HARSHADKUMAR NATVARLAL DALAL Vs. COMMISSIONER OF WEALTH TAX

JUDGEMENT

(1.) AS identical question of law arises in all the three cases we propose to decide all these three cases by this common judgment. The issue for consideration in the present case is whether value of goodwill which was not purchased for a price by the assessee and not part of the book assets as disclosed in balance sheet is to be included while assessing the value of business assets under s. 7(2) of the WT Act r/w r. 2C of the WT Rules, 1957.

(2.) THE dispute relates to the question whether value of goodwill which is generated by a person in the course of carrying on his business is to be included for computing net wealth of the assessee in terms of s. 7(2) of the WT Act. Under the scheme of the WT Act, s. 3 provides that every individual is to be charged to wealth -tax in respect of his net wealth on the corresponding valuation date of every assessment year at the rates specified in the schedule. Net wealth has been defined in s. 2(m) generally to mean the amount by which the aggregate value, computed in accordance with the provisions of this WT Act of all the assets, wherever located belonging to the assessee on the valuation date including assets required to be included in his net wealth as on that date under the Act, is in excess of the aggregate value all the debts owed by the assessee on the valuation date other than which are not to be taken into account under the various provisions of the Act. 'Assets' has been defined to mean under s. 2(e) to include property of every description, movable or immovable. In terms of these provisions, ordinarily, every asset belonging to the assessee on the valuation date has to be valued as per the provisions of the Act and the liability on such date has to be valued and after adjusting the aggregate value of liabilities against the aggregate value of assets net wealth is to be found out. The method and manner of determining valuation of assets has been provided under s. 7 of the Act. The general rule provided under s. 7(1) of the Act is that subject to the rules made in this behalf, the value of any asset other than cash for the purposes of the Act shall be estimated to be the price which in the opinion of the Assessing Officer (AO), it would fetch if sold in the open market on the valuation date. Sub -s. 2(a) which is relevant for our purposes provides an exception to s. 7(1) and during the relevant period with which we are concerned read as under :

(3.) IT will be pertinent to notice here that goodwill of a person, namely whether an individual or a firm or company, vis -a -vis its business is a valuable asset. Goodwill denotes 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. The benefit to the business varies with the nature of the business and also from one business to another. It is an intangible asset in the sense that its benefit enures daily and with the growth or decline of the business, it is augmented of withered away with the passage of time. Therefore, it is difficult, if not impossible, to predict the value at which it can be sold.