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.

H.M. Talati for the Assessee.

M.J. Thakore instructed by M.R. Bhatt of M/s. R.P. Bhatt & Co. for the Commissioner.

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 that the point involved in this reference is now covered by the decision of the Supreme Court in CIT v. B.C. Srinivasa. Setty (1981) 128 ITR 294). Therein, it has been held that 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 income-tax. The Tribunal had relied upon the judgment of this Court in CIT v. Mohanbhai Pamabhai (1973) 91 ITR 393). The said decision of this Court was disapproved by the Supreme Court in Srinivasa Setty' s case (1981) 128 ITR 294). It may be stated that the decision in Mohanbbai Pamabhai' s case (1973) 91 ITR 393 (Guj.) was affirmed by the Supreme Court in Addl. CI'T v. Mohanbhai Pamabhai (1987) 165 ITR 1.60). But that is on a different point. Therefore, following the judgment of the Supreme Court in Srinivasa Setty' s case (1981) 128 ITR. 294), question No. 1 referred to us is answered in the negative. In the view that we have taken, no opinion is required to be expressed on questions Nos. 2 and 3. We, therefore, answer question No. 1 in the negative, i.e., in favour of the assessee and against the Revenue. We refuse to answer questions Nos. 2 and 3. The reference is disposed of accordingly with no order as to costs.

M.BA./2405/TOrder accordingly.