2009 (2) TMI 92 - HC - Income Tax

In case of sale of the entire business, as a going concern, it is not possible to bifurcate the consideration received on account of said transfer Tribunal is right in holding that the amount received by the assessee was by way of transfer of its goodwill and not profit on stock as well as fixed assets preliminary objection submitted by assessee-respondent that second question doesn t arise out of the Tribunal s order, as it has not been dealt with by the Tribunal at all, is accepted

Issues Involved:
1. Preliminary objection regarding the formulation of substantial questions of law under Section 260-A of the Income Tax Act, 1961.
2. Taxability of Rs. 50 lakhs received by the assessee on transfer of business as goodwill or as disguised profits.
3. Applicability of the Supreme Court's decision in CIT v. B.C. Srinivasa Setty.
4. Allegation of perversity in the Tribunal's order.
5. Burden of proof on the assessee regarding the receipt of Rs. 50 lakhs.

Detailed Analysis:

1. Preliminary Objection Regarding Formulation of Substantial Questions of Law:
The respondent raised a preliminary objection based on Section 260-A (4) of the Income Tax Act, 1961, arguing that an appeal can only be heard after the High Court formulates a substantial question of law. The appellant contended that the questions proposed in the memorandum of appeal should be deemed as formulated by the High Court. The court accepted the preliminary objection but proceeded to address the merits of the appeal.

2. Taxability of Rs. 50 Lakhs Received by the Assessee:
The controversy centered on whether the Rs. 50 lakhs received by the assessee was for the transfer of goodwill or as disguised profits. The Assessing Officer and Commissioner (Appeals) had different views on this matter. The Tribunal upheld the assessee's claim that the amount was received as goodwill. The court found that the Tribunal had considered all relevant facts and evidence, including the agreement between the parties and the method of valuation of stock, and concluded that the sum was received towards the transfer of goodwill.

3. Applicability of the Supreme Court's Decision in CIT v. B.C. Srinivasa Setty:
The assessee relied on the Supreme Court's decision in CIT v. B.C. Srinivasa Setty to argue that the amount received for goodwill was not taxable. The Tribunal applied the principles from this decision, noting that the goodwill was transferred as part of the business as a going concern, and thus, the amount received was not taxable.

4. Allegation of Perversity in the Tribunal's Order:
The appellant argued that the Tribunal's order was perverse as it was not based on any evidence. The court rejected this contention, stating that the Tribunal had considered all relevant evidence and circumstances. The court found no perversity in the Tribunal's order and noted that the Tribunal had provided sufficient reasons for its decision.

5. Burden of Proof on the Assessee:
The appellant contended that the assessee had not discharged the burden of proving that the amount received was for goodwill. The court held that the assessee had provided sufficient evidence, including the agreement and audited accounts, to support its claim. The court also noted that the amount was accepted by the department as the purchase price in the hands of the purchaser, and there was no reason to treat it differently in the hands of the seller.

Conclusion:
The court dismissed the appeal, holding that the Tribunal's order did not suffer from any legal infirmity or perversity. The court found that the Rs. 50 lakhs received by the assessee was for the transfer of goodwill and not as disguised profits. The second question raised by the appellant did not arise from the Tribunal's order and was not addressed. The appeal was dismissed with no order as to costs.

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