Patna High Court
Commissioner Of Income-Tax vs Shanti Goswami And Ors. on 23 April, 1986
Equivalent citations: 1990(38)BLJR617, [1991]189ITR128(PATNA)
JUDGMENT Uday Sinha, J.
1. This is a reference under Section 256(1) of the Income-tax Act, 1961, in relation to the assessment year 1970-71. The assessee was assessed in the status of a Hindu undivided family in relation to his shop styled "New Chaibasa Cycle Stores, Sadar Bazar, Chaibasa". The concern was sold to one N.P. Ahuja by a sale deed dated April 30, 1969, for Rs. 1,00,000. This was made up, according to the statement of the case, of closing value of stock-in-trade at Rs. 23,867.84. The outstanding dues with others was to the tune of Rs. 2,257.48. Rs. 71,918.90 was taken as long-term capital gain. The sale deed did not mention sale of any goodwill. The assessee did not state before the Income-tax Officer about the sale of any goodwill nor did the Income-tax Officer make any reference about goodwill. Surprisingly somehow the Appellate Assistant Commissioner treated this amount as being on account, of goodwill of the shop "New Chaibasa Cycle Stores". Describing the said sum as representing goodwill, the whole matter received a twist. Before the Appellate Assistant Commissioner, a letter dated May 26, 1971, was filed. This letter showed that there was an offer of Rs. 73,000 on account of goodwill including the quota rights from certain manufacturers and suppliers of cycles and cycle parts. The vendee in its books showed purchase of goodwill in its balance-sheet. Relying upon a decision of the Calcutta High Court in CIT v. Chunilal Prabhudas and Co. [1970] 76 ITR 566, the Appellate Assistant Commissioner held that "the quantum of goodwill" was of the value of Rs. 71,920, but he deleted this item wholly on the footing that goodwill was not a capital asset for purpose of computation of capital gains. The Revenue, being aggrieved by the order of the Appellate Assistant Commissioner deleting the said sum, appealed to the Appellate Tribunal. The Tribunal, finding divergence of views propounded by the Madras, Delhi and Kerala High Courts on the one hand and the Gujarat High Court on the other, held that capital gains tax was not attracted to transfer of goodwill. The Tribunal observed that the capital value of goodwill is charged to wealth-tax under the Wealth-tax Act, 1957, which is an annual recurring tax. Being an annual recurring tax on the capital value of goodwill, it will be unfair to levy another tax calling it capital gains tax on the same value of the goodwill in the same assessment year merely because the goodwill had been transferred for a consideration. In that situation, the Department failed. Hence, the present reference under Section 256(1) of the Income-tax Act. The question referred to us for our opinion is as follows :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the consideration for goodwill amounting to Rs. 71,918 received from the vendee by the assessee was not capital gain assessable to tax?"
2. Learned counsel for the Revenue contended that, in the instant case, the sale deed itself did not contain any reference to sale of goodwill. It was rather surprising how matters got messed up and the question of goodwill cropped up. He submitted that the business of the shop was sold as a going concern, lock, stock and barrel. The consideration received on that account was, therefore, a revenue receipt. Whatever, therefore, was minus the stock-in-trade was liable to capital gains tax in terms of Section 45 of the Income-tax Act. Section 45 was introduced in 1964 by the Twelfth Finance Act with effect from April 1, 1964. Sub-sections (2) to (4) were deleted by the Thirteenth Finance Act with effect from April 1, 1966. On the basis of Section 45, learned senior standing counsel has urged that the sale was not item wise, but was lock, stock and barrel and since the sale included capital assets as well as non-capital assets, the balance after setting aside the value of stock-in-trade had to be assessed as capital gains. The submission urged on behalf of the Revenue seems to have substance. Section 45 provides for charging of income-tax on profits or gains arising from the transfer of a capital asset. Capital asset as mentioned in Section 2(14) of the Act means property of any kind held by the assessee whether or not connected with his business or profession. It is no more in doubt that goodwill is a capital asset. The large package involved in the sale of a going concern may include goodwill or it may not. That the inquiry whether goodwill is involved or not is irrelevant. In giving effect to Section 45, all that the taxing authorities have to do is to leave out the stock-in-trade, consumable stores or raw materials, personal effects, etc., and assess the balance sum as capital gains. If the sale is itemwise, things may be different, In that situation, after the value of goodwill has been mentioned, it would have to be considered how the capital gain is to be computed and assessed, but where it is the transfer of a going concern, the inquiry about the sale of goodwill or the nature thereof would, in my view, with great respect, be irrelevant. In the instant case, when the sale deed did not mention sale of goodwill, there was no question of trying to compute the value thereof. The fact that the vendee _ or the assessee or somebody else had offered Rs. 73,000 as value of goodwill was entirely irrelevant. The paper book does not show who had written this letter. I would, however, assume that it was written by the vendee himself. It is difficult to comprehend when it was written--whether after the order of assessment or before it. According to the Calcutta High Court, in the case of Chunilal Prabhudas and Co. [1970] 76 ITR 566, goodwill was held not to be a capital asset. I regret, I have some difficulty in accepting this position. It is now well established and fully recognised that goodwill is a capital asset and may be assessed as a capital gain.
3. The Tribunal also proceeded on the footing that tax on capital gains was not attracted to transfer of goodwill. This view of the Tribunal does not seem to be sound. Reference in this connection may be made to Artex Manufacturing Co. v. CIT [1981] 131 ITR 559 (Guj). That was a case where the assessee was a partnership firm trading in the name and style of Artex Manufacturing Co. It was a private limited company formed with a view to take over the business of the assessee as a running concern. On March 31, 1936, an agreement was made between the partnership firm and the limited company. In accordance with the agreement, the business carried on till that date by the assessee-firm was sold to the company as a going concern and the partners of the erstwhile firm became shareholders of the company. The partners were given shares in the same proportion in which the partners shared the profits or losses of the firm. The net purchase consideration was Rs. 11,50,400 and this amount was paid in the shape of 11,504 fully paid equity shares of Rs. 100 each and the shares were allotted in accordance with the shares of the partners in the assessee-firm. The assessee-firm filed its return showing "nil" income with a note that inasmuch as the firm was converted into a private limited company as a going concern, there was no income chargeable to tax either under Section 41(2) or under Section 45 of the Income-tax Act. The Income-tax Officer rejected the stand of the assessee holding that the surplus in respect of certain items was chargeable to tax under Section 41(2) of the Act. On appeal, the Appellate Assistant Commissioner held that the surplus was assessable under the head "Capital gains" and not under the head "Business". In the agreement between the vendor and the vendee, it was recited that the company had been formed with a nominal capital of Rs. 30,00,000 divided into 30,000 shares of Rs. 100 each and the company was formed with a view to acquire and take over as a going concern the assets and liabilities of the firm "Artex Manufacturing Co." and to carry on the business conducted by the firm. The agreement showed that the firm had several categories of assets. On those facts, a Bench of the Gujarat High Court held as follows (p. 569) :
"Thus, it is clear that if at all there is any surplus in the sense of excess of the consideration for the transfer of the business of the undertaking over the cost of acquisition of the business or undertaking within the meaning of Section 45 of the Income-tax Act, 1961, there would be capital gain and such capital gain would be taxable in the hands of the assessee, that is, in the hands of the firm which transferred its business to the limited company."
4. An authoritative voice on the subject may be discerned in the decision of the Supreme Court in CIT v. Mugneeram Bangur and Co. [1965] 57 ITR 299, where Sikri J., following the decision of the Privy Council in Doughty v. Commissioner of Taxes [1927] AC 327 laid down as follows (at p. 305) :
"It follows from the above that once it is accepted that there was slump transaction in this case, i.e., that the business was sold as a going concern, the only question that remains is whether any portion of the slump price is attributable to the stock-in-trade."
5. On the basis of the case of Mugneeram Bangur and Co. [1965] 57 ITR 299 (SC), there seems to be no escape from the position that where there is a slump transaction, i.e., sale of a going concern, anything apart from the value of the stock-in-trade must be taxed as a capital gain. I am bound by the decision of the Supreme Court and I am in respectful agreement with the views of the Gujarat High Court in Artex Manufacturing Co., [1981] 131 ITR 559. In my view, therefore, it is not a sound proposition that capital gains tax is not attracted to goodwill. There is no question of itemisation and separate evaluation when the vendor has not done it. The view that since the capital value of goodwill is charged to wealth-tax and, therefore, it could not form part of capita) asset in terms of Section 2(14) and not chargeable in terms of Section 45 does not seem to be sound. The reason given by the Tribunal, thus, for holding that the sum of Rs. 71,918 was not taxable was not sound. The view that capital gains tax was not attracted to transfer of goodwill also is not sound. Once it is accepted that goodwill is a capital asset--included in the slump transactions--it must fall within the mischief of Section 45 of the Act.
6. Learned counsel for the assessee submitted that the Appellate Assistant Commissioner had found that goodwill had also been transferred and, therefore, the case should be remanded for ascertaining its value. I am unable to appreciate how the bogey of goodwill has cropped up. Goodwill was not one of the items mentioned in the sale deed as having been sold. It is true that the Appellate Assistant Commissioner took it as goodwill and the departmental representative accepted it as such, but a concession on a question of law is not binding. Concession on such matter will not be a finding of fact. The Tribunal, on the other hand, did not apply itself to the question whether there was transfer of goodwill or not, but accepted it as such. The question of goodwill was irrelevant. The sale was of a going concern which indicated the value of lot of things which may have included goodwill as well. In that view of the matter, there was no question of evaluating goodwill. Anything besides the value of the stock-in-trade would be liable to be taxed as capital gains. The Tribunal, however, upheld the stand of the assessee on two counts. The first was that goodwill is not taxable as capital gain. This, as I have shown earlier, is not sound. In my view, therefore, the view of the Appellate Assistant Commissioner is not of much consequence.
7. The next question which may possibly arise is whether self-generated goodwill is liable to be taxed? There is no material on the record before us to show whether the goodwill was self-generated or acquired. The assessee had placed no material in this behalf. In fact, he did not co-operate in the assessment proceedings. The assessment was thus ex parte. If the assessee did not assert that there was sale of goodwill, I fail to appreciate how does the question of value of goodwill arise ? It is therefore, difficult to apply the law laid down by the Supreme Court in regard to self-generated goodwill in CIT v. R.C. Srinivasa Setty [1981] 128 ITR 294.
8. For the reasons stated above, I am of the view that the Tribunal was not justified in holding that the consideration for goodwill amounting to Rs. 71,918 received from the vendee by the assessee was not a capital gain assessable to capital gains tax. It was a package deal encompassing goodwill besides other capital assets. It was, therefore, liable to be taxed in terms of Section 45 of the Income-tax Act. The question referred to us thus must be answered in favour of the Revenue and against the assessee. There shall however, be no order as to costs.
Nazir Ahmad, J.
9. I have perused the judgment of my learned brother Uday Sinha J., and heard Mr. B. P. Rajgarhia for the Revenue ex parte as the assessee had not appeared to contest the case. I am, however, giving my own judgment disagreeing with the views of my learned brother.
10. The facts of the case may be briefly stated. The assessee-Hindu undivided family owned a business styled as "New Chaibasa Cycle Stores". This business was transferred by the assessee-Hindu undivided family including all dues from the said business and all dues from parties, security deposits, stock-in-trade, furniture, etc. The details of the transfer are available in the order of the Income-tax Appellate Tribunal, Pa'tna Bench 'B', Patna (hereinafter referred to as "the Tribunal"), at page 5 of the paper book which shows the following details :
Rs. P. Closing Stock :
23,867.34 Outstanding :
Behara Cycle Mart, Keonjhargarh, Invoice No. 17, dated 25-3-69 2,257.48 Deposit :
With Shri Krishna Rubber Works Limited, Calcutta 100.00 & 909.00 Claims :
Furniture 209.00 As per balance-sheet 71,918.90 Liability to pay sales tax up to March, 1969 737.39 Total 1,00,000.00
11. Thus, the amount, in dispute is Rs. 71,918.90, which has been taken in round figure as Rs. 71,920 by the Income-tax Officer. The Income-tax Officer took the view that the value of the assets as per the sale deed was Rs. 28,080 which he has taken as a round figure as the value of the assets actually comes to Rs. 28,080. The Income-tax Officer treated the amount of Rs. 71,920 as a capital gain and he calculated the taxable income on that basis. However, the Appellate Assistant Commissioner has clearly pointed out that the copy of the sale deed dated April 30, 1969, was filed before him along with a copy of a letter dated May 26, 1971, addressed to the Income-tax Officer, Ward-B, Jamshedpur, by the assessee-Hindu undivided family. From this letter, he found that there was an offer of Rs. 73,000 on account of goodwill including quota rights from certain manufacturers and suppliers of cycles and cycle parts. He has also clearly mentioned that, as per the balance-sheet for the year ending March 31, 1969, there was an item of goodwill in the books of the business and, on that basis, he held that the goodwill was transferred for Rs. 71,920. Mr. Rajgarhia has not produced the balance-sheet before us which would have clearly showed that the value of the goodwill is fixed at Rs. 71,920. In view of this specific statement, the Appellate Assistant Commissioner held that there was no dispute before him about the quantum of goodwill and the only dispute was that this goodwill of Rs. 71,920 was not taxable as a capital asset on which capital gain may be said to arise. The Appellate Assistant Commissioner has mentioned that the amount of Rs. 71,918.90 was shown in the balance-sheet as goodwill value separately.
12. The Department, aggrieved by the order of the Appellate Assistant Commissioner, raised the following grounds, as mentioned at page 6 of the paper book, before the Tribunal :
"1. On the facts and the circumstances of the case, the Appellate Assistant Commissioner was not jusitified in holding that goodwill was not a capital asset for the purpose of computation of capital gains and tax on it.
2. On the facts and the circumstances of the case, the Appellate Assistant Commissioner was not justified in excluding the amount of Rs. 71,920 from the total income being an item of capital gain from the total income of the assessee on the transfer of goodwill.
3. The learned departmental representative, in support of the departmental appeal, contended that the whole undertaking has been sold as a going concern including quota rights and, therefore, the case was covered by the judgment of their Lordships of the Supreme Court in the case of Killick Nixon and Co. v. CIT [1967] 66 ITR 714,"
13. The Tribunal took the view that the case was fully covered by the decision of the Karnataka High Court reported in CIT v. B.C. Srinivasa Chetty [1974] 96 ITR 667 and the Tribunal quoted the entire observations made in CIT v. B.C. Srinivasa Chetty [1974] 96 ITR 667 and, following the judgment in CIT v. B.C. Srinivasa Chetty [1974] 96 ITR 667, dismissed the departmental appeal. In the decision in 96 ITR 667, a view has been taken that capital gains tax is not attracted to transfer of goodwill and, for this purpose, various reasons have been given in CIT v. R.C. Srinivasa Chetty [1974] 96 ITR 667. Thus, it is evident that, before the Appellate Assistant Commissioner as well as before the Tribunal, it was admitted that goodwill was transferred by the assessee and that the value of the goodwill was Rs. 71,920.
14. Mr. B.P. Rajgarhia has submitted that this amount of Rs. 71,920 is not actually goodwill but is the excess over the value of the assets and so this amount of Rs. 71,920 is liable to capital gains tax and is not a sale of goodwill. It is difficult to accept this argument of Mr. R. P. Rajgarhia. The Appellate Assistant Commissioner has clearly mentioned that Rs. 73,000 was offered on account of goodwill including the quota rights from certain manufacturers and suppliers of cycles and cycle parts. As per the balance-sheet for the year ending March 31, 1969, there was an item of goodwill in the books of the assessee Hindu undivided family. The sale took place on April 30, 1969. Thus, it cannot be doubted that, before the sale took place, the goodwill was shown in the balance-sheet for the period ending March 31, 1969, to the extent of Rs. 71,920 and, even before the Tribunal, the whole argument was that the amount of Rs. 71,920 was goodwill and that it was liable to capital gains tax and that as the whole undertaking was sold as a going concern including quota rights, the case was covered by the decision reported in Killick Nixon and Co. v. CIT [1967] 66 ITR 714 (SC). Thus, before the Appellate Assistant Commissioner and the Tribunal, it was the admitted case of both the parties that it was goodwill which was transferred for a consideration of Rs. 71,920.
15. Now the question is whether, under such circumstances, Mr. B. P. Rajgarhia is entitled to argue that it was not goodwill and that Rs. 71,920 was not the value of goodwill which was sold but it was the difference between the sale price and the value of the assets and so it was taxable as capital gains.
16. It has been held in the case of CIT v. Imperial Chemical Industries (India) (P.) Ltd. [1969] 74 ITR 17, by their Lordships of the Supreme Court that the High Court was in error in embarking upon a reappraisal of the evidence before the Tribunal and setting aside the finding that there was no agreement between the respondent and the Imperial Chemical Industries (Export) Ltd., and, if there was one, it was not acted upon. It has also been held in this decision that the High Court is not a court of appeal in a reference under Section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as the "old Act"), and it is not open to the High Court in such a reference to embark upon a reappraisal of the evidence and to arrive at findings of fact contrary to those of the Tribunal. It has also been held by their Lordships of the Supreme Court that, while hearing the reference, the High Court ought to confine itself to the facts as found by the Tribunal and to answer the question of law in the context of those facts and that the finding of fact will be defective in law if there is no evidence to support it or if the finding is perverse, but it is not open to the assessee to challenge such a finding of fact unless he has applied for a reference of the specific question.
17. It has been held in the 'case of Karnani Properties Ltd. v. CIT [1971] 82 ITR 547, by their Lordships of the Supreme Court that, when the question referred to the High Court speaks of "on the facts and in the circumstances of the case", it means on the facts and circumstances found by the Tribunal and not facts and circumstances that may be found by the High Court on a reappraisal of the evidence and, in the absence of a question whether the findings were vitiated for any reason being before the High Court, the High Court has no jurisdiction to go behind or question the statements of fact made by the Tribunal.
18. It has also been held in the case of Agha Abdul Jabbar Khan v. CIT [ 1971 ] 82 ITR 872, by their Lordships of the Supreme Court that the High Court had no jurisdiction to raise new questions'of law: the questions raised by it did not flow from the question referred by the Tribunal and that, if the High Court thought that the question referred to it did not bring out the real point in issue, it was open to it to call for a fresh statement of case and direct the Tribunal to submit for its opinion the real question arising for decision and that the High Court was not entitled to deal with the reference as if it was dealing with an appeal before it. Their Lordships of the Supreme Court also held in this decision that the Supreme Court is subject to the same limitations, while hearing appeals against orders of the High Courts in references under Section 66(1) of the old Act as the High Courts are and that the jurisdiction of the Supreme Court is no more extensive than that of the High Court.
19. In the case of Rameshwar Prasad Hagla v. CIT [1973] 87 ITR 421 (SC), the Tribunal held that the shares were purchased with a view to obtaining the managing agency and not as stock-in-trade. On a reference, inter alia, of the question whether there was material before the Tribunal for that finding, the High Court proceeded to deal with the matter as if it had itself to arrive at an independent finding and held that there was no material for the finding that the shares were purchased with a view to acquiring the managing agency and that the shares constituted the stock-in-trade of the appellant. In those circumstances, their Lordships of the Supreme Court held that the approach of the High Court was wholly erroneous and not warranted by law and that it was for the Tribunal to decide the questions of fact and the High Court, in a reference under section 66 of the old Act, could not go behind the Tribunal's findings of fact and that the High Court could only lay down the law applicable to the facts found by the Tribunal and that the High Court and the Supreme Court, in an appeal against the judgment of the High Court given in a reference under Section 66 of the old Act, were not constituted courts of appeal against the order of the Tribunal and that these courts only exercised advisory jurisdiction in such references.
20. It has been held in the case of Anil Kumar Roy Chowdhury v. CIT [1976] 102 ITR 12 (SC) that, in a reference under Section 66 of the old Act, the High Court exercises advisory jurisdiction and does not function as a court of appeal and that the High Court must accept the findings of fact made by the Tribunal and the correctness of those findings of fact cannot be questioned except by applying Section 66 of the old Act expressly raising the question about the validity of the findings and that the High Court has no jurisdiction in a reference to go behind the order of the Tribunal to investigate what case the assessee had initially made when the agreed statement of the case sets out the assessee's claim as finally made and considered.
21. From the aforesaid decisions, it is evident that Mr. B.P. Rajgarhia cannot now be heard to say that the amount of Rs. 71,920 was not the value of goodwill when the Appellate Assistant Commissioner has clearly pointed out that, in the balance-sheet for the year ending March 31, 1969, the assessee has shown the value of the goodwill in the books of the business and the Appellate Assistant Commissioner had specifically mentioned that there was no dispute about the quantum of goodwill but the only point before him was regarding assessability of this amount of Rs. 71,920 as a capital asset on which capital gains tax can be levied, Before the Tribunal also, it was argued that the Appellate Assistant Commissioner was not justified in holding that goodwill was not a capital asset for the purpose of computation of capital gains tax and that the Appellate Assistant Commissioner was not justified in excluding the amount of Rs. 71,920 on transfer of goodwill and the only thing that was also argued was that as the whole undertaking had been sold as a going concern, the case was covered by the judgment in Killick Nixon and Co. v. CIT [1967] 66 ITR 714 (SC). No other argument was advanced. Thus, it is evident that it was the admitted case of both parties before the Appellate Assistant Commissioner and the Tribunal that Rs. 71,920 was the value of the goodwill which was sold by the assessee-Hindu undivided family and that the assessee-Hindu undivided family had shown it in the balance-sheet for the year ending March 31, 1969, and, thereafter, transfer took place on April 30, 1969. When the Tribunal shows that the amount of Rs. 71,918.90 was the amount as per the balance-sheet, it corroborates the statement of the assessee that the value of the goodwill was shown in the books of the business as per the balance-sheet for the year ending March 31, 1969. Thus, it has to be held that the amount of Rs. 71,920 was the value of the goodwill which was transferred by the assessee-Hindu undivided family. In view of the decisions of the Supreme Court mentioned above, this court cannot give a finding that the amount of Rs. 71,920 was not the value of the goodwill which was transferred by the assessee-Hindu undivided family.
22. Another point which has to be considered is that the Tribunal has referred the question as mentioned above and it is only to the effect that, whether the Tribunal was justified in holding that the consideration for goodwill amounting to Rs. 71,918 received from the vendee by the assessee was not a capital gain assessable to capital gains tax ? Thus, the Tribunal clearly referred the question whether the value of Rs. 71,920 which was consideration for the goodwill was assessable to capital gains tax. No other question was referred by the Tribunal. Mr. B.P. Rajgarhia has submitted that this question covers the question whether the value of the goodwill can be considered when the business is transferred as a whole. I am of the opinion that this question does not cover the larger question as suggested by Mr. B.P. Rajgarhia.
23. In the case of CIT v. Krishna and Sons [1968] 70 ITR 733 (SC), the Commissioner applied for a reference of certain questions including the question whether the route value did not constitute an asset for the purpose of computation of capital gains. The Tribunal did not refer that question but referred the question whether the excess of Rs. 17,000 over the deemed profits of Rs. 6,000 taxable under Section 10(2)(vii) of the old Act should be wholly treated as a capital gain. The Commissioner did not apply to the High Court for calling for a statement of the case on the question whether the "route value" constituted an asset for the purpose of capital gains. The High Court accepted the finding of the Tribunal that the right to ply a stage carriage under a permit was not property and held that the excess over the original value of the omnibus could be regarded as a capital gain. On appeal to the Supreme Court by special leave, it was contended that the right to ply an omnibus under the permit was a capital asset within the meaning of Section 2(4A) of the old Act and that the profit realised by the sale thereof was chargeable under Section 12B of the old Act. In those circumstances, their Lordships of the Supreme Court held that the question referred by the Tribunal did not comprehend an enquiry into the contention raised before the Supreme Court and that the High Court had accepted the finding of the Tribunal and the Supreme Court could not record an opinion on a question which was not referred by the Tribunal and that, on the findings of the Tribunal that the omnibus was sold at Rs. 6,000 and that the right to ply the omnibus under the permit was not an asset, no question of charging to tax any capital gain earned by sale of the omnibus fell to be determined. Their Lordships of the Supreme Court further held that the jurisdiction of the Supreme Court arising in appeal over the judgment of the High Court on a reference under the Income-tax Act is also advisory, the Supreme Court can only record its opinion on questions which are referred; not on questions which could have been, but have not been, referred.
24. It has been held in the case of CIT v. Hind Motor Cycle Works [1982] 134 ITR 348, by the Allahabad High Court that the High Court can answer only the question that has been referred to it and not the question which, according to the Tribunal's view, forms a part of the question that is before the High Court and that, where the question referred to the High Court was whether the amount payable under a decree of court was a business liability, it cannot include the litigation expenses incurred in the legal proceedings.
25. Thus, it is evident that the question referred by the Tribunal has to be answered and not a new question which can be raised by Mr. B.P. Rajgarhia at this stage. The only question referred is whether consideration for the goodwill amounting to Rs. 71,918 received from the vendee by the assessee was a capital asset assessable to capital gains tax. The question cannot be raised now whether the value of the goodwill can be taken if the sale is of a going concern. This will be absolutely a hew question which had never been raised by the Tribunal. It cannot even be said to be another aspect of the same question.
26. Mr. B.P. Rajgarhia has also relied on the case of Jamunadas Mannalal v. CIT [1985] 152 ITR 261, which is a Full Bench decision of the Patna High Court. In this case, the Full Bench held that, where the question referred to the court was whether penalty under Section 271(1)(a) could be imposed even after charging interest under Section 139 for delayed submission of returns, this was only one aspect of the question whether, on the facts and in the circumstances of the case, penalty under Section 271(1) was leviable or not, and the question referred could be reframed as a broader one so as to cover the aspect that, in the absence of a terminus being provided for failure to file the return in accordance with Section 139(1), imposition of penalty was neither practicable nor possible, even though this aspect was not raised before the Tribunal. This decision will not be applicable in the facts of the case. The Tribunal has referred a limited question whether consideration for goodwill is a capital asset assessable to capital gains tax. This question cannot be converted into a question whether Rs. 71,920 is not goodwill but is the difference between the value of the assets and the sale consideration. Under such circumstances, the Full Bench decision will not be applicable in the present case and the question cannot be said to embrace the question whether the value of the goodwill can be considered if the sale is of a going concern. This question was never referred by the Tribunal and so this court has only to answer the question which has been referred as has been held by their Lordships of the Supreme Court as mentioned above.
27. Before I take up the other matters to be discussed hereinafter, it is necessary to refer to the various provisions of the Act, so far as they are relevant in the present case. Section 45 of the Act lays down that any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head "Capital gains" and shall be deemed to be the income of the previous year in which the transfer took place.
28. Section 46(1) of the Act lays down that notwithstanding anything contained in Section 45, where the assets of a company are distributed to its shareholders on its liquidation, such distribution shall not be regarded as a transfer by the company for the purposes of Section 45. Section 46(2) of the Act lays down that, where a shareholder on the liquidation of a company receives any money or other assets from the company, he shall be chargeable to income-tax under the head "Capital gains", in respect of the money so received or the market value of the other assets on the date of distribution, as reduced by the amount assessed as dividend within the meaning of Sub-clause (c) of Clause (22) of Section 2 and the sum so arrived at shall be deemed to be the full value of the consideration for the purpose of Section 48.
29. Section 48 of the Act lays down that the income chargeable under the head "Capital gains" shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely : --
"(i) Expenditure incurred wholly and exclusively in connection with such transfer ;
(ii) The cost of acquisition of the capital asset and the cost of any improvement thereto."
30. Section 55(2)(i) of the Act lays down that, for the purpose of Section 48, "cost of acquisition", in relation to a capital asset, where the capital asset became the property of the assessee before the 1st day of January, 1954, means the cost of acquisition of the asset to the assessee or the fair market value of the asset as on the 1st day of January, 1954, at the option of the assessee. Section 55(3) of the Act lays down that where the cost for which the previous owner acquired the property cannot be ascertained, the cost of acquisition to the previous owner means the fair market value on the date on which the capital asset became the property of the previous owner.
31. Thus, it cannot be doubted that, for ascertaining the capital gains on sale of capital asset, the cost of acquisition of the capital asset or fair market value of the capital asset on the date on which the capital asset became the property of the owner is to be determined and unless the cost of acquisition or fair market value of the asset is determined, it is not possible to find out the capital gains.
32. A reference was made to the case of CIT v. Vijoy Kumar Budhia [1975] 100 ITR 380, which is a decision of the Patna High Court. This case relates to Section 46(2) of the Act and in that connection, it was held that where a shareholder received certain property on the liquidation of a company and the Income-tax Officer found that the value of the property as assessed by the liquidator was highly inadequate and determined the fair market value of the property on the date of distribution and deducted from it the value of the property as on January 1, 1954, and assessed the balance of Rs. 48,335 to capital gains tax, the amount was rightly included in the capital gains of the assessee under Section 46 read with Sections 48 and 49 of the Act. Thus, this decision is a decision under the specific provision of Section 46(2) of the Act where the shareholder of a company is liable to capital gains tax, and this decision is not helpful for our purpose, except for the purpose that when a capital asset is sold, then the cost of acquisition or fair market value has to be determined and that the difference between this amount and the sale price will be the capital gain.
33. In the present case before us, the assessee-Hindu undivided family showed the value of the goodwill at Rs. 71,920 in the balance-sheet as on March 31, 1969, when the sale took place on April 30, 1969. The Income-tax Officer had a right to determine the actual value of the goodwill of the business of the assessee-Hindu undivided family before the date of the sale, It could be determined only when it is found that the goodwill is not self-generated.
34. It cannot be disputed that goodwill is a capital asset. However, it has been held in the case of CIT v. R.C. Srinivasa Setty [1981] 128 ITR 294 (SC) that goodwill generated in a newly commenced business cannot be described as an "asset" within the meaning of Section 45 of the Act or of Section 12B of the old Act and that the transfer of the goodwill initially generated in a business does not give rise to a capital gain for the purpose of income-tax. It has also been held by their Lordships of the Supreme Court that the charging section and the computation provisions together constitute an integrated code and when there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. Their Lordships of the Supreme Court have also further held that all transactions encompassed by Section 45 must fall under the governance of its computation provisions and a transaction to which those provisions cannot be applie'd must be regarded as never intended by Section 45 to be a subject of the charge. Their Lordships have also laid down that what is contemplated by Section 48 (ii) of the Act is an asset in the acquisition of which it is possible to envisage a cost: it must be an asset which possesses the inherent quality of being available on the expenditure of money to a person seeking to acquire it. It has also been held in this decision that none of the provisions pertaining to the head "Capital gains" suggests that they include an asset in the acquisition of which no cost at all can be conceived and that when goodwill generated in a new business is sold and the consideration brought to tax, what is charged is the capital value of the asset and not any profit or gain and that the date of acquisition of the asset is a material factor in applying the computation provisions pertaining to capital gain ; but, in the case of goodwill generated in a new business, it is not possible to determine the date when it comes into existence. Their Lordships of the Supreme Court, at page 301 of this decision, have referred to the various decisions, namely, CIT v. K. Rathnam Nadar [1969] 71 ITR 433 (Mad), CIT v. Chunilal Prabhudas and Co. [1970] 76 ITR 566 (Cal) (on which the Appellate Assistant Commissioner relied), Jagdev Singh Mumick v. CIT [1971] 81 ITR 500 (Delhi), CIT v. E.C. Jacob [1973] 89 ITR 88 (Ker) [FB], CIT v. Home Industries and Co. [1977] 107 ITR 609 (Bom), CIT v. Michel Pastel [1978] 112 ITR 315 (Bom) and CIT v. Jas-wantlal Dayabhai [1978] 114 ITR 798 (MP), where the view has been taken that the receipt on the transfer of goodwill generated in a business is not subject to income-tax as a capital gain. Their Lordships of the Supreme Court have also referred to the decisions reported in CIT v. Mohanbhai Pamabhai [1973] 91 ITR 393 (Guj), K.N. Daftary v. CIT [1977] 106 ITR 998 (Cal) where it has been held that even if no cost is incurred in building up the goodwill of a business, it is nevertheless a capital asset for the purpose of capital gains, and the cost of acquisition being nil, the entire amount of the sale proceeds relating to the goodwill must be brought to tax under the head "Capital gains". Their Lordships of the Supreme Court followed the majority view and held that the goodwill generated in a newly commenced business cannot be described as an "asset" within the terms of Section 45 of the Act and the transfer of goodwill initially generated in a business does not give rise to a capital gain for the purposes of income-tax.
35. Thus, it is evident that, although goodwill under the general law is a capital asset, it is not a capital asset if it is self-generated and is not liable to capital gains tax and so if goodwill is self-generated, it is not an asset under Section 45 of the Act and no capital gains tax is leviable.
36. In the present case, there is no evidence to show that the assessee-Hindu undivided family had purchased the goodwill. It appears that the goodwill was self-generated in the business of the Hindu undivided family and in so far as it was transferred, it was not liable to capital gains tax. This is why the Appellate Assistant Commissioner has relied on the decision reported in CIT v. Chunilal Prabhudas and Co. [1970] 76 ITR 566 (Cal) which has also been referred to at page 301 as mentioned in the decision of the Supreme Court. The decision in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 (SC) related to the decision reported in CIT v. B.C. Srinivasa Setty [ 1974] 96 ITR 667 (Kar) which was affirmed by their Lordships of the Supreme Court. The Tribunal probably has quoted some portions of this decision but their Lordships of the Supreme Court have clearly pointed out that it was goodwill generated in a newly commenced business. Thus, the Appellate Assistant Commissioner and the Tribunal both held that goodwill was self-generated and so it was not liable to capital gains tax under Section 45 of the Act. Of course, the Appellate Assistant Commissioner relied on the decision in CIT v. Chunilal Prabhudas and Co. [1970] 76 ITR 566 for the proposition that the goodwill was not taxable and the Tribunal relied on the decision in CIT v. B.C. Srinivasa Setty [1974] 96 ITR 667 (Kar) for the proposition that goodwill was not taxable. Both these decisions clearly mention that the goodwill was self-generated and so it was not a capital asset within the meaning of Section 45 of the Act and so it was not liable to capital gains tax. The Supreme Court in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 has expressed the same view.
37. Thus, it has to be held that the Appellate Assistant Commissioner and the Tribunal both held that the goodwill was self-generated by the assessee-Hindu undivided family and so the sale of the goodwill was not liable to capital gains tax. Under such circumstances, this court cannot hold that the Tribunal has not given a finding that the goodwill is not a self-generated one. The Tribunal relied on the decision in CIT v. B.C. Srinivasa Setty [1974] 96 ITR 667 (Kar) and this very decision was the basis for the Supreme Court decision in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294, where the decision of the Karnataka High Court was affirmed, Hence, it has to be held that the Tribunal has given a finding that the goodwill was self-generated and so it was not liable to capital gains tax.
38. In view of my findings above, it is not necessary to refer to other decisions. The Department relied before the Tribunal on the case of Killick Nixon and Co. v. CIT [1967] 66 ITR 714 (SC). In this case, by an agreement dated January 20, 1948, the assessee agreed to sell to "Killick Nixon and Co. Ltd." the goodwill of the business of the assessee, freehold and leasehold hereditaments, plant and machinery, stock-in-trade and book debts, Government securities and shares and full benefit of all shipping and general agencies, distributorships, etc., in consideration of 9,996 shares in the vendee-company of the face value of Rs. 100 each and Rs. 400 in cash. The assessee was dissolved and its business was discontinued with effect from February 1, 1948. In proceedings for assessment to tax payable by the assessee for the year 1949-50 (relevant previous year being the year ending June 30, 1948), the Income-tax Officer assessed the capital gains made by the assessee, on the transfer of its capital assets to the two companies, at Rs. 32,01,747. In appeal, the Appellate Assistant Commissioner modified the order. He was of the view that the assessee had made capital gains amounting to Rs. 25,40,737 by sale of shares to the two companies and other assets transferred to Killick Nixon and Co. Ltd. and had suffered a capital loss of Rs. 4,00,530 being the difference between the market value of the managing agencies, 240 shares of Cement Agencies Ltd. and the goodwill on January 1, 1939, estimated at Rs. 51,40,802 and the market value of those assets on February 1, 1948, estimated at Rs. 47,40,272. Debiting the loss against the capital gains made by the sale of shares, the Appellate Assistant Commissioner brought to tax an amount of Rs. 21,06,455. The Appellate Assistant Commissioner rejected the claim of the assessee to the benefit of Section 25(3) and (4) of the old Act. The Tribunal confirmed the order passed by the Appellate Assistant Commissioner. The High Court, in dealing with the questions referred, observed that, under the third proviso to Section 12B(2) of the old Act, the assessee was entitled to substitute the market value of the assets as on January 1, 1939, if the capital assets had been held by the assessee before January 1, 1939, in place of the cost of the assets for the purpose of determining the capital gain, and that it was common ground that the full value of the consideration for which the assets were transferred was Rs. 1,16,75,108. Their Lordships of the Supreme Court referred to the provisions of Section 12B of the old Act and laid down that computation of the capital gains under Section 12B of the old Act is to be made by deducting from the market value of the consideration for the sale, exchange or transfer, expenditure incurred in connection with such sale, exchange or transfer and the actual cost to the assessee of the capital asset or at his option, where the capital asset became the property of the assessee before January 1, 1939, the fair market value of the asset on January 1, 1939. It has also been held in this decision that, by virtue of the first proviso to Section 12B(2) of the old Act, the Income-tax Officer is, in the conditions set out therein, entitled to determine the fair market value of the asset at the date of the sale, exchange or transfer and, under the third proviso, the assessee, when he has exercised the option to adopt the value as on January 1, 1939, is, for computation of the actual cost to him of an asset transferred, required to prove the fair market value of the asset as on January 1, 1939, when the asset transferred belonged to him before that date. Their Lordships of the Supreme Court held that there was no dispute about the market value at the date of the transfer of the assets conveyed and that the first proviso, therefore, did not come into play and that the dispute related to the value to the assessee on January 1, 1939, of three assets, viz., the managing agencies, 240 shares of the Cement Agencies Ltd. and the goodwill, and that the capital gain or loss had to be determined by deducting from the market value of the asset on February 1, 1948, the fair market value of those assets as on January 1, 1939, proved by the assessee to the satisfaction of the Income-tax Officer. Their Lordships of the Supreme Court held that under the scheme of the Act, the Tribunal is the final authority on questions of fact and the Tribunal in deciding an appeal is bound to consider all the evidence and the arguments raised by the parties and that the Tribunal apparently did not consider the evidence ; it merely recorded a bare conclusion without setting out any reasons in support thereof. The case was remanded to the Tribunal with the observation that it will be the duty of the Tribunal in disposing of the appeal under Section 66(5) of the old Act to hear the parties and to determine on a consideration of the evidence the value of the three assets on January I, 1939, in the light of the third proviso to Section 12B of the old Act. Thus, it is evident that, in this case also, the whole running business was sold but, even then, it was held that the value of the goodwill had to be determined.
39. Mr. B.P. Rajgarhia has also relied on the case of M.R. Goyal v. CIT [1969] 73 ITR 698 (SC). In this case, the assessee was a businessman dealing in articles including parachute silk. He entered into a contract for purchase of parachutes. Finding himself unable to deposit the earnest money, he entered into an agreement with a firm. Under that agreement, the firm agreed to deposit the earnest money and receive a share of net profit and later the assessee entered into another arrangement with that firm to withdraw from the earlier arrangement and transferred his rights under the contract of purchase for an agreed amount. The assessee was paid a part of that amount during the assessment year and the assessee contended that it was a capital receipt not liable to be assessed. In those circumstances, it was held by their Lordships of the Supreme Court that the assessee had received profit in respect of a venture in the nature of trade and not a capital receipt and that the assessee was a businessman dealing in articles including parachute silk and that the contract which he entered into was a contract for the purchase of stock-in-trade for the business which he was carrying on. Their Lordships of the Supreme Court also held that it was true that, under the earlier arrangement, the firm was given a share in the profit and a partnership agreement was entered into, but that was merely an arrangement for financing a business venture into which the assessee had entered, and that that did not mean that the amount in question had been received by the assessee for relinquishing his right to participation in the profits of the partnership from which the assessee withdrew, It was also held in this decision that it was the assessee who had entered into the contract in respect of the purchase of parachutes and when he agreed to accept a sum from the firm as consideration for transferring the benefits of the contract, the assessee can well be said to have concluded a deal which represented the profit which he anticipated by acquiring the parachutes and so it was held that the amount received by the assessee was not a capital receipt. It cannot be doubted that, in this case, it was held that the contract was for purchase of stock-in-trade for the business which the assessee was carrying on. It cannot be doubted that if the stock-in-trade is sold in carrying on the business, then it will be a business profit. Thus, this decision will not be helpful to the Revenue.
40. Mr. B.P. Rajgarhia for the Revenue has also relied on the case of CIT v. Ramakrishnan [1969] 73 ITR 356, which is a decision of the Full Bench of the Kerala High Court. In this case, the assessee had taken large advances for the purpose of his business from M, a partner in a firm, with which he had entered into an agreement. Due to heavy losses, the assessee was unable to repay the amounts and hence he transferred his business together with the factory premises and all plant, machinery, etc., to the firm. The consideration effectively discharged the amounts due by the assessee to M, the firm and another. The difference between the written down value of the assets sold and the sale consideration included capital gains and, after making certain adjustments, the officer fixed the amount of capital gains at Rs. 53,317 and taxed the same as income. The Appellate Assistant Commissioner dismissed the appeal but the Tribunal held that no capital gains arose to the assessee. In those circumstances, it was held by the Full Bench of the Kerala High Court that the transfer of the business by the assessee to the firm fell within the ambit of Section 12B of the old Act and though it was open to the assessee to establish that the real consideration was less than what was shown in the document, in the instant case, no such materials were placed and hence the order of the officer was justified. Thus, it is evident that, in this case also, although the factory was sold as a going concern, the written down value of the assets sold was treated as the cost of acquisition and so the capital gains were calculated on the difference between the sale price and the written down value of the assets. This decision will not be helpful to the Revenue as the computation was made under Section 45 read with Section 48 of the Act according to which the cost of acquisition of capital assets was to be determined.
41. Mr. B.P. Rajgarhia also relied on the case of CIT v. Mugneeram Bangur and Co. [1965] 57 ITR 299 (SC). In this case, a firm which carried on the business of buying land, developing it and then selling it, pursuant to an agreement, sold the business as a going concern with its goodwill and all stock-in-trade, etc., to a company promoted by the partners of the firm, the company undertaking to discharge all debts and liabilities, development expenses, and liability in respect of deposits made by intending purchasers. A consideration of Rs. 34,99,300 was paid by the allotment of shares of the face value of Rs. 34,99,300 to the partners or their nominees. The schedule to the agreement indicated the details of the sum of Rs. 34,99,300 which included the cost of land at Rs. 12,68,628-7-7 and the cost of goodwill at Rs. 2,50,000.
42. The Tribunal held that the firm had no goodwill and that the sum of Rs. 2,50,000, although shown as the value of the goodwill, was really the excess value of the land, which was its stock in-trade, and that although the sale was that of a business as a going concern, the value of its stock-in-trade could be traced; that the transaction was the mere adjustment of the business position of the partners and the Department was not entitled to take the book-keeping entries as evidence of any profits. In those circumstances, their Lordships of the Supreme Court held that the sale was the sale of a whole concern and no part of the price was attributable to the cost of the land and no part of the price was taxable and that the fact that, in the schedule to the agreement, the price of the land was stated did not lead to the conclusion that part of the slump price was necessarily attributable to the land sold and that what was given in the schedule was the cost price of the land as it stood in the books of the vendor and even if the sum of Rs. 2,50,000 attributed to goodwill could be added to the cost of the land, there was nothing to show that this represented the market value of the land. In this decision, it has been held at page 305 that once it is accepted that there was a slump transaction in this case, i.e., that the business was sold as a going concern, the only question that remained was whether any portion of the slump price was attributable to the stock-in-trade. Their Lordships of the Supreme Court held that the sale was the sale of the whole concern and no part of the slump price is attributable to the cost of land and so no part of the slump price is taxable,
43. The aforesaid decision has been considered in the case of Artex Manufacturing Co. v. CIT [1981] 131 ITR 559 (Guj) and it has been clearly observed at page 567 of this decision that, at the time relevant for the decision of the Supreme Court in Mugneeram Bangur's case [1965] 57 ITR 299, the provisions as to capital gains were not part of the income-tax law in India and the agreement of sale was dated July 7, 1948, and, thereafter, the transaction of transfer by the partnership firm to the limited company had taken place and the provisions as to capital gains were introduced in the old Act only in 1956 and hence the only question before the Supreme Court in Mugneeram Bangur's case [1965] 57 ITR 299 was whether, under the provisions relating to balancing charge under Section 10(2)(vii), proviso (ii) of the old Act, similar to Section 41(2) of the Act, the amount could be brought to tax and the Supreme Court was not concerned with the question of capital gains on the properties and that the same was the position in Doughty's case [1927] AC 327 (PC) and the same was the position before the Supreme Court in CIT v. West Coast Chemicals and Industries Ltd. [1962] 46 ITR 135. Under such circumstances the principle laid down in the case reported in Mugneeram Ran-gur [ 1965] 57 ITR 299 (SC) will not be helpful to the Revenue.
44. As regards the decision reported in Artex Manufacturing Co. v. CIT [1981] 131 ITR 559 (Guj) it has been held that, on the conversion of a firm as a going concern into a company, if at all there is any surplus in the sense of excess of the consideration for the transfer of the business of the undertaking within the meaning of Section 45 of the Act, there would be capital gain and such capital gain would be taxable in the hands of the assessee, that is, in the hands of the firm which transferred its business to the limited company and there cannot be any question of any balancing charge arising under Section 41(2) of the Act and that the balancing charge arises only when any building, plant, machinery or furniture is sold or transferred. In this case, the assessee was a firm and a private company was formed with a view to take over the business of the assessee as a running concern. An agreement was entered into between the firm and the company on March 31, 1966, In accordance with this agreement, the business carried on till that date by the assessee-firm was sold to the company as a going concern and the partners of the erstwhile firm became shareholders of the company. The partners were given shares in the same proportion in which the partners shared the profits or losses of the firm. The net purchase consideration was fixed at Rs. 11,50,400 and this amount was paid in the shape of 11,504 fully paid equity shares of Rs. 100 each and the shares were allotted in accordance with the shares of the partners in the assessee-firm. The Income-tax Officer held that the surplus in respect of certain items was chargeable under Section 41(2). On appeal, the Appellate Assistant Commissioner held that the surplus was assessable as capital gains. On further appeal, the Tribunal held that the surplus was assessable under Section 41(2) and the status of the assessee was that of a registered firm, and that the principle of mutuality was not attracted. In those circumstances, the Gujarat High Court held that what was transferred and sold was the whole business of the undertaking together with its assets and liabilities for a slump price and it was not sold by any itemised value or item-by-item price fixed for the different assets of the firm and that the entire business of the undertaking together with its assets and liabilities was sold for a slump price and so it was held that the surplus was not assessable under Section 41(2). A quotation has been given at page 568 of this decision from a Division Bench decision which is as follows;
"It is well settled that business is property and the undertaking of a business is a capital asset of the owner of the undertaking. When an undertaking as a whole is transferred as a going concern together with its goodwill and all other assets, what is sold is not the individual itemised property but what is sold is the capital asset consisting of the business of the undertaking and any tax that can be attracted to such transaction for the slump price at book value would be merely capital gains tax and nothing else but capital gains tax. Plant or machinery or any fixture or furniture is not being sold as such. What is sold is the business of the undertaking for a slump price. If the capital asset, namely, the business of the undertaking, has a greater value than its original cost of acquisition, then capital gains may be attracted in the ordinary case of a sale of an undertaking It has also been held in this decision at page 569 that, "if at all there is any surplus in the sense of excess of the consideration for the transfer of the business of the undertaking over the cost of acquisition of the business or undertaking within the meaning of Section 45 of the Act, there would be capital gain and such capital gain would be taxable in the hands of the assessee, that is, in the hands of the firm which transferred its business to the limited company."
45. From the aforesaid decisions, it is evident that the original cost of acquisition has to be found out and then only the capital gains can be determined. I have already pointed out above that, in this case, the sale was itemwise.
46. In the present case, the sale was itemwise. The value of the closing stock-in-trade, the value of the amount outstanding relating to invoice No. 17, dated March 25, 1969, was shown. The value of the deposits and the value of the furniture were shown and even the amount of goodwill as per the balance-sheet was shown. Thus, it was a sale item by item and the price was fixed for different assets of the claim. Under such circumstances, the decision reported in Artex Manufacturing Co.'s case [1981] 131 ITR 559 is not helpful to the Revenue.
47. I have already discussed above that the Tribunal has referred only the question whether the consideration for goodwill amounting to Rs. 71,018 received from the vendee by the assessee was a capital gain or not assess-able to capital gains tax. The Tribunal has not referred any other question and the only question will be whether the value of goodwill is assessable to capital gains tax. I have already pointed out above that the Tribunal and the Appellate Assistant Commissioner relied on the decision where it was held that the value of self-generated goodwill was not taxable. Even if the Tribunal has not specifically stated that the goodwill was self-generated goodwill but the decision relied upon by it clearly goes to show that the self-generated goodwill cannot be taxable under the head "capital gains".
48. In view of my discussions above, I hold that the Tribunal was justified in law in holding that the consideration for goodwill amounting to Rs. 71,918 received from the vendee by the assessee was not a capital asset and as such is not assessable to capital gains tax. The question is answered accordingly in favour of the assessee and against the Revenue. In the circumstances of the case, however, there will be no order as to costs.
G.G. Sohani, C.J.
49. This case has come up before me for consideration as there has been a difference of opinion between Uday Sinha J. and Nazir Ahmad J., who heard the reference made by the Income-tax Appellate Tribunal, Patna Bench "B", under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as the "Act") referring the following question of law to this court for its opinion :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the consideration for goodwill amounting to Rs. 71,918 received from the vendee by the assessee was not a capital asset and as such is not assessable to capital gains?"
50. The material facts giving rise to this reference briefly are as follows : The assessee, a Hindu undivided family, sold during the assessment year 1970-71, its business carried on under the name and style of "New Chaibasa Cycle Stores" to Shri Narendra Prasad Ahuja for a consideration of Rs. 1,00,000. The sale deed disclosed that the goodwill of the concern was transferred for a sum of Rs. 71,918. While framing the assessment, the Income-tax Officer treated the sum of Rs. 71,918 as a long-term capital gain and levied tax on it accordingly. Aggrieved by the order passed by the Income-tax Officer, the assessee preferred an appeal before the Appellate Assistant Commissioner who held that goodwill not being a capital asset was not liable to be taxed as capital gains. In this view of the matter, the Appellate Assistant Commissioner allowed the appeal. Aggrieved by the order passed by the Appellate Assistant Commissioner, the Revenue preferred an appeal before the Tribunal. The Tribunal held that the value of the consideration received by the assessee for transfer of goodwill was not liable to capital gains tax under Section 45 of the Act. The Tribunal, therefore, upheld the order passed by the Appellate Assistant Commissioner. Aggrieved by the order passed by the Tribunal, the Revenue sought a reference and it is at the instance of the Revenue that the aforesaid question of law has been referred to this court for its opinion.
51. When the matter came up for consideration before a Division Bench of this court consisting of Uday Sinha and Nazir Ahmad JJ., Uday Sinha J. held that the Tribunal was not justified in holding that consideration for goodwill amounting to Rs. 71,918 received by the assessee from the vendee was not capital gains assessable to tax. Nazir Ahmad J. was, however, of the opinion that the Tribunal was right in holding that the consideration for goodwill amounting to Rs. 71,918 was not capital gains assessable to tax. In view of this difference of opinion, the matter has come up before me for consideration.
52. Learned counsel for the Revenue contended that the question of transfer of any goodwill did not arise in the instant case as the sum of Rs. 71,918 represented the balance after deducting from the consideration received by the assessee, the value of the stock-in-trade. This contention was upheld by Uday Sinha J., but Nazir Ahmad J., held that, in view of the finding of the Tribunal that the amount of Rs. 71,918 was the value of the goodwill and in view of the fact that the question as to the correctness of the facts found by the Tribunal was not before this court, it was not permissible for this court to go into the question as to whether there was or was not any consideration for goodwill and whether that consideration amounted to Rs. 71,918. Having given my anxious consideration to the matter, I agree with the view taken by Nazir Ahmad J. in this behalf. In this connection, reference to the decision of the Supreme Court in Karnani Properties Ltd. v. CIT [1971] 82 ITR 547 is instructive. The Supreme Court held that when the question referred to the High Court speaks of "on the facts and in the circumstances of the case", it means on the facts and in the circumstances found by the Tribunal and not on facts and circumstances that may be found by the High Court on a reappraisal of evidence, and that, in the absence of a question having been referred to the High Court as to whether the findings of the Tribunal were vitiated for any reason, the High Court has no jurisdiction to go behind or question the statements of fact made by the Tribunal. Under the circumstances, the question as to whether there was or there was not any consideration for goodwill in the transfer of its business effected by the assessee does not arise for consideration, and the only question this court has been called upon to answer is whether the amount representing the value of the consideration received by the assessee for transfer of its goodwill should or should not be held to be liable to capital gains tax under Section 45 of the Act.
53. Now, in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294, the Supreme Court has held that the goodwill generated in a newly commenced business cannot be described as an "asset" within the meaning of Section 45 of the Act and, therefore, its transfer is not subject to income-tax under the head "Capital gains". This decision of the Supreme Court has been followed by the Supreme Court in CIT v. Kaikobad Byramji and Sons [1989] 179 ITR 569. It was urged on behalf of the Revenue that, in the instant case, there was no material for holding that goodwill was generated in a newly commenced business. But the Appellate Assistant Commissioner and the Tribunal have not found that the goodwill transferred by the assessee for consideration had been acquired by the assessee. As observed by Nazir Ahmad J., both the Appellate Assistant Commissioner and the Tribunal have proceeded on the basis that, in the instant case, goodwill was self-generated by the assessee and the question as to the correctness of that finding is not before this court. Under these circumstances, agreeing with Nazir Ahmad J., I am of the opinion that, on the facts and in the circumstances of the case, the Tribunal was right in holding that the consideration for goodwill amounting to Rs. 71,918 received by the assessee from the vendee was not liable to be taxed as capital gains under Section 45 of the Act.
ORDER OF THE COURT
54. In accordance with the opinion of the majority, the answer to the question referred to this court by the Tribunal is in the affirmative and against the Revenue. In the circumstances of the case, parties shall bear their own costs.
55. Let a copy of this order be forwarded by the office of this court to the Assistant Registrar, Income-tax Appellate Tribunal, Patna Bench "B", Patna.