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Issues Involved:
1. Whether there is any transfer or sale of goodwill to the private limited company so as to attract section 12B(1) of the Indian Income-tax Act, 1922? Issue-wise Detailed Analysis: 1. Transfer or Sale of Goodwill: Facts of the Case: - The assessee-firm, M/s. Home Industries & Co., transferred its business, including goodwill, to a private limited company, M/s. Hico Products Pvt. Ltd., on April 9, 1959. - The goodwill was valued at Rs. 4,89,000, and each partner's account was credited with Rs. 1,63,000. - The capital gains arising from this transfer were assessed by the Income-tax Officer, who computed the assessable capital gain at Rs. 3,64,830 after deducting the value of goodwill as on January 1, 1954, valued at Rs. 1,24,170. Tribunal's Decision: - The Tribunal held that there was no sale or transfer within the scope of section 12B(1) of the Act, following the ratio of two decisions cited by the assessee-firm. - It directed that the sum of Rs. 3,64,830 should be deleted from the assessment. Revenue's Argument: - The revenue argued that the Supreme Court in Commissioner of Income-tax v. B. M. Kharwar [1969] 72 ITR 603 (SC) disapproved the view taken by the Bombay High Court in the cases relied upon by the Tribunal. - The revenue contended that the Tribunal's view was unsustainable and the transfer of goodwill resulted in taxable capital gains. Assessee's Argument: - The assessee conceded that in view of the Supreme Court decision in Kharwar's case, the Tribunal's view was unsustainable. - However, the assessee argued that self-generated goodwill is not a capital asset whose transfer gives rise to chargeable capital gains, as it was not acquired at a specific point of time for any monetary cost. Court's Analysis: - The court considered whether self-generated goodwill falls within the scope of section 12B of the Indian Income-tax Act, 1922. - The court noted the wide definition of "capital asset" in section 2(4A) but emphasized that the asset must have been acquired at a specific point of time and for a monetary cost. - The court examined various High Court decisions, including those of Madras, Calcutta, Delhi, Kerala, and Karnataka, which supported the view that self-generated goodwill does not attract capital gains tax. Conclusion: - The court concluded that self-created or self-generated goodwill, which costs nothing in terms of money to the assessee, is not a capital asset whose transfer gives rise to chargeable capital gains under section 12B(1) of the 1922 Act. - The court answered the question in the negative, in favor of the assessee, and directed the department to pay the costs of the reference to the assessee.
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