Law:

Section:

Section 49 of the Income-tax Act, 1961 - Capital gains - Cost with reference to certain modes of acquisition - Assessment year 1972-73 - Assessee and his brother being equal partners in a firm, dissolved that firm under an agreement according to which, in addition to a shop with stocks, goodwill and name were allotted to assessee's brother and assessee was allotted another shop with certain stocks - By applying section 49(1)(iii)(b) ITO took value of goodwill at nil - According to him assessee got shop which in itself had an element of goodwill and for which there was a cost of acquisition - Since assessee sold goodwill for Rs. 61,000, surplus arising on sale of goodwill was taxable under section 45 - Whether ITO was justified - Held, no FACTS The assessee and his brother being equal partners in a firm, dissolved the same under an agreement according to which the assessee's brother was given one shop and the trade name while the assessee was given another shop. The ITO by applying the provisions of section 49(1)(iii)( b), took the value of the goodwill at nil. According to him, the assessee got the shop which in itself had an element of goodwill and for which there was a cost of acquisition. Since the assessee sold the goodwill of his business for Rs. 61,000, the revenue treated the surplus arising on sale of the goodwill as income under 'capital gains'. On second appeal, the Tribunal, however, held that the said sum was not exigible capital gains tax. On reference: HELD It was evident that on dissolution of the partnership firm with effect from 21-10-1965 the goodwill of the partnership firm was allotted to the assessee's brother and not to the assessee. It was the assessee's brother who was made accountable in respect of the goodwill. It was not correct to contend that the shop that remained with the assessee on dissolution of the partnership firm cost him something. In the absence of necessary material it was also not possible to accept the contention that the ITO had taken the value of the goodwill as nil not because it had cost nothing to the assessee being self-generated and that the same was taken at nil for the reason that the provisions of section…

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