9911796707
TMI Blog1974 (8) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ts side of the balance-sheet previously. Therefore, the Wealth-tax Officer disagreed with the claim made by the assessee-company that suddenly the value of the goodwill could be reduced to Re. 1. In the premises, the Wealth-tax Officer's reasoning as recorded for the year 1957-58 is as follows: "The company has written off a goodwill of Rs. 5,44,999 from the appropriation account of this year and the goodwill now stands at Re. 1. The idea of writing off the goodwill appears to be to reduce the reserve and thus to pay lesser wealth-tax. It is claimed on behalf of the company that goodwill being a wasting asset and since prohibition and gradual restriction on trading are being imposed and a separate company under the same name has been established in Pakistan, the goodwill of the company has no value. The profits for the year ended December 31, 1956, are Rs. 4 lakhs. The goodwill of Rs. 5 lakhs as it existed cannot be considered excessive looking to the standard of the company. I, therefore, take the value of the goodwill at Rs. 5 lakhs as though the amount was not written off from the profit and loss appropriation account. The write-off in my opinion appears to be only with a view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will had been written off in the present case to evade payment of wealth-tax and as such the Appellate Assistant Commissioner had gone wrong in accepting the assessee's contention. The Tribunal was unable to accept that position. The Tribunal was of the view that the report of the chairman of the board of directors did not suggest that even though the goodwill remained a valuable asset for the company, it was being written off merely to evade tax. On the contrary, upon the facts as found, the Tribunal came to the conclusion that the company while writing off the goodwill was fully conscious of the fact that no such goodwill remained under the changed circumstances and if in spite of this reality the company had continued to retain goodwill as one of its assets, it would only have meant payment of wealth-tax without actually having such valuable asset. The Tribunal noted that: " When the goodwill was created in the year 1920, the assessee-company had certainly bright days ahead of it. Subsequently, at the time when it was actually written off the prospects were bleak; prohibition and restrictions in trade staring against the assessee's interest. Now if under such circumstances, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciples of valuation of goodwill, What are the elements which go to constitute goodwill generally have been considered by the Supreme Court in the case of S. C. Cambatta Co. Pvt. Ltd. v. Commissioner of Excess Profits Tax [1961] 41 ITR 500 (SC), where the Supreme Court held: " The goodwill of a business depends upon a variety of circumstances or a combination of them. The location, the service, the standing of the business, the honesty of those who run it, and the lack of competition and many other facts go individually or together to make up the goodwill, though locality always plays a considerable part. Shift the locality, and the goodwill may be lost. At the same time, locality is not everything. The power to attract custom depends on one or more of the other factors as well. In the case of a theatre or restaurant, what is catered, how the service is run and what the competition is, contribute also to the goodwill." The different elements and the factors which go to constitute goodwill and which should be considered in valuing goodwill properly was considered by this court in the case of Commissioner of Income-tax v. Chunilal Prabhudas Co. [1970] 76 ITR 566 (CAI), from p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the fact that after the introduction of prohibition there have been restrictions and which affected the company's business, which is a point made first before the Income-tax Officer, is not in dispute. It was, secondly, urged before the Income-tax Officer that there had been gradual restriction imposed on the nature of the trade carried on by the company. It was, thirdly, urged that a separate company under the same name had been established for carrying on business in Pakistan after the partition of the country. For all these years when such things happened, in the company's books the value of the goodwill had remained at the static figure of Rs. 5,44,999 which was the figure shown at the inception of the company. Upon these facts the Tribunal came to the conclusion that when the goodwill was created in 1920 the assessee-company had bright days ahead having regard to the nature of the business carried on by the company and having regard to these factors referred to hereinbefore, viz., introduction of prohibition in the country gradually, restrictions on the trade of the assessee, thirdly, the partition of India and establishment of a similar company in Pakistan after partitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will. The fact that Re. 1 has been entered as goodwill in the balance-sheet is itself an evidence that that was the value. It was open to the revenue authorities to show by evidence or otherwise that the value put by the company was not proper value or the goodwill of this particular company for the relevant year should have been valued at a higher figure. The fact that such a course was open to the revenue would be evident from the principles laid down in the decision in the case of Commissioner of Wealth-tax v. K. N. Khanna [1971] 81 ITR 117 (Delhi), and the decision of the Supreme Court in the case of Guzdar Kajora Coal Mines Ltd. v. Commissioner of Income-tax [1972] 85 ITR 599 (SC). But, in this case, apart from the fact that the goodwill had been previously, valued in the balance-sheet at Rs. 5,44,999 and in this particular year it was valued at Re. 1 by the company, no other evidence was adduced by the revenue authorities to suggest that this was done to evade tax liability of the assessee. Incidentally, we may mention that in its order the Tribunal has observed that the valuation put on the goodwill was merely to avoid tax. That is irrelevant, that does not justify the valua ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
