S V KUMARAGURUPASAMY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) TWO questions have been referred to us at the instance of the assessee. The assessment year is 1982-83. The questions referred are :

(2.) THE assessee is an individual. He was one of the partners in a firm, styled as "Sakthi Velu Poly Pack", which fin n had come into existence under a deed dated October 12, 1970. That firm was dissolved on April 1, 1980, the assessee taking over all the assets and liabilities of the firm and taking over its business as a going concern. THE firm which was so dissolved had made profits during the three years preceding the date of dissolution. THE goodwill was not taken into account while drawing up the accounts as on April 1, 1980.

(3.) THE Assessing Officer having taken note of the unusual features in the manner in which this firm was formed, the amount credited to the capital account of the assessee, the speed with which substantial amounts were drawn from the capital accounts by the assessee, concluded that the whole arrangement was pre-meditated and was aimed at avoiding payment of capital gains tax on the transfer of the assessee's business to the six persons who were inducted into the firm under the partnership deed of April 22, 1981, and who took over the entire business of the firm on its dissolution under the deed dated May 30, 1983. At that dissolution, the assessee was only assigned certain items of sundry debtors and no cash payment was made to the assessee. THE Assessing Officer, however, did not levy any tax on the amount of the goodwill as the statute, as it prevailed during the relevant year did not provide for levy of capital gains tax on self-generated assets.