Commissioner of Income Tax vs N.N. Desai

D.R. Dhanuka, J.—The Income Tax Appellate Tribunal has referred the following question to this court u/s 256(1) of the Income Tax Act, 1961 :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in upholding the decision of the Appellate Assistant Commissioner that the amount received by the assessee on sale of goodwill is not liable to capital gains tax ?"

The short facts leading to the making of this reference are as under :

(a) The assessment year involved is 1968-69.

(b) The assessee was the proprietor of a business in the name and style of Kishore Industries. On January 1, 1967, the assessee sold the business to a limited company named Kishore Pumps (P.) Ltd., of which he became the managing director. Under the agreement of sale dated April 11, 1967, the aggregate consideration of Rs. 1,05,650 was spilt up and a sum of Rs. 1 lakh was described by the parties as a consideration for sale of goodwill. The Income Tax Officer held that the entire amount of Rs. 1,05,650 was liable to be assessed as capital gains on the sale of the said business. The Appellate Assistant Commissioner as well as the Tribunal took the view that the sale of goodwill was not liable to capital gains tax as goodwill is a self-generated asset of the assessee.

In this view of the matter, the question involved here is directly covered by the judgment of the Supreme Court in Commissioner of Income Tax, Bangalore Vs. B.C. Srinivasa Setty, . We, accordingly, answer the question in the affirmative and in favour of the assessee.

There shall be no order as to costs.