1982 (12) TMI 69 - AT - Income Tax

Summary

Issues:
Computation of capital gains and relief under section 80E of the Income-tax Act, 1961.

Analysis:

Issue 1: Computation of Capital Gains
The case involved a dispute regarding the computation of capital gains arising from the transfer of goodwill in a professional firm due to a reconstitution and re-allocation of shares. The appellant contended that the increase in goodwill value was due to personal efforts and skills, making it impossible to evaluate the cost of improvement in monetary terms. The Appellate Assistant Commissioner (AAC) rejected the appellant's argument, stating that the transfer of goodwill for consideration resulted in capital gains taxable under section 45 of the Act. The appellant further argued that the goodwill's value fluctuated due to qualitative changes and self-generation, making it impossible to ascertain the cost of improvement. The appellant relied on the decision in the case of Evans Fraser & Co. Ltd. v. CIT, where it was held that gains on the transfer of goodwill not subject to ascertainable improvement costs are not taxable. The tribunal agreed with the appellant's argument, citing the decision in E.C. Jacob's case and the Bombay High Court's decision, holding that gains from the transfer of goodwill without ascertainable improvement costs are not subject to capital gains tax.

Issue 2: Relief under Section 80E
The judgment did not provide detailed analysis or discussion regarding the relief under section 80E of the Income-tax Act, 1961. Therefore, it can be inferred that the relief under section 80E was not a significant issue in this case, and the decision primarily focused on the computation of capital gains arising from the transfer of goodwill in a professional firm.

In conclusion, the tribunal allowed the appeal, ruling in favor of the appellant and deleting the addition of Rs. 3,242 from the total income computation. The decision emphasized the inability to ascertain the cost of improvement in goodwill transferred for consideration, following precedent cases and holding that gains from such transfers are not subject to capital gains tax.