Law:

Section:

Section 48 of the Income-tax Act, 1961 (Corresponding to section 12B(2) of the Indian Income-tax Act, 1922) - Capital gains - Computation of - Assessment years 1960-61 - Assessee was partner in a firm along with seven other partners - Business of said firm was taken over by limited company - Firm charged certain amount towards goodwill of business from limited company - Assessee claimed that while computing capital gain on transfer of goodwill, partners were entitled to substitution of fair market value of asset (i.e. goodwill) as on 1-1-1954 for actual cost as envisaged in section 12B(2) of 1922 Act - ITO rejected assessee's claim - AAC as well as Tribunal, however, allowed assessee's claim - Whether as per provisions of third proviso to section 12B(2) of 1922 Act, capital asset can become assessee's property even if it is acquired by self generation, as in instant case, where goodwill was unquestionably a self generating asset came to be acquired by firm - Held, yes - Whether, therefore, assessee and his seven partners were entitled to substitute fair market value of goodwill as on 1-1-1954, under third proviso to section 12B(2) of 1922 Act - Held, yes FACTS The assessee was one of the eight partners of a business-firm having equal shares. The business of the firm was taken over by a limited company from 1-7-1959, that is, in the previous year relevant to the assessment year 1960-61. The firm charged and received the sum of Rs. 5 lakhs towards goodwill of the business from the limited company. Accordingly, an equal share of Rs. 62,500 came to be credited in the account of each of the partners in the books of the firm. In the assessment proceedings for the relevant assessment year the Income-tax Officer held that the entire amount of Rs. 62,500 without any deduction under section 12B(2) of the 1922 Act was a capital gain made by each of the partners and the same was liable to tax. On appeal, the Appellate Assistant Commissioner accepted the assessee's contention that the assessee and his partners were entitled to the substitution of the fair market value of the asset as on 1-1-1954, for the "actual cost" as envisaged in the third proviso to section 12B(2) of…

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