1985 (3) TMI 133 - AT - Income Tax

Summary

Issues Involved:
1. Determination of the value of the consideration received.
2. Examination of whether the consideration involves any element attributable to the transfer of capital assets, particularly goodwill.

Detailed Analysis:

Issue 1: Determination of the Value of the Consideration Received
The primary issue was whether the value of the consideration received by the assessee-firm was Rs. 27,268 or Rs. 1 lakh. The Tribunal examined the agreement dated 26-3-1965, which clearly stated that the consideration for the transfer was Rs. 1 lakh. The fact that the liability was discharged by issuing shares of equivalent value did not alter the consideration amount. The Tribunal concluded that the value of the consideration for the transfer was indeed Rs. 1 lakh, rejecting any argument that the face value of the shares was different from their actual value.

Issue 2: Examination of Goodwill and Capital Gains
The second issue revolved around whether the consideration involved any element attributable to the transfer of capital assets, specifically goodwill. The Tribunal scrutinized the nature of the assets transferred and the existence of goodwill. It was noted that the business was only eight months old, had not generated any income, and lacked any specific reputation or customer base. Consequently, the Tribunal agreed with the departmental representative that the business did not possess any intangible assets in the form of goodwill.

The Tribunal further analyzed why the vendee paid Rs. 1 lakh, concluding that the payment was made to derive benefits from agreements for the purchase of land and the construction and sale of flats, rather than for goodwill. The excess payment over the book value of the assets was attributed to the potential profits from these agreements, not to goodwill.

Conclusion:
The Tribunal upheld the order of the AAC, determining that the entire consideration of Rs. 1 lakh was for the transfer of business assets, resulting in short-term capital gains. The appeal was dismissed, affirming the taxability of the capital gains arising from the transaction.