1995 JTR(SC) 178
1995 Supp3 SCC 70
SUPREME COURT OF INDIA
J.S.Verma : K.S.Paripoornan
Commissioner Of Income Tax, Bombay
Versus
C.U.Shah, Bombay
Case No. : 960(nt) of 1977
Date of Decision : 2/1/95
Goodwill generated in a newly commenced business is not considered an "asset" under Section 45 of the Income Tax Act, 1961; consequently, its transfer is not subject to tax under the head "capital gains".
Act
Referred
:INCOME TAX ACT
: S.28, S.45, S.256(2)
(A) Income Tax Act, 1961 - Section 45 - Capital gains - Goodwill generated in a newly commenced business - Not an asset within the terms of Section 45 - Transfer not subject to income tax under the head "capital gains". (Para 2)
Facts of the case:
An assessee received a sum of Rs. 35,000 towards goodwill upon retirement from a partnership. The revenue challenged the tribunal's order which held that this amount was not liable to tax under the head capital gains, seeking a reference on the question of law.
Findings of Court:
The court held that the amount received by the assessee towards goodwill on retirement from the partnership is not liable to tax under the head capital gains.
Issues: Whether the amount received by the assessee towards goodwill on retirement from the partnership is liable to tax under the head capital gains.
Ratio Decidendi: Following established judicial precedent, goodwill generated in a newly commenced business cannot be described as an asset within the terms of Section 45 of the Income Tax Act, 1961, and therefore, its transfer is not subject to income tax under the head "capital gains". (Para 2)
Result: Appeal dismissed.
Facts of the case:
An assessee received a sum of Rs. 35,000 towards goodwill upon retirement from a partnership. The revenue challenged the tribunal's order which held that this amount was not liable to tax under the head capital gains, seeking a reference on the question of law.
Findings of Court:
The court held that the amount received by the assessee towards goodwill on retirement from the partnership is not liable to tax under the head capital gains.
Issues: Whether the amount received by the assessee towards goodwill on retirement from the partnership is liable to tax under the head capital gains.
Ratio Decidendi: Following established judicial precedent, goodwill generated in a newly commenced business cannot be described as an asset within the terms of Section 45 of the Income Tax Act, 1961, and therefore, its transfer is not subject to income tax under the head "capital gains". (Para 2)
Result: Appeal dismissed.
Goodwill - Held that goodwill generated in a newly commenced business is not an asset under Section 45 and therefore its transfer is not subject to capital gains tax.
(1) THIS appeal by special leave is by the Revenue against rejection by the High court of its application made under Section 256(2 of the Income Tax Act, 1961 for requiring the reference of a question of law, said to arise out of the b tribunals order. The question is as under :
"WHETHER, in the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of Rs. 35,000.00 received by the assessee towards goodwill on his retirement from the partnership is not liable to tax under the head capital gain?"
(2) IN COMMISSIONER OF INCOME TAX v B.C. Srinivasa Setty this court has held that the goodwill generated in a newly commenced business cannot be described as an asset within the terms of Section 45 and, therefore, its transfer is not subject to income tax under the head "capital gains". Following that decision this appeal must fail.
(3) CONSEQUENTLY the appeal is dismissed. No costs.