Commissioner of Income Tax vs Nelson and Company

Ramanujam, J.—The assessee in this case are manufacturers of printing types from 1947. During the year of account, the business of the

firm was acquired by a private limited company, namely, M/s. Nelson Type Foundry Private Ltd., on April 15, 1973, as per the agreement

entered into by the firm and the company on March 21, 1973. In the return of income filed by the firm, the firm has included business income of

Rs. 2,09,589, which included s. 41(2) profit of Rs. 1,47,341. Besides, the firm showed capital gains amounting to Rs. 83,733 arising out of

transfer of the land and building to the said company. Acquisition proceedings under Chap. XX-A of the I.T. Act, 1961, were initiated on the

transfer of land and building to the said company. At that stage, the firm agreed for a fair value being fixed by the Acquisition Range at Rs.

4,25,294 as against Rs. 4,00,000 shown in the deed of transfer. Thereafter, the firm filed a revised return showing capital gains at Rs. 1,01,701.

The assessing authority, at the stage of assessment, fixed the value of the goodwill at Rs. 3,31,700. Aggrieved against the said valuation of the

goodwill, the assessee took the matter in appeal before the AAC. That appeal having succeeded, the Revenue took the matter in appeal before the

Tribunal. Before the Tribunal, the Revenue relied on a decision of the Gujarat High Court in Commissioner of Income Tax, Gujarat Vs. Mohanbhai

Pamabhai, , as against the decision in COMMISSIONER OF Income Tax, MADRAS Vs. K. RATHNAM NADAR., , referred to and followed

by the AAC. The Tribunal confirmed the decision of the AAC that a sum of Rs. 3,31,700 should be deleted from the head ""Capital gains"".

Aggrieved by the order of the Tribunal, the Revenue has sought a reference on the following question for the opinion of this court :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in deleting the sum of Rs. 3,31,700 brought to tax by

the ITO, under the head ''Capital gains'' ?

Before us, the learned counsel for the Revenue contends that the Tribunal should have accepted and followed the view taken by the Gujarat

High Court in Commissioner of Income Tax, Gujarat Vs. Mohanbhai Pamabhai, , in preference to the decision rendered by this court in

COMMISSIONER OF Income Tax, MADRAS Vs. K. RATHNAM NADAR., . However, we find that the decision of this court in

COMMISSIONER OF Income Tax, MADRAS Vs. K. RATHNAM NADAR., , has been approved by a Full (Mad) [FB]. Subsequently, the

Supreme Court also in Commissioner of Income Tax, Bangalore Vs. B.C. Srinivasa Setty, , has approved the decision of this court in

COMMISSIONER OF Income Tax, MADRAS Vs. K. RATHNAM NADAR., , and has held that goodwill is a self-generating asset, that it

does not cost anything in terms of money to an assessee and that, therefore, it cannot be included as part of capital gains. In view of the fact that

the decision of the Tribunal in this case is consistent with the view taken by this court in COMMISSIONER OF Income Tax, MADRAS Vs. K.

RATHNAM NADAR., , which has been approved by a Full Bench of this court in Addl. CIT v. Sheik Mohideen [1978] 115 ITR 242 and also

by the Supreme Court in Commissioner of Income Tax, Bangalore Vs. B.C. Srinivasa Setty, , we have to accept the said decision as correct.

Hence, this petition is dismissed. There will be no order as to costs.