Law: Income Tax Act, 1961

Section: 45

Income-tax----Capital gains---Goodwill---Goodwill generated in a newly commenced business---Not a capital asset---Amount received on transfer of goodwill---Not assessable as capital gains---Indian Income Tax Act, 1961, S.45. Goodwill generated in a newly commenced business cannot be described as an "asset" within the terms of section 45 of the Income Tax Act, 1961 or of section 12-B of the Indian Income Tax Act, 1922, and the transfer of goodwill initially generated in a business does not give rise to a capital gain for the purposes of the Income Tax Act. C.I.T. v. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) fol. C.I.T. v. Mohanbhai Pamabhai, (1973) 91 ITR 393 (Guj.) and Additional C.I.T. v. Mohanbhai Pamabhai (1987) 165 ITR 166 (SC) ref. JUDGMENT G.T. NANAVATI, J.---In this reference made under section 256(1) of the Income Tax Act, 1961, the Tribunal has referred the following questions for opinion of this Court:-- "(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the consideration received by the assessee for goodwill of Rs.1,00,000 is liable to capital gains tax? (2) If the answer to the above question is in the affirmative, then whether the Income-tax Appellate 'tribunal was right in law in holding that, on the facts and in the circumstances of the case, the assessee was not entitled to claim that the fair market value as on January 1, 1954, or as on October 21,1960, can be deducted from the consideration to arrive at the taxable capital gains? (3) If the answer to question No. 2 above is in the negative, then whether the fair market value to be substituted would be of as on January 1, 1954, or October 21,1960?" It is not in dispute…

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