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TMI Blog1974 (7) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... s) : M. K. SRINIVASA IYENGAR., G. K. GOVINDA BHAT. JUDGMENT GOVINDA BHAT C.J.-The Income-tax Appellate Tribunal, Bangalore Bench, has stated a case and referred the following question for the opinion of this court : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the provisions of section 45 of the Income-tax Act, 1961, would not apply to the capital gains arising from the transfer of goodwill by the assessee-firm ? " The assessee was a partnership firm consisting of three partners constituted under an instrument of partnership executed on July 28, 1954. The said partnership was dissolved on December 1, 1965, and its business was taken over by another partnership constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssor-firm came into existence only on December 2, 1965, and therefore, it should be held that each of the partners of the assessee-firm had sold his interest to the newly constituted firm and, as such, the case fell under section 47(ii) of the Act. The Tribunal rejected the said ground stating that it is not supported by any evidence. The second ground which is the main ground was that, under the scheme of the Act, section 45 which brings to charge profits or gains arising from the transfer of a capital asset does not apply to transfer of goodwill. In support of that contention, the assessee relied on the decision of the Madras High Court in Commissioner of Income-tax v. K. Rathnam Nadar. The Tribunal was of the opinion that although the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion in Rathnam Nadar's case was followed by the High Courts of Delhi and Kerala. In Jagdev Singh Mumick v. Commissioner of Income-tax, which arose under the Indian Income-tax Act, 1922, it was held that the sum received on account of transfer of goodwill is not capital gains and, therefore, not liable to tax under section 12B. The case before the Kerala High Court in Commissioner of Income-tax v. E.C. Jacob arose under the Act and it was held that the amount received by the assessee towards the value of goodwill was not assessable to capital gains tax. The decision of the Calcutta High Court in Chunilal Prabhudas's case arose under the 1922 Act and it proceeded on the view that goodwill is not a capital asset within the meaning of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pable of determination. Capital gains has to be computed by deducting the cost of acquisition of the capital asset from the full value of the consideration for its transfer. Since the cost of acquisition of a goodwill is incapable of determination, it could not have been in the contemplation of the legislature to include property of that kind for the purpose of taxation of capital gains. There is more than one reason for us to follow the ratio of the decision in Rathnam Nadar's case. No doubt, two views are possible on the question. When two views are possible on a question concerning the interpretation of a tax law, the one which is fair both to the assessee and the department should be followed. The view that capital gains tax is not at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct law. The Income-tax Act is an all India statute. Uniformity of construction of all-India tax laws by the various High Courts is eminently desirable. If any High Court gives a decision against the department on a substantial question of law of general importance which the department does not accept, it is highly desirable that the department at the earliest opportunity available should take up the matter in appeal before the Supreme Court and obtain its decision so that the law is settled by the highest court of the land and no uncertainty is left in the administration of the tax law. The decision in Rathnam Nadar's case was rendered in the year 1969. We asked Sri Rajasekhara Murthy as to whether the department had preferred appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X
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