three years' purchase of the average assessed profits for the last three years. This value came to Rs. 50,000 and the share of the deceased therein came to Rs. 25,000. He included that amount of Rs. 25,000 in the principal value of the estate. 3. In the appeal filed by the accountable person, the grievance was that the amount payable by the said firm as tax under the Income-tax Act, 1961 ('the 1961 ....

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....t take into account the amount of income-tax that was being paid by the particular vendor. What he would take into account would be the amount of income-tax payable at an estimated average standard rate. The rate of tax payable by the registered firm is minimal under the Finance Act. The purchaser of goodwill would normally take into account the registered firm's tax payable under the 1961 Act in estimating the value of goodwill. Consequently, the registered firm's tax should be deducted from the assessed income and the balance should be taken into account in calculating three years' purchase. It appears to be a well-established principle of accounting that in valuing goodwill, income-tax at an estimated average standard rate should always ....