RHONA VARGHESE Vs. COMMISSIONER OF GIFT TAX

JUDGEMENT

(1.) THE matter arises under the GT Act (for short, the Act). THE following question of law is referred for decision to this Court at the instance of the assessee :

(2.) SHRI P. Balakrishnan, learned counsel for the assessee, submits that the firm M/s. P.J. Corporation in which the assessee is a partner is only engaged in the business of transporting contractors with M/s Indian Potash Ltd. He further submits that the said company was inviting tenders from year to year and that the contract is being awarded only to the party who satisfies the conditions stipulated in the tender notice. He also submits that there is no guarantee that the work will be awarded for all the years to the assessee's firm. The counsel, on that basis, submits that in the case of a conditional contract, there is no question of any goodwill and, therefore, there was no justification on the part of the assessing authority or the Tribunal for taking the view that there is goodwill to the business of the firm.

(3.) NOW, coming to the merits of the matter, we notice that the assessing authority has taken the view that when the share capital of a partner is reduced from 50 per cent to 20 per cent by the induction of new partners and allotment of shares to them, there is a deemed gift exigible to tax under the GT Act, The deemed gift, according to the AO, is in regard to the goodwill. Goodwill is the value of the attraction to customers arising from the name and reputation in skill, integrity, efficient business management or effective service. The Honourable Supreme Court, in CIT v. B.C. Srinivasa Setty (supra), considered the basic features of the goodwill and observed that "it denotes the benefit arising from connection and reputation". A variety of elements goes into its making, and its composition varies in different trades and in different businesses in the same trade, and while one element may preponderate in one business, another may dominate in another business. Its value may fluctuate from one moment to another depending on changes in the reputation of the business. It is affected by everything relating to the business, the personality and business rectitude of the owners, the nature and character of the business, its name and reputation, its location, its impact on the contemporary market, the prevailing socio-economic ecology, introduction to old customers and agreed absence of competition. There can be no account in value of the factors producing it. It is also impossible to predicate the moment of its birth. Its benefits in the business vary with the nature of the business and also from one business to another.