COMMISSIONER OF INCOME TAX Vs. M N ENTERPRISES

JUDGEMENT

(1.) THIS reference is at the instance of revenue and the questions under reference are:-

(2.) THE facts and the proceedings that gave rise to the questions under reference in brief are as follows:-The assessee was carrying on hotel business by acquiring leasehold right in premises bearing No. 44/1, Residency Road, bangalore. Incidentally, it is necessary to state that M/s. Ramana associates of Delhi was carrying on hotel business in the said premises under the name and style 'corner House'. M/s. Ramana Associates discontinued business and sold it to assessee on 1-11-1983. However, the document -of transfer dated 1-11-83 makes no reference to any consideration for this capital value. The assessee carried on hotel business from 30-10-1983 to 31-3-1984. On 1-4-1984 under a deed of licence assessee granted licence to carry on business in the said premises to M/s Corner House-cum-Food Cafe on licence fee of rs. 60,000/- per quarter. On 31-3-1987 assessee transferred its interest in the business, and lease-hold rights, to M/s. Corner House fun Food Cafe for a consideration of Rs. 5,53,166/ -. In the document of transfer it is recited that a sum of Rs. 5,00,000/- is received as consideration for transfer of good-will and the remaining sum of rs. 53,166/- for sale of tangible articles.

(3.) IN the returns filed for the assessment year 1987-88 the assessee claimed receipt of Rs. 5,00,000/- as capital receipt on account of transfer of good-will in favour of M/s. Corner House-Fum-Food cafe under the document dated 31/3/1987. The assessing officer, after hearing the assessee, rejected the contention of the assessee and treated the income as 'business income. ' The assessee filed Appeal no. ITA/19/c III/cit (A)III/89-90 before the Commissioner of income Tax. The I Appellate Commissioner by order dated 6-2-1990 allowed the appeal and held that the amount realised by the assessee under the aforementioned deed of transfer dated: 31-3-1987 was a capital gain. The I Appellate Commissioner further held that the cost of acquisition is incapable of determination and not subject to tax under Section 45. Therefore, the Revenue was before the Income tax Appellate Tribunal in I. T. A. N No. 1022/bang/90. The Tribunal concurring with the order of the first appellate Commissioner, dismissed the appeal by order dated21-4-1998. The Tribunal, while doing so, followed the judgment of this Court in the case of Joy Ice Creams reported in (1993) 201 ITR 894. Thereafter, at the instance of revenue this reference is before this Court.