CHUNNILAL GANPATRAI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference by the income-tax Appellate Tribunal arises out of two applications by the assessee under section 66(1) of the Income-tax Act. One relates to the assessment of income-tax made section 23(3) of the income-tax Act and the other to the assessment under Section 14(1) of the Excess Profits tax Act. The facts relevant to both applications are precisely the same and raise only one question.

(2.) IN 1935 the assessee, a Hindu undivided family, obtained a licensee under the Electricity Act to supply the town of Ranchi with electricity current. Thereafter, buildings were acquired and the necessary machinery and plant installed. The supply of current to consumers began in April, 1937. The Ranchi Electric Supply Co., Ltd., was then floated by the assessee and the permission of Government was sought on the 2nd July to assign the licensee to the company. Permission was granted and the licensee and business of supplying electric current was transferred to the company for a considerations of Rs. 4,70,483 on the of July 20, 1940. The amount expended by the assessee up to the dated of transfer was Rs. 394,332 and there were outstanding dues amounting to Rs. 29,516. The net value of the assets was, therefore, Rs. 3,64,816. The difference between this sum and the stated amount of the considerations was, therefore, Rs. 1,05,667. Under the terms of the license the income -holder was entitled to 15% above the value of the assets in the event of the concern being compulsorily acquired by Government. The sum of Rs. 1,05,667 was stated to represent (a) this 15% (b) the value of the goodwill of the business, and (c) the amount by which the plant, machinery, mains etc., had appreciated in value.

(3.) WITH regard to the second question, the companys prospectus having stated that nothing was payable to the vendor an account of goodwill, the Tribunal held that no such amounts was included in the consideration for the transfer.