Bombay High Court
Anil Purushottam Kakad And Anr. vs Tax Recovery Officer And Ors. on 2 March, 1993
Equivalent citations: (1993)95BOMLR817
JUDGMENT B.P. Saraf, J.
1. The controversy in this case relates to the proper stamp duty leviable on a deed of assignment by which the assignors transferred their running business including the goodwill thereof and all tangible and intangible rights, benefits and privileges pertaining and appertaining to the said business including the tenancy right in respect of the business premises and two garages and the telephone connection bearing No. 293179. The consideration for the transfer was a sum of Rs. 21,80,000/-. The said deed was registered and stamp duty thereon amounting to Rs. 1,10,000/- was paid classifying the said deed of assignment as a conveyance of movable property within the meaning of Article 25(a) of the Bombay Stamp Act, 1958 ("the Act"). The deed was tendered for registration on 10.9.1981. On 4.5.1988, after about 7 years thereof, a notice was issued to the petitioner by the Recovery Officer in the Office of the Collector, Bombay, demanding a sum of Rs. 2,12,800/- as arrears of stamp duty and penalty in respect of above deed of assignment. The petitioner filed a revision application under Section 53(1) of the Act before the Collector of Bombay, who is Chief Controlling Revenue Authority under the Bombay Stamp Act. The revision petition was rejected by the Collector by his order dated 13.9.1988. In his order it was observed by the Collector that in pursuance of the said agreement, the assignors had, for a consideration of a sum of Rs. 21,00,000/ - paid by the assignees, transferred their business along with goodwill, all tangible and intangible assets, rights, benefits and privileges pertaining to the said business including the tenancy rights, in respect of the said business and two garages etc., on which the stamp duty had been levied as per Article 25(a) of the Act. As, later, it was found that the duty had been wrongly collected under Article 25(a), the case was reopened by the Superintendent of Stamps and the demand was raised for the difference of the duty leviable under Article 25(b) and the amount paid by the Assignees under Article 25(a). The Collector was of the opinion that the transfer to tenancy rights in the business along with the goodwill and tangible and intangible rights made the transaction in question chargeable under Article' 25(b) instead of Article 25(a) of the Act. It is this order of the Collector which has been challenged by the petitioners by the present writ petition.
2. The contention of the petitioners, is that by the deed of assignment in question, the petitioners having assigned and transferred the running business along with its goodwill, benefits and rights, Article 25(a) was attracted and, as such, the transfer amounted to transfer of movable property. The learned Counsel for the respondents, on the other hand, submits that though the transfer was a transfer of running business and goodwill, as a result of its, certain tenancy rights also got transferred in favour of the petitioners, which in fact amounts to transfer of immovable property and, as such, Article 25(b) will be attracted. In that view of the matter, the entire consideration paid to the assignors, according to the respondents, amounted to consideration for the transfer of tenancy rights in the shop premises and the two garages,
3. Article 25 of the Bombay Stamp Act, 1958, which prescribes the rate of stamp duty on conveyance, so far as relevant reads as follows :
25. Conveyance (not being a transfer charged or exempted under Article 59) -
On the true market value of the property which is the subject matter of the Conveyance -
(a) if relating to movable property, for Fifteen rupees
every rupees 500 or part thereof
(b) if relating to immovable property
situated within the limits of :
(vi) (a) Municipal Corporation of Greater Fifty rupees
Bombay, and for every rupees 500
of part thereof-
(c) if relating to both as movable and The same duty as is payable
immovable property - under clauses (a) and (b)
From a reading of the above Article, it is clear that if the subject matter of the transfer is movable property, under clause (a), the stamp duty is calculated at the rate of 15 rupees for every 500/- rupees or part thereof. If the subject mater of the conveyance relates to immovable property situated within the limits of the Municipal Corporation of Greater Bombay, it will fall under Sub-clause (vi)(a) of clause (b) and stamp duty will be leviable at the rate of rupees fifty for every rupees 500/- or part thereof. If the conveyance relates to both movable and immovable property, the duty will be the same as payable under clauses (a) and (b).
4. In the instant case, on facts, it may be observed that the impugned order of the Collector does not show as to what part of sum of Rs. 21,80,000/- which is the consideration for the transfer of the goodwill of the business including interest in the tenancy has been attributed by him to the transfer of the tenancy. I asked the learned Counsel for the respondents to ascertain from the records of the Collector whether any such attempt had been made by him at any stage, because even if his contention is accepted, by virtue of clause (c), only that part of the consideration which can be attributed to the transfer of tenancy rights would attract higher stamp duty prescribed under Article 25(b). The learned Counsel, after verifying the records and making necessary enquiries from the Collector, was fair enough to state that no such bifurcation has been made by him and the amount of stamp duty at the higher rate applicable to assignment of immovable property has been calculated on the total consideration paid for goodwill of the going concern treating it as case of assignment of immovable property. That being the factual position, the impugned order cannot be sustained on that count itself.
5. However, in the present case, I do not propose to set aside the impugned order on that ground in view of the fact that from the reading of the deed of assignment as a whole, it is clear that what was transferred was a running business and apparently, the consideration was for the goodwill. The tenancy rights of the shop premises as well as two garages were only some of the components that went into the fixation of the amount of goodwill. The question that falls for determination, therefore, is whether the transfer of goodwill or a running business involves any transfer of immovable property. In other words, whether in such a transfer, any part of the consideration can be attributed to the transfer of tenancy rights. If that is not permissible then Article 25(b) will not be applicable in the instant case and if that be so, no purpose will be served by setting aside the order and remanding the same to the Collector. In that view of the matter, I deem it expedient to examine the issues involved and to decide the controversy finally in this writ petition itself.
6. With this object in mind, I have carefully considered the rival submissions in the light of the relevant clauses of Article 25 of the Act. From a reading of the deed of assignment, it is clear that what was assigned or transferred was "the business" along with its goodwill, stock-in-trade, etc. The value of furniture including air-conditioning machine and the stock-in-trade which had already been transferred by physical delivery had been fixed at Rs. 60,000/- and Rs. 5,000/- respectively. The consideration for transfer of the "goodwill of the said business along with the tenancy rights in respect of the said business premises including two garages and all tangible and intangible rights, beneficial privileges pertaining and appertaining to the said business benefits of the telephone", which was the subject matter of the deed of assignment under consideration, was fixed at a slump price of Rs. 21,80,000/-. Thus, from the deed of assignment itself it is clear that what was transferred was the running business and goodwill and transfer of interest in the tenancy was only incidental thereto. In fact, the tenancy rights, telephone rights etc. were indicated as the components which went into the determination of the amount of goodwill.
7. The real question for consideration, therefore, is whether the transfer of a running business and goodwill which also includes certain tenancy rights can be said to involve transfer of the tenancy rights separately so as to attract Article 25(b) of the Act for the purpose of determination of the rate of stamp duty. To answer the question it is necessary to know what is goodwill and what is a transfer of a business as a going concern.
8. Goodwill of a business has been defined in Jowitt's Dictionary of the English Law as "the benefit which arises from its having been carried on for some time in a particular house or by a particular person or firm or from the use of a particular trade mark or trade name." As observed by by Hidayatullah, J. (as he then was) in S.C. Cambatta and Co. Put. Ltd. v. Commr. of E. P. T. :-
the goodwill of a business depends upon a variety of circumstances or a combination of them. The location, the service, the standing of the business, the honesty of those who run it, and the lack of competition and many other factors go individually or together to make up the goodwill, though locality always plays a considerable part. Shift the locality, and the goodwill may be lost. At the same time, locality is not everything. The power to attract custom depends on one or more of the other factors as well.
9. To the same effect are the following observations of Lord Macnighten in Commissioners of Inland Revenue v. Muller and Co.'s Margarine Ltd. (1901) AC 217 (M.L.) :-
Goodwill is composed of a variety of elements. It differs in its composition in different trades and different business in the same trade. One element may preponderate here and another element there.
Disapproving the attempts to analyse goodwill and split it up into component parts, it was held that the goodwill of a business is one whole and must be dealt with as such. Emphasising the importance of locality in the composition of goodwill, it was further observed :-
For my part, I think that if there is one attribute common to all cases of goodwill, it is the attribute of locality....
10. The meaning of goodwill also came up for consideration before the Supreme Court in C.I.T. v. B. C. Srinivasa Setty . The Supreme Court held that goodwill denotes the benefit arising from connection and reputation. It was observed (at 298) :-
A variety of elements goes into its making, and its composition varies in different trades and in different businesses in the same trade, and while one element may preponderate in one business, another may dominate in another business. And yet, because of its intangible nature, it remains insubstantial in form and nebulous in character.... In a progressing business goodwill tends to show progressive increase. And in, a failing business it may begin to wane. Its value may fluctuate from one moment to another depending on changes in the reputation of the business. It is affected by everything relating to the business, the personality and business rectitude of the owners, the nature and character of the business, its name and reputation, its location, its impact on the contemporary market, the prevailing socio-economic ecology, introduction to old customers and agreed absence of competition. There can be no account in value of the factors producing it. It is also impossible to predicate the moment of its birth. It comes silently into the world, unheralded and unproclaimed and its Impact may not be visibly felt for an undefined period. Imperceptible at birth it exists enwrapped in a concept, growing or fluctuating with the numerous imponderables pouring into, and affecting the business.
The above decision of the Supreme Court also clearly goes to show that location is one of the elements that goes into the making of the goodwill of a business. Goodwill of a business is one whole and must be dealt with as such. It cannot be split up. It is not permissible to analyse goodwill and split up in its component parts.
11. So far as the next aspect which relates to the nature of consideration for transfer of business is concerned, the controversy involved therein seems to be concluded by the Supreme Court in C.I.T. v. Mugneeram Bangur and Co. wherein it was held that where the sale is the sale of the whole concern for a slump price, no part of the price could be attributed to the cost of the land even if in agreement the prices of certain lands which were also transferred, were mentioned. The Supreme Court observed : -
The fact that in the Schedule to the agreement, price of the land was stated did not lead to the conclusion that the part of the slump price was necessarily attributable to the land sold. What was given in the Schedule was cost price of the land as it stood in the books of vendor and even if the sum of Rs. 2,50,000/ - attributed to goodwill could be added to the cost of land, there is nothing to show that this represented the market value of the land.
12. The Gujarat High Court in Sarabhai M. Chemicals (P.) Ltd. v. P. N. Mittal had also occasion to consider somewhat similar controversy. In this case, there was a transfer of an Industrial undertaking as a going concern together with goodwill and all other assets thereof by a holding company to its wholly owned subsidiary to a slump price. The valuation which was mentioned was the book value (that is written down value) so far as the land and building, plant and machinery and other assets were concerned. It was held that as the sale was of a whole concern, no part of the agreed price was attributable to definite items mentioned in the Schedule.
13. The Karnataka High Court in Syndicate Bank Ltd. v. Addl C.I.T. also held to the same effect. It was observed :-
if there is a transfer of a whole concern and no part of the agreed price is indicated against different and definite items having regard to their valuation on the date of sale, the agreed price cannot be apportioned on capital assets in specie. What is sold in such a case is not individual items of property forming part of the aggregate, but the capital asset consisting of business of the whole concern or undertaking.
14. Applying the ratio of the above decisions to the facts of the present case, it is difficult to say that there was any price fixed for transfer of tenancy right. The counsel for the petitioner, also pointed out some of the provisions of the Bombay Rents, Hotel and Lodging House Rates (Control) Act, 1947 to show that there was a restriction on transfer of tenancy rights and/or receipt of any consideration for such transfer. The counsel for the respondents brought to my notice the provisions of Section 15 of the said Act and also the proviso thereto which makes an exception in certain cases. I have perused Section 15 of the above Act. So far as relevant, it is in the following terms :-
15.(1) Notwithstanding anything contained in any law (but subject to any contract to the contrary,) it shall not be lawful after the coming into operation of this Act for any tenant to sublet the whole or any part of the premises let to him or to assign or transfer in any other manner his interest therein (and after the date of commencement of the Bombay Rents, Hotel and Lodging House Rates Control (Amendment) Act, 1973, for any tenant to given on licence the whole or part of such premises) :
Provided that the (State) Government may be by notification in the Official Gazette, permit in any area the transfer of Interest in premises held under such (leases or class of leases (or the giving on licence any premises or class of premises) and to such extent as may be specified in the notification).
It was further pointed out that a notification has been issued by the State Government in exercise of the powers conferred under the above section which permits transfers and assignments of lease-hold premises in the following cases:-
Transfer or assignment incidental to the sale of a business as a going concern together with the stock-in-trade and the goodwill thereof, provided that the transfer or assignment is of the entire interest of the transferor or assignor in such lease-hold premises together with the business and the stock-in-trade and goodwill thereof.
(Emphasis supplied)
15. I have considered Section 15 and the notification issued thereunder. In my opinion, the notification issued by the State Government under Section 15 of the above Act, removing restriction on the power of transfer of lease-hold right in case of transfers which are incidental to the sale of business in respect of going concern together with goodwill etc. is a clear recognition of the well-settled legal position that such transfers are not regarded as transfer of immovable property. This notification has thus made explicit what was otherwise implicit.
16. In view of what is stated above, I am of the clear opinion that there was no transfer of any immovable property involved in the transfer of a business along with its goodwill by the deed of assignment in question and, as such, it was rightly subjected to duty applicable to transfer of movable property under Article 25(a) of the Act. The Collector was not justified in holding that by virtue of the fact that along with the business some tenancy rights also passed to the assignee it amount to transfer of immovable property so as to attract Article 25(b) of the Act. In that view of the matter, the impugned order of the Collector and impugned demand notices are set aside and quashed.
17. In the result, this writ petition is allowed. The rule is made absolute. Under the facts and circumstances of the case, I make no order as to costs.
18. It is stated by the counsel for the petitioner that at the time of filing of this writ petition, under orders of this Court, the petitioner had paid to the second respondent the disputed amount of demand. The respondents are directed to refund to the petitioner the same within the period of eight weeks from today.