1983 (2) TMI 146 - AT - Income Tax

Summary

Issues:
Inclusion of goodwill as a gift under section 9 of the ED Act.

Analysis:

1. Background and Partnership Details:
The case involves the inclusion of Rs. 34,500, representing the value of goodwill, treated as a gift under section 9 of the ED Act. The deceased, a partner in a business, took over the entire business after the retirement of two other partners and later included her son as a partner. Upon her retirement, she passed over the business, including goodwill, to her son.

2. Assessment and Appeal:
After the deceased's retirement and subsequent demise, the Asstt. Controller assessed the value of goodwill at Rs. 34,500, considering it as a gift under section 9. The accountable person appealed, arguing that there was a mutual give and take during retirement, similar to a previous Tribunal decision, and the addition was deleted by the Appellate Controller.

3. Departmental Appeal and Arguments:
The department appealed the decision, contending that the deceased owned the goodwill, which was relinquished without any payment, making it a gift under section 9. They argued that the Tribunal decision relied upon by the Appellate Controller did not apply to this case due to the deceased's significant share in the goodwill.

4. Counter-arguments and Legal Precedents:
The accountable person argued that no partner has a right to individual assets of the partnership, including goodwill. They relied on a Bombay High Court decision to support their stance. However, the Tribunal found that the deceased had a 60% share in the goodwill, which was effectively gifted to her son without any consideration.

5. Decision and Rationale:
The Tribunal analyzed the facts and concluded that the deceased had indeed gifted her share in the goodwill to her son without receiving any consideration. This act constituted a gift under section 9 of the ED Act, justifying its inclusion in the assessment. The Tribunal rejected arguments of consideration and the selective inclusion of goodwill for taxation, emphasizing the specific circumstances of this case.

6. Final Verdict and Upheld Findings:
Based on the detailed analysis, the Tribunal upheld the addition of Rs. 34,500 as the value of goodwill in the assessment. Additionally, other issues raised in the appeal, such as exemption under section 33(1)(n) for a garage, were adequately addressed and upheld by the Appellate Controller, resulting in a partial allowance of the appeal.

This comprehensive analysis highlights the key legal aspects, arguments presented, precedents cited, and the Tribunal's decision regarding the inclusion of goodwill as a gift under the relevant provisions of the ED Act.