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TMI Blog1975 (5) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... could get what are called " import entitlements " which would enable him to import raw materials to the extent of 75 per cent. of the f.o.b. value of the goods exported. Under this scheme, he could utilise the " import entitlements " for his own manufacture or could part with it to other manufacturers covered by the scheme. In the assessment year, the assessee received and transferred the " import entitlements " to two concerns for a total sum of Rs. 5,045. This amount was credited to the profit and loss account of the assessee and it was brought to tax by the Income-tax Officer. It has been found by the Appellate Assistant Commissioner, on appeal, that the " import entitlements " were received by the assessee free of cost and as, in his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Cal), Jagdev Singh Mumick v. Commissioner of Income-tax [1971] 81 ITR 500 (Delhi), Commissioner of Income-tax v. E. C. Jacob [1973] 89 ITR 88 (Ker) [FB] and Commissioner of Income-tax v. B. C. Srinivasa Setty [1974] 96 ITR 667 (Kar) cited by Mr. Banerjee, the goodwill of the businesses were sold and the cost of acquisition of the goodwill could not be ascertained at all and, therefore, it was held that those receipts were not taxable, because the profits or gains could not be computed at all. Above cases were not decided on the basis that there was no cost of acquisition of the goodwill and, therefore, they do not assist Mr. Banerjee in any way. Further, goodwill and the " import entitlements " do not stand on the same footing and, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such transfer ; (ii) the cost of acquisition of the capital asset and the cost of any improvement thereto. " The submission of Mr. Banerjee is that section 48 of the Act cannot be applied in this case because there is no cost of acquisition of the capital asset and, therefore, section 45 of the Act has no application. In support of this contention he has placed strong reliance on the dissenting judgment of Lord Chancellor Cave in the case of Whitney v. Commissioners of Inland Revenue [1925] 10 TC 88 (HL). In that case, the assessee was a non-resident and the question before the House of Lords was whether he was liable to pay super-tax on the income accrued to him in England. It was contended on his behalf that he was not liable to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oluntarily pay. " (Underlined for emphasis). A section prescribing the method of computation cannot override the charging section. In the computation, many items may be allowed or disallowed and many items may be added, but the section prescribing the mode of computation of taxable income, profit or gain does not and cannot determine the statutory liability of the assessee to pay the tax. It can never be said that no tax is payable merely because the assessee is not entitled to a particular deduction or he is unable to claim a particular deduction for some reason or other. Therefore, there is no merit in the contention that where there is no cost of acquisition of the capital asset the profits or gains arising out of the sale of such asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lal Prabhudas Co. [1970] 76 ITR 566 (Cal) for, in that case, Mukharji J. (as he then was) has relied on the above observations of their Lordships of the Madras High Court but, as already stated, in the case before Mukharji J., the cost of acquisition of the goodwill of the business could not be determined at all. In other words, the cost of acquisition of the goodwill in that case was not nil in terms of money and, therefore, it was wholly unnecessary for Mukharji J. to rely on the above observations of their Lordships of the Madras High Court. That apart, the above observations of their Lordships of the Madras High Court, if correct, will nullify section 45 of the Act in all such cases where there is no cost of acquisition of the capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... started ; (c) Goodwill is not a capital asset which can be divided into parts or fragments ; (d) Goodwill cannot exist independently de hors the business itself and does not have any value apart from the business which necessarily includes other usual capital assets. On the basis of the above his Lordship was pleased to hold that goodwill did not fall and was not intended to be brought within the ambit of the section as taxable capital gains. The question of expenditure necessary to acquire goodwill was also considered and the finding was that from the practical point of view and also legally it was not possible to separate the actual cost of the goodwill in the assessee's capital assets and also it was not possible to separate the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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