1998 (9) TMI 129 - AT - Income Tax

Summary

Issues:
1. Whether the transfer of a kerosene dealership constitutes a transfer of goodwill?
2. What would be the cost of acquisition if the transfer is considered a goodwill transfer?

Issue 1: Transfer of Kerosene Dealership as Goodwill:

The appeal concerned the assessment year 1991-92, where the revenue disputed the chargeability of tax on the transfer of a kerosene dealership of the Indian Oil Corporation. The revenue contended that the entire sum of Rs. 4 lacs from the sale should be taxable under section 28(ii)(c), as opposed to the assessee's argument that no capital gains should be charged due to the zero cost of acquisition of the dealership. The Assessing Officer treated the sale as goodwill, but the CIT (Appeals) deleted the addition. The revenue argued that the transfer involved goodwill, supported by legal definitions and agreements, while the assessee maintained it was a simple transfer of the dealership. The Tribunal analyzed legal definitions of goodwill from various sources and concluded that the transfer of the kerosene dealership involved the transfer of certain benefits and advantages akin to goodwill, despite the nomenclature used in the documents. The Tribunal found that the transfer was intended to transfer goodwill, as evidenced by the documents and intentions of the parties.

Issue 2: Cost of Acquisition for Goodwill Transfer:

The Tribunal examined the cost of acquisition of the goodwill transfer. The assessee argued for zero cost of acquisition based on judgments predating the 1988 amendment that brought goodwill under capital gains. However, the Tribunal noted that for the assessment year 1991-92, the amended provision applied, where the cost of acquisition of goodwill is taken at nil if not acquired under purchase. The Tribunal referred to sections 48, 49, and 55 of the Act to determine the cost of acquisition in the case of a goodwill transfer. It was established that the cost of acquisition of the goodwill on partition of HUF assets would be nil in the hands of the assessee. The Tribunal disagreed with the CIT (Appeals) and held that the capital gains should be computed in accordance with the provisions of sections 49 and 55 of the Act, setting aside the order of the CIT (Appeals) and restoring the Assessing Officer's order.

In conclusion, the Tribunal allowed the revenue's appeal, emphasizing that the transfer of the kerosene dealership involved goodwill transfer and the cost of acquisition should be considered nil in the hands of the assessee, leading to the capital gains being chargeable under the relevant provisions of the Income Tax Act.