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Section 45 of the Income-tax Act, 1961 - Capital gains - Chargeable as - Whether capital gain will arise to assessee on transfer of goodwill which does not have any cost of acquisition or cost in improvement - Held, no Facts The assessee, an individual, sold his proprietary firm as a running concern for a consideration which included a certain amount for goodwill. The ITO added the goodwill amount as the assessee's income treating it as capital gain. On appeal, the AAC cancelled the addition made on the ground that it was not a capital gain. The Tribunal upheld the AAC's findings. On reference : Held It was undisputed that the proprietary firm had been established and nourished out of the personal exertion of the assessee. Thus, no cost was involved in the acquisition of the goodwill. Thus, the goodwill transferred by him did not entail any cost in the acquisition thereof. Thus, in view of the Supreme Court decision in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 no capital gain arose to the assessee on the transfer of the goodwill. Case referred to CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 (SC). B.P. Rajgarhia and S.K. Sharan for the Applicant. L.N. Rastogi, L.N. Khanna and Jagdish Kumar for the Respondent. JUDGMENT This reference under section 256(1) of the Income-tax Act. 1961 ('the Act') is concluded by the decision of the Supreme Court in CIT v.B.C. Srinivasa Setty [1981] 128 ITR 294. The question referred to us for our opinion is as stated below : "Whether, on the facts and in the circumstances of this case, the Tribunal were correct in law in holding that no capital gain arose to the assesses on transfer of the goodwill for a consideration of Rs. 50,000 because there was no cost of acquisition nor any cost in the improvement of that capital asset ?" 2. The assessment year in question before us is 1969-70. The assessee is an individual. He set up a proprietary firm in the name and style of Chopra Pharmacy in the town of Patna on 13-7-3964. His initial investment was Rs. 40,000. The assessee sold the proprietary firm on 1-4-1968, as a running concern for Rs. 80,000. This sum was made up as follows : (i)Rs. 30,000 on account of stock ; (ii)Rs. 50,000…

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