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TMI Blog2007 (6) TMI 304X X X X Extracts X X X X X X X X Extracts X X X X ..... leting the addition of Rs. 32.50 lakhs made by the Assessing Officer on account of short-term capital gain by holding that the impugned amount was not assessable under any head of income. This also mentioned that he erred in holding that there was no transfer contrary to the fact that the assessee retired from the partnership firm and the value of the goodwill was transferred and credited to his capital account. 2. In the assessment order, it is mentioned that a sum of Rs. 32.50 lakhs was credited in the capital account of the assessee on 31-5-2002 on account of goodwill of the firm. The opening balance in the capital account was Rs. 75,39,062, which increased to Rs. 1,09,38,517 on 31-5-2002 on account of various debits and credits. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility to capital gain. It was also explained that Circular No. 495, dated 22-9-1987 of the Board clarifies that the amendment made in section 55 was with the view to cover only those cases where goodwill was actually transferred. Since the goodwill has not been transferred in this case, there was no question of the levy of capital gains tax. The Assessing Officer considered the facts of the case. It was mentioned that the assessee received a sum of Rs. 32.50 lakhs on 31-10-2002 in respect of his share in the goodwill credited in the books of the firm on 31-5-2002. It was further mentioned that the firm was re-constituted on 15-7-2002 whereby nine existing partners retired and eight new partners joined the firm. No information was brought o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he intangible asset of the firm was brought into the books. The assessee, being an individual, did not have any separate goodwill and, therefore, the question of transfer of goodwill to the firm does not arise. Accordingly, the addition made by the Assessing Officer was deleted. 4. Before us, the learned DR referred to the facts regarding creation of goodwill in the books of the firm, retirement of the assessee from the firm and payment of the credit standing in his capital account. He also referred to the provision contained in section 55(2)( a ), which defines the cost of acquisition of intangible assets like goodwill, trademark or brand name associated with a business etc. It is inter alia provided that where such an asset has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re-constituted, having the effect of retirement of eight partners and joining in of nine new partners. The admission of the new partners may lead to notional transfer of the goodwill in their favour, but in such a case provisions of section 55 will not apply, as mentioned in the beneficial Circular No. 495, referred to above. He relied on the decision of Hon ble Supreme Court in the case of Mohanbhai Pamabhai ( supra ), which we have already referred to. Further, he relied on the decision of Hon ble Supreme Court in the case of Tribhuvandas G. Patel v. CIT [1999] 236 ITR 515, in which it was held that a sum of Rs. 50,000 received by the assessee as his share in the goodwill of the firm was not assessable as capital gain. In this deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 45 of the Act. The learned counsel also clarified that nothing was charged from the incoming partner for the goodwill of the firm. On the basis of the aforesaid facts and arguments, his case was that the impugned amount was not at all taxable. 5. We have considered the facts of the case and rival contentions. The revenue s case is primarily based on the provision contained in section 55(2) under which the cost of goodwill has to be taken at nil if it has not been purchased from a previous owner. Such is the case here. Nonetheless, this cost is for the purpose of sections 48 and 49, which deal with the mode of computation of the income chargeable under the head "Capital gains". Before coming to the mode of computation, it has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer of an asset and such has been the decision of Hon ble Supreme Court in the cases of Mohanbhai Pamabhai ( supra ) and Tribhuvandas G. Patel ( supra ). The fact is that a provision corresponding to sub-section (3) regarding levy of capital gain tax when a partner brings in a capital asset to the firm does not exist on the statute book in case of retirement of the partner and, thus, general provisions of law, namely, that what he takes is his share in the assets of the firm continues to apply with the exception that under sub-section (4), when a capital asset is distributed to the partner on dissolution of the firm or on his retirement at less than the fair market value, then, the firm becomes liable to pay capital gains tax. Such is n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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