1985 (6) TMI 81 - AT - Income Tax

Summary

Issues Involved:
1. Whether the consideration of Rs. 4 lakhs for the transfer of the business name "City Transport" should be held entirely for the transfer of goodwill or in part for the transfer of route permits.
2. If in part the consideration is for the transfer of route permits, whether any capital gain is chargeable in respect of the same.
3. If capital gain is chargeable in respect of part of the consideration of Rs. 4 lakhs as related to the transfer of route permits, whether the cost of acquisition is to be held to be Rs. 2,000 only.

Issue-wise Detailed Analysis:

1. Consideration for Transfer of Business Name:
The main contention revolves around whether the entire sum of Rs. 4 lakhs was for the transfer of goodwill or if it included the value of route permits. The assessee argued that the sum was entirely for the goodwill and the business name, while the Income Tax Officer (ITO) contended that the amount was for the transfer of route permits. The Commissioner (Appeals) supported the assessee's view, stating that no capital gains resulted from the transfer. The Tribunal examined the agreement which clearly segregated Rs. 2,50,000 for the buses and Rs. 4 lakhs for the goodwill. The Tribunal found no material evidence to support the ITO's claim that Rs. 4 lakhs was for the route permits. The Tribunal upheld that the business, having been in existence since 1946, had significant goodwill, and thus, the consideration of Rs. 4 lakhs was rightly attributed to the goodwill.

2. Capital Gain Chargeability:
The ITO argued that the route permits constituted property and any profit from their transfer should be chargeable as capital gains. The Tribunal, however, found that the ITO failed to provide substantial evidence to prove that the sum of Rs. 4 lakhs was for the route permits. The Tribunal also noted that the ITO did not demonstrate the market price for acquiring the route permits from an existing business. The Tribunal concluded that the ITO's assumptions were based on mere suspicion and lacked a proper basis. Therefore, the Tribunal held that the consideration was for the goodwill, which is a self-generating asset, and thus, no capital gains were chargeable.

3. Cost of Acquisition:
The ITO estimated the cost of acquisition of the route permits at Rs. 2,000 without any substantial evidence. The Tribunal found this estimation baseless and without proper material support. The Tribunal emphasized that the ITO failed to show what would be the reasonable cost of acquisition for the route permits. Given that the ITO's estimation lacked a proper basis, the Tribunal rejected the notion that the cost of acquisition could be Rs. 2,000. Consequently, the Tribunal upheld the Commissioner (Appeals)'s finding that no capital gains were chargeable since the goodwill was self-generated and had no ascertainable cost of acquisition.

Separate Judgments:

Judicial Member's View:
The Judicial Member found no merit in the department's objections and upheld the Commissioner (Appeals)'s finding that the Rs. 4 lakhs was for the goodwill. The Judicial Member emphasized that the ITO failed to substantiate his claims with material evidence and concluded that no capital gains were chargeable.

Accountant Member's View:
The Accountant Member disagreed with the Judicial Member, arguing that the primary consideration was not just the depreciated buses but also the valuable route permits. He believed that the Rs. 4 lakhs included the value of the route permits and directed the ITO to compute the value of the goodwill and treat the balance as the price of the route permits for capital gains purposes.

Third Member's Decision:
The Third Member, agreeing with the Judicial Member, held that the assessee's transport business had significant goodwill, and the Rs. 4 lakhs represented the value of this goodwill. The Third Member found no material evidence to support the ITO's claim that the amount was for the route permits. Therefore, the Third Member concluded that no capital gains were chargeable, upholding the Judicial Member's view.

Final Outcome:
The Tribunal, by majority view, dismissed the department's appeal and upheld the Commissioner (Appeals)'s decision that no capital gains were chargeable on the Rs. 4 lakhs received for the transfer of the business name and goodwill.