Law:

Section:

Section 256 of the Income-tax Act, 1961 [Corresponding to section 66 of the Indian Income-tax Act, 1922], read with Rule 1, Schedule I to Excess Profits Tax Act, 1940 - High Court - Reference to - Assessee-company carried on business of running theatre and restaurants - In 1943, it formed a subsidiary company - Subsidiary company carried on business using premises under a lease on monthly rental - In account books of subsidiary goodwill was shown separately though it was not shown separately in books of assessee - Tribunal found that no goodwill was acquired by business of theatre as such and that whatever goodwill there was, related to site and building itself taken on lease - Accordingly, Tribunal computed goodwill as value of lease to subsidiary company and rejected other considerations which went, to make up goodwill of a business - Whether goodwill of a business depends upon a variety of circumstances or a combination of them and, hence, matter of goodwill needed to be considered in a much broader way than what Tribunal had done - Held, yes - Whether therefore, a question of law did arise in instant case and High Court should have directed Tribunal to state a case upon it - Held, yes FACTS The assessee-company carried on business of running a theatre and restaurant. In October, 1943, a subsidiary company was formed. The paid-up capital of the subsidiary company was Rs. 7,90,100 divided into 7,901 shares of Rs. 100 each. The said shares were allotted to the assessee as consideration for assets, goodwill, stock-in-trade and book debts which were taken over by the subsidiary company. In the books of the subsidiary company, the goodwill and the share capital account was shown separately though goodwill was not shown separately in the account books assessee's. In working out the capital of the two companies for excess profits tax, a sum of Rs. 5,00,000 was claimed as goodwill as part of the capital of the subsidiary company. The Department disallowed the claim. Before the Tribunal, three affidavits and a valuation report by a firm of architects were filed. The goodwill, according to the report of the architects, amounted to Rs. 25 lakhs. Since the subsidiary…

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