COMMISSIONER OF WEALTH TAX Vs. K N KHANNA

JUDGEMENT

(1.) This reference under Section 27 of the Wealth Tax Act, 1957 relates to three separate persons, namely, Mr. K. N. Khanna, Mr. B. K. Khanna and Mrs. S. Khanna of New Delhi. In the case of Mr. K. N. Khanna, the assessment years are 1959-60 and 1960-61 while in the case of Mr. B. K. Khanna the assessment years are 1959-60, 1960-61 and 1961-62. In the case of Mrs. S. Khanna the assessment years' are 1957-58, 1958-59, 1959-60, 1960-61 and 1961-62. The applications which raise a common question of law out of the orders of the Income-tax Appellate Tribunal in the various Wealth tax appeals filed before it, a common statement of case has, therefore, been presented by the Tribunal and the following question of law has been referred to this Court :-

(2.) The facts are very simple. The assessees in these cases are Mr. K. N. Khanna, Mr. B. K. Khanna and Mrs. S. Khanna. All of them owned, shares in Messrs B. K. Khanna and Co. (P) Limited. Messrs K. N. Khanna and B. K, Khanna each owned 2221 shares while Mrs. S. Khanna owned 556 shares in the said company. While ascertaining the value of a share of the said company with reference to the value of assets thereof, the question arose as to whether any value in regard to the goodwill of the said company was taken into consideration. The Wealth Tax Officer valued the shares at Rs. 145.00 per share. When the assessees took it up' in appeal to the Appellate Assistant Commissioner it was contended by them that the value of goodwill taken in the sum of Rs. 2,50,000.00 in respect of the shares of B. K. Khanna and Co. (P) Limited should be excluded while computing the share value of the said company. The Appellate Assistant Commissioner took the view that goodwill of a business was a capital asset which is as much realisable as any other tangible asset. He further observed that the said company enjoyed a substantial goodwill in the market and that the value of this goodwill should not be less than Rs. 2,50,000.00. He therefore held against the assessees on this point.

(3.) The assessees went up in further appeal to the Income-tax Appellate Tribunal and it was argued on their behalf that there could be no value of goodwill as it was an intangible asset though an artificial value had been given when the company was formed. On behalf of the Revenue, it was contended that the value of goodwill is always taken note of in assessments completed under the Gift Tax Act, 1958 and the Estate Duty Act, 1953. It was, therefore, submitted that due consideration should be given to the value of goodwill while ascertaining the value of a share of the company in question. The Tribunal however was of the opinion that by the definition of the word "assets" given in the Wealth Tax Act, 1957 only tangible properties and not intangible properties could be held to be included within the meaning of the term "assets". The Tribunal, therefore, held that the goodwill, whatever its value, could not be included in the word "assets" in the Wealth Tax Act, 1957 and it, therefore, directed the Wealth Tax Officer to compute the value of the shares of the afore-mentioned company after excluding the value that was attributed to them as and for goodwill while computing the net wealth of the assessee in respect of their share holdings in the company.