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TMI Blog1985 (12) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... er had computed the deceased's share of goodwill of the said firm at Rs. 2,20,312 on the basis of three years' purchase price of average profits. The assessee went up in appeal before the Appellate Controller, who reduced the said amount to Rs. 1,34,395 on the basis of two years' purchase price of average profits. Still aggrieved the assessee has come up in appeal before us. 3. The initial contention of the appellant that there was no goodwill at all or that value of the goodwill was nil cannot be accepted. It appears that the said business had shown increasing profits in the assessment year 1976-77 it had profits of Rs. 2,66,781 which rose to Rs. 6,20,228 in the assessment year 1977-78. Inthe assessment years 1978-79 and 1979-80 also, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the annual profits, such profits being based on the annual average profits of the two to five years immediately preceding the valuation, without making any deduction for interest on capital and owner's services." 5. The above observations would go to suggest that no hard and fast rule had been laid down by their Lordships for computation of the goodwill, rather it suggests that it could be computed on the average annual profits of two to five years immediately preceding the valuation. It further shows that while computing the goodwill in that manner, deduction for interest on capital and owner's services should not be made. In the instant case, the authorities below have allowed deduction on account of interest on capital and working all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in years subsequent to the death of Smt. Laxmi Bai, the profits had declined and, ultimately, the business has closed down. These facts lend strength to the appellant's version that the business was highly speculative in nature. The Appellate Controller has also made similar observations in his order. He had, however, allowed deduction of interest at the rate of 12 per cent per annum holding that the yield from gilt edged securities is comparatively lower. While comparing to yield from such securities, we cannot forget that investment in such securities is fairly safe. On the other hand, the investment in the business in question was highly speculative. Investment in speculative trade or business carries higher rates of interest. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a reasonable deduction, keeping in view the nature of the business under consideration here. It is axiomatic that an investor expects a better return on his investment where the risk is great than he would from an investment which is 'gilt edged' and, thus, has little or no risk attached to it. Yorston Smyth and Brown (Advanced Accounting, Vols. I and II, Sixth edn., p. 493) are of the view that in the former case in a great risk investment, a reasonable return might be anything from 8 per cent to 20 per cent whereas in the latter (gilt edged) the return would approximate that yielded by the 'Commonwealth Bonds'---4 1/2 per cent. It is the higher return in the former case, according to the learned authors, which compensates for the greater ..... X X X X Extracts X X X X X X X X Extracts X X X X
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