1959 (3) TMI 9 - SC - Income Tax

Whether on the interpretation of the sale deed it can be said that any good-will was purchased by the assessee ? Whether in view of the said proviso to section 10(5)(a) the Income-tax Officer on the facts and circumstances arising out of this case was competent to go behind the conveyance and fix a valuation of his own in the way he has done ? Held that - Question No. 1 was not allowed by us to be argued because the matter was not taken in the statement of case on behalf of the appellant and the only question which survives for consideration is the second one i.e. No. 7 and this question as it is or with modifications should have been referred to the High Court. . We therefore direct that the question with the necessary modifications if any be referred and the case stated in accordance with section 66(1) of the Income-tax Act.

Issues Involved:
1. Depreciation Calculation under Section 10(2)(vi) of the Income-tax Act.
2. Allocation of Purchase Consideration to Goodwill.
3. Jurisdiction of the Tribunal to Reallocate Purchase Price.

Issue-wise Detailed Analysis:

1. Depreciation Calculation under Section 10(2)(vi) of the Income-tax Act:
The primary issue in these appeals is the amount on which the appellant, Jogta Coal Co., was entitled to calculate the depreciation deduction under Section 10(2)(vi) of the Income-tax Act. The section stipulates that depreciation should be computed on the "original cost thereof to the assessee." The Privy Council has clarified that the depreciation allowance is based on the original cost to the assessee, not the predecessor. This interpretation was upheld, emphasizing that the cost for depreciation purposes is the actual price paid by the assessee.

2. Allocation of Purchase Consideration to Goodwill:
The Income-tax Officer and the Appellate Assistant Commissioner reallocated the purchase price, attributing Rs. 7,50,000 to goodwill, which was not explicitly mentioned in the sale deed. The Tribunal also made its own valuation, allocating Rs. 4,00,000 to goodwill. The appellant contended that the sale deed did not mention goodwill and that the entire amount of Rs. 10,00,000 was for machinery, stores, furniture, and fittings. The court acknowledged that goodwill is a commercial term capable of valuation but noted its absence in the sale deed. The court thus raised the question of whether the amount paid included goodwill and whether the Tribunal had the jurisdiction to reallocate the price.

3. Jurisdiction of the Tribunal to Reallocate Purchase Price:
The appellant argued that the Tribunal had no jurisdiction to reallocate the purchase price paid for specific assets and attribute part of it to goodwill. The court considered whether the Tribunal could disregard the actual price paid and reallocate it to include other assets. The court referenced English case law, which supports the principle that the actual price paid should be considered, not an estimated market value. The Lahore High Court's decision in Pindi Kashmir Transport Co. Ltd. was also discussed, but the court did not deem it necessary to decide its correctness.

Conclusion:
The Supreme Court concluded that two questions of law arose from the Tribunal's order, which should have been referred to the High Court:
1. Whether the interpretation of the sale deed indicated the purchase of goodwill.
2. Whether the Income-tax Officer was competent to reallocate the purchase price under Section 10(5)(a) of the Act.

The court directed the Tribunal to state the case and refer the questions to the High Court for consideration. The case was remitted for further proceedings in accordance with the law and the directions provided. Costs were to be determined based on the outcome in the High Court.

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