1. This reference at the instance of the assessee raises for our consideration the following three questions of law which have been referred to us for opinion by the I. T. A. Tribunal, Ahmedabad Bench

"C"

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the machineries and tools, goodwill and stock sold by the assessee to M/s. Acme Pencil Factory were separately valued for the purpose of sale and that, therefore, the assessee was liable to pay tax on capital gains and profits u/s. 41 (2) of the Act on sale of machineries and tools, etc. ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amount of Rs. 13,000 was liable to tax by way of profit on sale of stock ?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was liable to pay tax on Rs. 25,000, being capital gains on transfer of goodwill ?"

2. The short facts leading to third reference may be stated at this stage. The assessment year under reference is 1967-68, the previous year being Samvat year 2022, which ended on November 12, 1966. The assessee carried on business of manufacturing and selling pencils in Ahmedabad "C"ity. He sold machineries, goodwill, stock, furniture, etc., of his business to a firm of M/s. Acme Pencil Factory for Rs. 4,61,111 on June, 30, 1966. On July 1, 1966, a deed called "sale deed in respect of sale of movable properties" was executed by the assessee in favour of the partners of M/s. Acme Pencil Factory. In this deed, it was stated that the assessee had sold the machineries, tools, etc., of his business to the partners of the said firm for Rs. 3,25,000 on June 30, 1966. It was further stated in the said deed that the price of stock, stores, ready goods, was settled by mutual agreement on June 30, 1966. The possession of the goods sold was also handed over to the purchasers on June 30, 1966. A further deed dated December 14, 1966, was also executed by the assessee in favour of the purchasers, viz., M/s. Acme Pencil Factory. In this deed, it was clarified that the a consideration of Rs. 3,25,000 was paid for the machineries, tools, etc., of the assessee's business. It was further stated that the price of the goodwill transferred to the said firm was agreed at Rs. 25,000 and that the stock was sold to the said firm for Rs. 1,11,111; it was stated that the total price of the machineries, tools, goodwill, tenancy rights and stock, was determined at Rs. 4,61,111.The rest of the terms of the said deed are not much relevant.

3. The assessee filed his return of income for the year under reference on June 1, 1970, disclosing "nil" income. Subsequently, a revised return was filed by him on January 31, 1972 with a remark in part IV of the return stating that the surplus on sale of assets of the assessee's factory cannot be considered as income. The assessment was completed by the ITO under s. 144 of the I. T. Act, 1961, hereinafter referred to as "the said Act". The assessee failed to show the books to the ITO. The ITO computed the assessee's income as follows :

"C"apital gains :

5. Being aggrieved by the assessment order, the assessee carried the matter in appeal before the AA"C", Special Range IV, Ahmedabad. The main contention before the AA"C" on behalf of the assessee was that since the assessee had sold his entire business as a going concern to the firm of M/s. Acme Pencil Factory, was not liable to pay tax on the profits under s. 41(2) of the said Act. It was further contended that the amount realised for the goodwill and the profit on sale of stock was also not subject to tax. The AA"C", however, by his order dated 31st October, 1972, held that in the present case, the consideration for machinery and tools, goodwill and stock, was separately mentioned and, therefore, it was held that even in the case of outright sale of business as a going concern, the capital gains arising out of such a transaction as well as profit under s. 41(2) of the said Act, would be taxable and the assessee was liable to pay the tax. He, therefore, rejected the assessee's contention that he was not liable to pay tax under s. 41(2) of the Act. However, so far as the amount of Rs. 25,000 taxed as capital gains in respect of transfer of goodwill and the profit on sale of stock estimated at Rs. 13,000 were concerned, the AA"C" took the view that there was no separate sale of goodwill or stock and, consequently, according to the AA"C", no tax could be levied on these two amounts. He, therefore, deleted the said two items from the computation made by the ITO and gave relief of Rs. 38,000 to the assessee.

6. The aforesaid order of the AA"C" resulted in two cross-appeals, on behalf of the assessee as well as the revenue before the Income-tax Appellate Tribunal at Ahmedabad. The assessee's appeal was I. T. A. No. 1636 (Ahd) of 1972-73. The Tribunal, by its order dated February 17, 1975, held that the assessee had sold the machineries, tools and stock, to the partners of the firm of M/s. Acme Pencil Factory on June 30, 1966. The deed dated July 1, 1966, which is described as the sale deed in respect of movable properties and the deed dated December 14, 1966, which is described as supplementary deed in respect of sale of movable properties merely recorded the terms under which machineries, tools and stock, etc., were sold by the assessee to M/s. Acme Pencil Factory. The Tribunal further found that the deed dated July 1, 1966, recorded that machineries and tools were sold to M/s. Acme Pencil factory for the Rs. 3,25,000 and possession thereof was handed over to the partners of the said firm on June 30, 1966. The Tribunal held that the deed dated December 14, 1966, referred to separate consideration of Rs. 3,25,000 for machineries and tools and, thus, according to the Tribunal, it was clear that different items of capital assets were sold by the assessee to M/s. Acme Pencil Factory. The Tribunal observed that Rs. 25,000 was received by the assessee for the sale of goodwill and Rs. 1,11,111 for the goods in stock. The Tribunal rejected the assessee's contention that the second deed dated December 14, 1966, could not be taken into consideration as it was executed after the end of the accounting year. The Tribunal on the contrary held that both these deeds had to be read together and when so read, it was clear that the assessee had separately valued for the purpose of sale of these different items of machineries and tools and goodwill and stock, and, consequently, there was no question of any sale of business by the assessee as a going concern at a slump price. The Tribunal, therefore, held that the assessee was liable to pay tax on capital gains and profit under s. 41 (2) of the Act on the sale of machineries, tools, etc. The Tribunal further held that the AA"C" had erred in deleting the addition of Rs. 25,000 being capital gains on transfer of goodwill. While coming to this court in "C"IT v. Mohanbhai Pamabhai [1973] 91 ITR 393. So far as the amount of Rs. 13,000 was concerned, the view taken by the Tribunal was that it was a fair estimate made by the ITO regarding the profits earned by the assessee out of sale of stock of goods belonging to the assessee. According to the Tribunal, the ITO was justified in estimating profit of Rs. 13,000 on the sale of the said stock and making addition of Rs. 13,000. "C"onsequently, the Income-tax Appellate Tribunal held against the assessee on all the points urged in the aforesaid cross-appeals before it. The assessee moved the Tribunal to refer the Tribunal to refer to questions of law which arose from the aforesaid decision of the Tribunal and, accordingly, the Tribunal has referred to us the aforesaid three questions for our opinion and that is how the present reference has come up for our decision.

7. Mr. Devatia, the learned advocate appearing for the assessee, contended that the Tribunal had committed an apparent error of law when it held that the assessee had not sold the business as a going concern at a slump price and that he was liable to pay capital gains tax on capital gains and profits on individual items of goods, goodwill, stock, etc. Mr. Divatia contended that both the sale deeds could not have been read together as the Tribunal had done and, consequently, the first question was required to be answered in favour of the assessee and against the revenue, Mr. Divatia further submitted that even if a view is taken that the assessee was liable to pay tax on capital gains and profits under s. 41 (2) on different items sold by him under the aforesaid two documents in question, even then, the Tribunal was patently in error when it held that Rs. 13,000 were liable to be taxed by way of profit on sale of stock.

8. Mr. Divatia further contended that, in any view of the matter, the Tribunal had committed a grave error of law in bringing to tax Rs. 25,000 as capital gains of the assessee on the transfer of goodwill. In that connection, Mr. Divatia submitted that the reliance placed by the Tribunal on the judgment of this court in the case of Mohanbhai Pamabhai [1973] 91 ITR 393 was not justified inasmuch as the observations of this court in the aforesaid decision were by way of obiter dicta and various High "C"ourts in the country have taken a contrary view on this question, and, accordingly, it ought to have been held that the goodwill was a capital asset which was not covered by the provisions of s. 45 of the Act.

9. On the other hand, Mr. Raval appearing for the revenue fully supported the decision rendered by the Tribunal and contended that the questions referred to this court should be answered against the assessee and in favour of the revenue.

10. So far as the first question referred to us is concerned, any decision thereon will necessitate a reference to the main two documents on which reliance is placed by the revenue before the taxing authorities as well as the Income-tax Tribunal. The first document is dated July 1, 1966. It is styled as "Sale deed of movable properties". By the said document, the assessee sought to sell certain movable properties mentioned in the document to the partners of M/s. Acme Pencil Factory. The document recites that the assessee had on the date of the document sold all his machineries, furniture, fittings, tools, etc., after preparing bills and given possession thereof to the partners. The document further recites that the said machineries and tools were sold in the same condition and the vendor had cleared all encumbrances, charges and interests of any party upon the said machineries and had then given the possession of the same to the purchasers. It is further recited in the document that whereas both the parties mutually settled and agreed the prices of stock, stores and ready goods on 30th June, 1966, and in pursuance of the said price, the vendor has sold free from charges and given possession, use and occupation of the said stock, stores and ready good on 30th June, 1966, to the purchasers. At this stage, it is necessary to refer to the material averments regarding consideration. The document recites that the vendor is the absolute owner of the factory and all machineries and tools whatsoever lying there were being sold by the vendor to the purchasers and their possession was given to the purchasers on 30th June, 1966, in consideration of Rs. 3,25,000, and then, in the last part of the document, it is further recited that the purchasers shall have to pay Rs. 3,25,000 towards the price of machineries, tools, goodwill, etc., to the vendors as mentioned above.

11. A mere look at the material recitals of the aforesaid document clearly shows that the document witnessed a sale of movable properties by the assessee to the purchasers, viz., M/s. Acme Pencil Factory. The document also made it very clear that Rs. 3,25,000 was the price agreed to between the parties for the machineries and tools which were sold by the assessee to the purchasers. The document also recited that so far as the prices of stocks, stores and ready goods were concerned, they were the subject-matter of a separate agreement arrived at between the parties on 30th June, 1966, and in pursuance of that agreement, these goods were also handed over to the purchasers on June 30, 1966. It is true that in the last part of the document a reference is made to Rs. 3,25,000, being the price of machineries, tools and goodwill, etc. But reading the document as a whole, it appears clear that so long as Rs. 3,25,000 was concerned, it were clearly mentioned as consideration for machineries and tools which the assessee transferred to the purchasers. The aforesaid document clearly mentioned that there was a separate agreement between the parties on 30th June, 1966, by which stocks, stores and ready goods were also sold by the assessee to the purchasers, but as the said price was not mentioned in that document, subsequently, a separate document seems to have been drawn up between the parties and the assessee for that purpose executed an additional sale deed of movable properties of Rs. 15,000 on December 14, 1966. In the second document, it is clearly recited that as the assessee was indebted in business, he was not in a condition to pay off his debts and as such he had sold under the sale deed dated July 1, 1966, all his business, machineries, stock-in-trade, goods, goodwill, tenancy rights, etc., to the purchasers and had handed over possession thereof to the purchasers and from that day, the purchasers were the owners of the factory together with goods, stock-in-trade, machineries, furniture and fixtures thereon and by that way, the purchasers were doing the said business in partnership and the said running business was partnership business and the vendor had no title or interest in the said business from that time onwards. The second document, however, recited that whereas the vendor sold the said business to the partners on July 1, 1966, and whereas it was agreed to sell the said business together with machineries and tools for Rs. 3,25,000 as price for business and goods and Rs. 25,000 was the price fixed for goodwill and, over this, Rs. 1,11,111 was fixed for ready goods and raw materials and bills for the said goods were also given to the purchasers at that time and that in pursuance of the aforesaid agreement and, in consideration, Rs. 4,61,111 were fixed for tools, goodwill, tenancy rights, goods, etc., which were sold to the purchasers and that the vendor had also received consideration from the purchasers accordingly. In para. 6, the document further recites that as the vendor had sold to the purchasers, prepared goods under bills and, due to some misunderstanding for the amount of the said bills, there was a difference in amount which was subsequently settled after talks with the partners and the purchasers, and accordingly, the purchasers had agreed to pay to the vendor an additional amount of Rs. 15,000 and the said additional amount was paid to the vendor on the date of execution of the second document and the said amount was duly received by the vendor and acknowledged as such. The second document further recited that henceforth the vendor was not entitled to receive any amount from the purchasers in future between the parties, the vendor had executed that second deed in favour of the purchasers (sic). The aforesaid are the material recitals in the second document.

12. Mr. Divatia's contention was that the second document was executed on December 14, 1966, that is, after the end of the accounting year which ended on November 12, 1966, and, consequently, the second document cannot be taken into consideration while deciding the question posed for our consideration in the present reference. It is difficult to accept the said contention of Mr. Divatia for the assessee. A mere look at the material rentals in both the documents makes it clear that the second document is merely consequential to the first and it seeks to explain the nature of the transaction between the parties which had taken place at the end of June, 1966. It is an admitted position between the parties that the transfer of the assets of the assessee had taken place by the end of June, 1966, and by July 1, 1966, the transferee had taken over possession and charge of the entire assets of the assessee. The consideration for the various items which the assessee sold to the purchasers has been explained in detail by both these deeds read together. The first document merely records Rs. 3,25,000 as the sale price of certain movables like machineries and tools. So far as other movables which were also the subject-matter of transfer in favour of the purchasers are concerned, the second document, by way of recording the past transaction, mentions these details. Thus, the total consideration which the assessee received for various items of the assets which he sold to the partners was put at Rs. 4,61,111, out of which Rs. 3,25,000 were mentioned by the assessee as consideration for machineries and goods, Rs. 25,000 for goodwill, and Rs. 1,11,111 by way of price of stock and ready made goods. On reading both these documents together, it is found that what the assessee actually did was that he sold various items of his assets to the purchasers at different earmarked prices. The second document cannot be said to be a separate transaction by itself or in any way unconnected with the first. The recitals in the second document are merely explanatory of the real nature of the transaction which took place between the assessee and his purchasers by there end of June, 1966. Thus, transfer of various items as mentioned in both the documents referred to only one transaction between the assessee and the purchasers that took place by the end of June, 1966. Therefore, it cannot be said that by the later document, some new transaction was sought to be entered into between the assessee and the erstwhile purchasers. The second document merely gave more details regarding consideration of various items which were sold by the assessee to the purchasers in the past, that is, by the end of June, 1966. Under these circumstances, it is not possible to accept the submission of Mr. Divatia that the second document is to be read independently of the first and both cannot be read together. We find that both these documents are part and parcel of the same transaction and they have to be read together. The second document is in fact merely explanatory of the first and is complementary to it. When both these documents are read together. The second document is in fact merely explanatory of the first and is complementary to it. When both these documents are read together, it clearly emerges that the assessee sold the machineries tools, goodwill and stock, etc., on June 30, 1966, and both these deeds read together merely recorded the terms of the said sale which took place on June 30, 1966.

13. It is further interesting to note that the very caption of the second deed mentions that it is an additional sale deed for Rs. 15,000 regarding movable properties. Thus, by the second document, the assessee acknowledged the fact that he was paid additionally Rs. 15,000 by the purchasers regarding raw goods which he had sold to the purchasers in June, 1966, and for the said sale of June, 1966, he had received full consideration of Rs. 4,61,111 as per the details given in both these documents. It is also interesting to note that the assessee had handed over possession of these assets to the purchasers by June 30, 1966 and from July 1, 1966, the purchasers were in full charge of these assets which they had purchased from the assessee. Thus, in December, 1966, there was nothing left with the assessee for being transferred afresh to the purchasers. "C"onsequently, it cannot be said that the second deed was an independent document and was required to be read separately from the first. In fact, it was a part and parcel of the first document and both together represented any one transaction between the assessee and the purchasers by the end on June, 1966. Under these circumstances, even though the second document came to be executed in December, 1966, it had to be read in connection with the first document by which the transfer in question took place between the assessee and the purchasers. It is further required to be noted that the ITO had made an ex parte assessment under s. 144 against the assessee and the latter had challenged the quantum of assessment by preferring an appeal before the AA"C". So far as the transfer in question is concerned, the date of transfer is material for the applicability of s. 45 as well as s. 41 (2) of the Act. In both these sections, the date of transfer or date on which various amounts became payable to the assessee would be relevant. So far as s. 41 (2) is concerned, it clearly provides that where any building, machinery, plant or furniture, etc., has been sold, discarded or destroyed and if the money payable in respect of such item exceeds the written down value thereof, so much of the excess as does not exceed the difference between the actual cost and the written down value, shall be chargeable to income-tax as income of the business or profession of the previous year in which the moneys payable for the building, machinery, plant or furniture became due. Similarly, in s. 45, the emphasis placed by the legislature is one the date of the transfer when it is provided that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save a otherwise provided in ss. 53, 54, 54B, 54D and 54E be chargeable to income-tax under the head ""C"apital gains" and shall be deemed to be the income of the previous year in which the transfer took place. Thus, for the purpose of s. 45 as well as s. 41 (2), what is relevant is the date on which the transfer in question took place. Admittedly, the transfer in question took place between the assessee and his purchasers at the end of June, 1966. "C"onsequently, even if the second document was executed in December, 1966, it has got to be read in the light of the first relevant assessment year, the second document will have to be taken into consideration for deciding the question about the assessee's liability to pay tax on capital gains and profits which he obtained on the concerned items of assets which he sold on June 30, 1966.

14. Mr. Divatia has further submitted that if the first document is read in isolation from the second, it appears clear that the assessee had sold his business as a going concern at a slump price and, consequently, in view of the judgment of the Supreme "C"ourt in the case of "C"IT v. Mugneeram Bangur & "C"o. [1965] 57 ITR 299, the assessee was not liable to pay tax on capital gains and profits on individual items sold in the course of the said transaction. Mr. Divatia in this connection also invited out attention to a judgment of this court delivered in Special "C"ivil Application No. 1394 of 1973, with Special civil Application No. 1481 of 1973, decided on February, 5, 1980. [Sarabhai M. "C"hemicals P. Ltd. v. P. N. Mittal, "C"ompetent Authority [1980] 126 ITR 1 (Guj)]. Mr. Divatia specially referred to the observations of this court in the aforesaid decision regarding the tax liability in cases where the business as a going concern is sold. Referring to Mugneeram's case [1965] 57 ITR 299 (S"C"), this court observed in that decision that what is material according to the Supreme "C"ourt in Mugneeram's case is that the sale is the sale of a whole concern and for a slump price, particularly, when the price is as it stood in the books of account of the vendor and the transaction is between inter-connected parties, namely, persons selling to a company of which the partner themselves were shareholders or a parent company selling property to its wholly owned subsidiary company, when no effort would ordinarily be made to evaluate the property as on the date of sale. If the sale is of the whole concern and no part of the agreed price is attributable to definite items mentioned in the schedule and the date of sale was the date of the agreement of sale, it cannot be said that there is any profits arising from the transaction. It is obvious that if tax on capital gains had been leviable at the time when the transaction which was the subject-matter of the decision in Mugneeram's case [1965] 57 ITR 299 (S"C") took place, the Supreme "C"ourt would certainly have held that tax on capital gains could be levied in that particular case from the transfer of that particular capital asset. The aforesaid decision of this court cannot be of any real assistance to Mr. Divatia for the simple reason that, in the present case, it appears clear to us that by the two deeds referred to above, the assessee sought to sell to the purchasers different items of assets belonging to him at different prices agreed to between the parties. It cannot be said that he had sold the entire business as a going concern at a slump price. On the contrary, separate heads of items were earmarked as forming part of the whole transaction at different prices agreed to between the parties. "C"onsequently, the ratio of the Supreme court in Mugneeram's case [1965] 57 ITR 299 (S"C") or the observations of this court in special "C"ivil Application No. 1394 of 1973 with Special civil Application No. 1481 of 1973 [Sarabhai M. "C"hemicals P. Ltd. v. P. N. Mittal, "C"ompetent Authority [1980] 126 ITR 1 (Guj)] can be of no assistance to the assessee. On the contrary, we find that the facts of the present case would be squarely covered by the decision of the Supreme "C"ourt in the case of "C"IT v. B. M. Kharwar [1969] 72 ITR 603, wherein the Supreme "C"ourt has observed that by virtue of the amendment made in the second provision to s. 10(2)(vii) by s. 11 of the Taxation Laws (Extension to merged States and Amendment) Act, 1949, even under a "realisation sale", the excess over the written down value is liable to be brought to tax. In the present case, we have found that the assessee had sold various items of assets which had earmarked prices to the purchasers. "C"onsequently, the facts of the present case would squarely be covered by the provisions of s. 45 as well as s. 41 (2) of the Act. It is certainly not a case in which the entire business was sold by the assessee as a going concern at a slump price. "C"onsequently, the Tribunal was quite justified in holding against the assessee on this question. In the present case, as pointed out by us, the machineries, goods, etc., were separately valued and specific amounts were acknowledged to have been received by the assessee towards consideration for all these different assets. The assessee had not valued his whole business as a going concern at a slump price. "C"onsequently, the first submission of Mr. Divatia has got to be rejected. The first question referred to us for our opinion has to be answered against the assessee.

15. Now, switching over to the second question, it will have to be found out whether the Tribunal was justified in holding that Rs. 13,000 were liable to be taxed by way of profit on sale of stock. Once we have taken the view that different items of assets were sold by the assessee and the sale price can be brought to tax under ss. 45 and 41(2) of the Act, this question would certainly assume importance. So far as this amount of Rs. 13,000 is concerned, the ITO assessed the same as profit on sale of stock by the assessee. A look at the relevant averments regarding sale of stock by the assessee as found in both the aforesaid documents shows that the assessee had sold his stock for Rs. 1,11,111 under various bills as well as handed over possession of the stock to the purchasers by June 30, 1966. He had also received an additional amount of Rs. 15,000 for the stock as mentioned in clause 6 of the document dated December 14, 1966. Thus, the assessee had sold the stock on a separate valuation to the purchasers, viz., M/s. Acme Pencil Factory. The said sale was effected by preparing relevant bills covering these items of sale. If the stock worth Rs. 1,26,111 was sold by the assessee to the purchasers, it cannot be said that the ITO had committed any error when he estimated the profit of the assessee on this transaction to be of Rs. 13,000. The assessee had prepared bills in respect of the huge stock sold by him. It was also pertinent to note that the assessee had not remained present before the ITO with the relevant books of accounts in support of his contention, and the ITO had resorted to assessment under s. 144 of the Act. "C"onsequently, it cannot be said with any emphasis that assessment of profit of Rs. 13,000 on the sale of stock worth Rs. 1,26,111 was in any way excessive or unreasonable. Keeping in view the total value of the stock sold by the assessee to M/s. Acme Pencil Factory, it appears clear to us that the assessment of profit made by the ITO was rightly held by the Tribunal as fair and reasonable and, in that view of the matter, even the second contention of Mr. Divatia has got to be repelled. Mr. Divatia, in this connection, however, submitted that, in any view of the matter, it was a realisation sale and, consequently, it ought not to have been brought to tax by way of profit on sale of such stock. Even this contention of Mr. Divatia can be of no avail to the assessee for the simple reason that, as held by the Supreme "C"ourt in the case of B. M. Kharwar [1969] 72 ITR 603 (S"C"), if separate items have been valued for the purpose of sale, even though it is a realisation sale, the amount realised out of sale can be brought to tax. In the present case, it is clear that the assessee who was doing business was out to sell his goods in the most profitable manner as far as possible. Thus, the sale by him of the goods in the ready made stock worth Rs. 1,26,111 cannot be considered to be anything but a fair sale. But assuming that it was a realisation sale, it cannot make any difference for the purpose of taxability of the amount of s. 13,000 which was estimated by the ITO as profit which the assessee can reasonably be said to have earned in the said transaction. "C"onsequently, the second question referred to us for our opinion has also to be answered against the assessee.

16. That takes us to the third and the last submission of Divatia which centres round the third question which has been referred to us for our opinion. The said question pertains to the liability to pay tax on Rs. 25,000 being capital gains on the transfer of goodwill. As we have already pointed out above, the second document dated December 14, 1966, mentioned that in the transaction of July 1, 1966, which took place between the assessee and the purchasers, the assessee had charged Rs. 25,000 by way of sale of goodwill to the purchasers. The said amount was brought to tax by the ITO on the ground that it was a capital gain which had accrued to the assessee and it was liable to be taxed under s. 45 of the Act. The AA"C" took a contrary view but the Tribunal once again confirmed the view of the ITO on this aspect. The Tribunal in that connection has referred to the decision of this court in the case of "C"IT v. Mohanbhai Pamabhai [1973] 91 ITR 393. In the said decision, a view is taken by this court that when goodwill as capital asset is sold, consideration obtained for the sale of the said goodwill can be brought to tax by way of capital gain under s. 45 of the Act. Mr. Divatia appearing for the assessee submitted that the said view of the Tribunal was erroneous in law. In the submission of Mr. Divatia, the opinion expressed by this court in the case of Mohanbhai Pamabhai [1973] 91 ITR 393 was by way of obiter dicta and the said opinion was not justified and borne out from the relevant provisions of the Act. Mr. Divatia further submitted that in the case of Mohanbhai Pamabhai [1973] 91 ITR 393, this court had dissented from the view of the Madras High "C"ourt in the case of "C"IT v. K. Rathnam Nadar [1969] 71 ITR 433. But the said decision was carried in appeal to the Supreme "C"ourt at the instance of the revenue and after detailed arguments lasting for two days, ultimately, the revenue had withdrawn the appeal before the Supreme "C"ourt and thus the decision given by the Madras High "C"ourt in K. Rathnam's case [1969] 71 ITR 433 was accepted by the revenue. Mr. Divatia also placed before us various judgments of different High "C"ourts taking a consistent view that the sale of goodwill would not create a liability to capital gains tax under the provisions of s. 45 of the Act.

17. In order to appreciate the aforesaid contention of Mr. Divatia, it is first necessary to have a look at the decision of this court in the case of Mohanbhai Pamabhai [1973] 91 ITR 393. In the said case, three questions were referred to this court for its opinion, viz. :

"(1) Whether the Tribunal was right in holding that the goodwill of the firm is a self-acquired asset of the firm ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount received by the assessee by way of his share in the goodwill of the firm is not liable to be assessed to tax ?

(3) Whether, on the facts and in the circumstances of the case, the retirement of the assessee as partner from the firm amounted to dissolution of the firm and, therefore, the capital gain, if any, is chargeable to tax in view of the provisions of section 47(ii) of the Act ?"

18. This court observed that in the view that was being taken regarding question Nos. 1 and 2, it was not necessary to consider the third question and, therefore, it was not answered in one way or the other. So far as the second question was concerned, it was answered in the affirmative. Thereafter, this court in Mohanbhai Pamabhai's case [1973] 91 ITR 393, made the following pertinent observations (p. 405) :

"This decision as regards the first contention renders it unnecessary for us to examine the validity of the second contention but since the second contention has been fully argued before us and it raises a question of some importance, we think it desirable to express our opinion upon it."

19. On the second question as to whether capital gains tax can be levied on the sale of goodwill, the observations which this court made were clearly by way of obiter dicta. This court, thereafter, proceeded to analyse the provisions of s. 45 of the Act, in the light of s. 2(14) and s. 48, and observed that "that charging provision in s. 45 is not confined to those case where the capital asset has cost something to the assessee in terms of money in acquiring it. There is nothing in any of the sections relating to capital gains which indicates that the charging provision should be construed in a narrow manner by excluding self-created capital assets or capital assets which have cost nothing to the assessee in terms of money in acquiring it. Section 48 provides for deduction from the value of the capital asset of the cost of acquisition of the capital asset. The word "acquire", according to its plain natural meaning, is a word of very wide import. It is not confined to the obtaining of a thing from a third party. "C"reation of production of a capital asset is not foreign to the concept of acquisition. Even where a capital asset is self-created, it would be covered by s. 48. Goodwill of a business is such a capital asset.

20. As we have already stated above, the aforesaid observation regarding the applicability of s. 45 to the sale of goodwill are purely by way of obiter dicta. But Mr. Raval for the revenue has urged that the above observations, even though they were by way of obiter dicta, reflected a considered opinion of this court on various aspects. One pertinent aspect of the matter which we have to keep in view while deciding the present reference is that this court in the aforesaid decision (Mohanbhai Pamabhai's case [1973] 91 ITR 393) did not agree with the reasoning of the Madras High "C"ourt in the case of K. Rathnam Nadar's case [1969] 71 ITR 433. In fact, that is first case on the point which came to be decided by the Madras High "C"ourt as early as in 1969. If the matter had merely rested at that stage, we would have seriously considered the request made by Mr. Raval for the revenue that we may constitute a larger Bench for deciding as the whether the considered opinion of this court even though by way of obiter dicta in Mohanbhai Pamabhai's case [1973] 91 ITR 393 requires reconsideration. But the matter does not rest there. We find that K. Rathnam's case [1969] 71 ITR 433 (Mad) was carried in appeal by the revenue to the Supreme "C"ourt and the said appeal was heard by the Supreme "C"ourt for two days. At that time, the decision of this court in Mohanbhai Pamabhai's case [1973] 91 ITR 393 was already known to the revenue. In spite of it, revenue after the hearing of the appeal before the Supreme "C"ourt arising out of K. Rathnam's case [1969] 71 ITR 433 (Mad) and which having lasted for two days, got the appeal dismissed as not pressed. "C"onsequently, it is clear that the revenue accepted the decision of the Madras High court on the point which in fact was a pioneering decision. The aforesaid fact is clearly note by the Karnataka High "C"ourt in the case of "C"IT v. B. "C". Srinivasa Shetty [1974] 96 ITR 667, to which we will make a detailed reference a little later. It is sufficient to note at this stage that the decision of Madras High "C"ourt in K. Rathnam's case [1969] 71 ITR 433 had stood untouched up to the Supreme "C"ourt and has remained operative all throughout thereafter. "C"onsequently, we have not acceded to the request of Mr. Raval to refer this matter to a larger Bench.

21. Having given our anxious consideration to the opinion expressed by this court in Mohanbhai Pamabhai's case [1973] 91 ITR 393, we find our selves unable to agree with the same. Firstly, we find that s. 45 read with s. 48 of the Act, cannot be considered to be a charging section as is assumed by this court in the aforesaid decision. Section 4 read with s. 14 of the Act clearly represents the scheme of the charging section. Section 45 merely mentions the head of the tax, viz., capital gains tax. It is true that goodwill is a capital asset. This aspect of the matter was not seriously disputed by Mr. Divatia. But the question is whether capital asset like goodwill, which is a self-generating one, can be the subject-matter of capital gains when it is halt with in the market and is transferred. The transfer any acquire such asset by purchase of goodwill from the transferor. But the question still remains as to whether such a self-generating asset brings capital gains to the concerned transferor so as to attract the provisions of s. 45 of the Act. This aspect of the matter, in our opinion, was not kept in view by this court in Mohanbhai Pamabhai's case [1973] 91 ITR 393. It is also required to be noted at this stage that the provisions of s. 55(2) of the Act were also not considered by this court on that occasion. This provisions clearly show that the cost of acquisition of a capital asset and the cost of improvement of the said asset, which is the subject-matter of s. 45, would presuppose the acquisition of the asset in question at a given point of time at some cost to the person who acquires such an asset. Thus, the very scheme of s. 45 read with ss. 48, 49 and 55(2) suggests that self generated or self-created assets like goodwill can never be the subject matter of taxability by way of capital gains as contemplated by s. 45 of the Act. A mere look at s. 45 shows that before a capital asset can be covered by s. 45 of the Act, it has to be established that such a capital asset on transfer brings any profit or gain to the transferor. If capital asset like the goodwill which is a self-generation asset and which is not having any acquisition cost for the transferor is transferred, it cannot be said that such transfer generates any capital gins for the transferor. "C"onsequently, on the very language of s. 45(1), such a type of capital asset like goodwill, which entirely depends upon the personal qualification of the person concerned who acquires an asset over a period of time and which has no cost of acquisition, cannot be covered under the provisions of s. 45. The aforesaid view of ours is amply borne out by the various decisions of different High "C"ourts. First, we may refer to the decision of the Madras High "C"ourt which, as we have stated above, was a pioneer in the field. It is in the case of "C"IT v. K. Rathnam Nadar [1969] 71 ITR 433 (Mad). Analysing the concept of "goodwill" in the light of its liability to tax on capital gains on its transfer, the Division Bench of the Madras High "C"ourt observed as under (pp. 445-46) :

"Goodwill is created by the trading activities of the assessee, and probably by the name he has earned and the goodwill he has created among his customer. Goodwill of a firm is an intangible asset and can be compared to as seed which is planted on the date the firm begins its business and sprouts and grows as the firm grows in its dealings, in its stature and in its reputation. It is difficult to say that it costs anything in terms of money for its coming into existence. Though goodwill is a capital asset, in the case of a goodwill of a business it cannot be said that it became the capital asset of the firm at any particular point of time. It is something which goes on slowly growing and perhaps waxing and waning also. What exactly is the value of the goodwill of a business at any point of time may have to be worked on a proper basis by cost accountants."

22. Referring to s. 12B (2) (ii), which represented the same scheme which is now represented by s. 45 read with ss. 48 and 49 of the Act, the Madras High "C"ourt observed (headnote) :

.......

"capital gains arises only on the transfer of a capital asset which has actually cost to the assessee something. Such actual cost in the context of the Income-tax Act being cost in terms of money, it cannot apply to transfer of capital assets which did not cost anything to the assessee in terms of money in its creation or acquisition."

23. Noting the difference between the British and American taxation laws, the Madras High "C"ourt proceeded to observe (headnote) :

"Though the British and American taxation laws proceed on the footing that capital gains are assessable in the case of transfer of goodwill, the Indian Act did not have it in contemplation, when enacting section 12B, that self-created assets like copyright, patents and goodwill should be subjected to capital gains arising on their transfer and hence capital gains on the transfer of a goodwill are not liable to be taxed under section 12B."

24. As we have already stated above, the aforesaid decision of the Madras High "C"ourt was carried in appeal to the Supreme "C"ourt and after two days' hearing, the revenue withdrew the said appeal and got it dismissed as not pressed. Thus, the aforesaid decision of the High "C"ourt of Madras has not been disturbed by the Supreme "C"ourt.

25. The next decision to which our attention was drawn by Mr. Divatia was the decision of the "C"alcutta High "C"ourt in "C"IT v. "C"hunilal Prabhudas & "C"o. [1970] 76 ITR 566. The Division bench of the "C"alcutta High "C"ourt had an occasion in this decision to consider a question similar to the one posed for our consideration in the present proceedings. The "C"alcutta High "C"ourt observed that goodwill is not a capital asset within the meaning of s. 12B of the Indian I. T. Act, 1922, and further it produced no profit or gain in that case by its transfer to the company. It was further observed (headnote) :

"In order to be taxable capital gain within the meaning of section 12B of the Income-tax Act, there has to be : (1) profit or gain, (2) capital asset, (3) the profit or gain must arise out of transfer, and (4) 'sale, exchange and relinquishment or transfer'. It is difficult to apply these tests to the case of goodwill. Goodwill is not any kind of usual capital asset with which a business is started. It is not a capital asset which can be divided into parts, fragments or fractions entered on the stock-book or register of capital assets nor can it, like capital asset, exist independently without the business itself and have any value apart from business usually associated with capital asset."

26. The "C"alcutta High "C"ourt placed reliance on K. Rathnam's case [1969] 71 ITR 433, decided by the Madras High "C"ourt amongst others. Mr. Raval appearing for the revenue submitted to us that this decision of the "C"alcutta High "C"ourt was no longer good law as observed by the later decision of the "C"alcutta High "C"ourt in the case of V. R. Sonti v. "C"IT [1979] 117 ITR 838. In the aforesaid decision, the division bench of the "C"alcutta High "C"ourt has taken the view of the "C"alcutta High "C"ourt in "C"hunilal Prabhudas's case [1970] 76 ITR 566 was no longer good law in view of the observations of the Supreme "C"ourt in Devidas Vithaldas & "C"o. v. "C"IT [1972] 84 ITR 277. When we turned to the decision of the Supreme "C"ourt in Devidas's case, we found that the Supreme "C"ourt was not concerned with the question which arose for consideration before the "C"alcutta High "C"ourt in "C"hunilal Prabhudas's case [1970] 76 ITR 566. In Devidas's case [1972] 84 ITR 277 (S"C"), the only question before the Supreme "C"ourt was as to whether the amount paid under covenant by the new firm was allowable as revenue expenditure. The facts were that P, a chartered accountant, who carried on his profession in the name of D. V. and "C"o. by a deed dated November 20, 1948, took A as a partner reserving to himself the goodwill. The partnership was dissolved with effect from December 31, 1950. "C"lause 2 of the deed of dissolved provided that the business shall be carried on in that name by A alone, that the goodwill belonged to P alone and that he had agreed to sell the same to A and as consideration for and in full satisfaction of the purchase price of the goodwill, A shall pay to P, his wife and his son, successively during their respective lives, 8 annas in the rupee of the net profits of the business to be carried on in the name of D. V. and "C"o. It was held by a majority of the judges of the Supreme "C"ourt that the transaction under the deed of dissolution was a licence and that a sale of the goodwill and the payments were in the nature of royalty and had to be treated as admissible deductions. It was further held that acquisition of the goodwill of a business is, without doubt, acquisition of a capital asset and, therefore, it was purchase price would be capital expenditure. It would not make any difference whether it is paid in a lump sum at one time or in instalments distributed over a definite period. Where, however, the transaction is not one for acquisition of the goodwill, but for the right to use it, the expenditure would be revenue expenditure. The aforesaid decision of the Supreme "C"ourt lays down that acquisition of the goodwill is a capital asset. But it does not held us in deciding the question whether on the sale of goodwill any capital gains can be said to have accrued. Thus, the present question was not at all posed for decision before the Supreme "C"ourt in the aforesaid decision in Devidas's case [1972] 84 ITR 277 (S"C"). "C"onsequently, the observations of the Division bench of the "C"alcutta High "C"ourt in the case of V. R. Sonti [1979] 117 ITR 838 ("C"al) that the earlier view of the "C"alcutta High "C"ourt in "C"hunilal Prabhudas's case [1970] 76 ITR 566 ("C"al) was no longer good law in view of the Supreme "C"ourt decision in Devidas's case [1972] 84 ITR 277 (S"C"), cannot be accepted as indicating a correct legal position. We find that the decision in Devidas's case [1972] 84 ITR 277 (S"C") in no way touches the ratio of the earlier "C"alcutta view in "C"hunilal Prabhudas's case [1970] 76 ITR 566 ("C"al).

27. Our attention was next invited to the case of the Delhi High "C"ourt the case of Jagdev Singh Mumick v. "C"IT [1971] 81 ITR 500. The division Bench of the Delhi High "C"ourt consisting of H. R. Khanna "C". J. and V. Deshpande J. (as they then were), took the view that sale of goodwill does not bring in the concept of capital gains which can be brought to tax under s. 12B of the Indian I. T. Act, 1922. The Delhi High "C"ourt pointed out that (p. 507) :

"Goodwill, it is well established, the advantage which is acquired by a business, beyond the mere value of the capital, stock, fund or property employed therein, in consequence of the general public patronage and encouragement which it receives from constant or habitual customers. What goodwill means must depend on the character and nature of the business to which it is attached. It is composed of a variety of elements and is bound to differ in its composition in different trades and in different businesses in the same trade. One element may preponderate in one business and another in another business. Generally speaking, it means much more than the mere probability that the old customers will resort to the old place. Often, goodwill is the very sap and life of a business, without which the business will yield little or no fruit. It is the whole advantage, whatever it may be, of the reputation and connection of the firm, which may have been built up by years of honest work."

28. In this connection, it was further observed by the Delhi High "C"ourt that it cannot be disputed that goodwill is an asset. All the same it has to be borne in that it is an intangible asset. Thereafter, reliance was placed on the judgment of the Madras High "C"ourt in K. Rathnam's case [1969] 71 ITR 433, and following the said decision, it was held that the actual cost in the context of the I. T. Act can only be cost in terms of money. It cannot, it would appear, apply to transfer of capital assets which did not cost anything to the assessee in terms of money in its creation or acquisition. It was further observed that the goodwill is created by the trading activities of the assessee, and probably by the name he has earned and the goodwill he has created among his customers. Goodwill of a firm is an intangible asset. In that view of the matter, it was held that consideration for sale of goodwill cannot be brought to tax as capital gains under the provisions of s. 12B of the Indian I. T. Act, 1922.

29. Our attention was next invited to a Full Bench judgment of the Kerala High "C"ourt in the case of "C"IT v. E. "C". Jacob [1973] 89 ITR 88. The question before the Full Bench was as to whether goodwill of business which was valued at Rs. 32,000 can be held taxable as capital gains. Agreeing with the Appellate Tribunal that it cannot be so taxed, the Full Bench observed that what is charged under s. 45 of the I. T. Act, 1961, is the profits or gains arising from the transfer of a capital asset. In computing the profit or gain in accordance with the provisions of s. 48 of the Act, the cost of acquisition of the capital asset and the cost of any improvement thereto have to be deducted from the full value of the consideration for the transfer of the capital asset (headnote of 89 ITR 88) :

"In the context of the Income-tax Act, the expression 'cost of acquisition' signifies some expenditure or outlay in terms of money by the assessee in the creation or acquisition of the concerned capital asset. It was by his personal effort spread over a number of years that the assessee built up the goodwill in dispute. It is impossible to estimate even roughly the money he could have spent in building up his professional reputation. The cost of acquisition was thus incapable of determination."

30. The Full Bench also referred to S. 55(1)(b) of the Act and held that (headnote of 89 ITR 88) :

"'"C"ost of any improvement' means 'all expenditure of a capital nature curred by making any addition or alteration to the capital asset'. The expenditure contemplated is expenditure in terms of money. `Goodwill' is an asset that gains in value by lapse of time; and in the case of the goodwill of a profession, such argumentation is essentially attributable to the personal efforts, skill or sacrifice of the owner. It is not possible in such cases to evaluate the increase in value in terms of money. Thus, in the case of certain categories of transfers of "goodwill" it is not possible to determine the 'cost of acquisition' and the 'cost of improvement' referred to in s. 48(ii) for the purpose of computation of 'capital gains' under s. 48. Without computation of 'profits or gains' no tax can be levied under s. 45 of the Act. Therefore, the amount received by the assessee towards the value of goodwill was not assessable to tax under s. 48 of the Income-tax Act, 1961."

31. The Full Bench of the Kerala High "C"ourt also placed reliance on the decisions of the Madras High "C"ourt in K. Rathnam's case [1969] 71 ITR 433, "C"alcutta High "C"ourt in "C"hunilal Prabhudas's case [1970] 76 ITR 566 and Delhi High "C"ourt in Jagdev Sinh's case [1971] 81 ITR 500.

32. We may now turn to the decision of the Karnataka High "C"ourt which was referred to by Mr. Divatia in support of his arguments. It is in "C"IT v. B. "C". Srinivasa Setty [1974] 96 ITR 667 (Kar). We have already referred to the said decision in the earlier part of this judgment while referring to the history of K. Rathnam's case [1969] 71 ITR 433 (Mad). The Karnataka High "C"ourt, relying on the judgment of the "C"alcutta High "C"ourt in "C"hunilal Prabhudas's case [1970] 76 ITR 566 ("C"al), the Full Bench decision in Jacob's case [1973] 89 ITR 88 (Ker) and the decision of the Madras High "C"ourt in K. Rathnam's case [1969] 71 ITR 433 (Mad), took the view that no "C"ourt in K. Rathnam's case [1969] 71 ITR 433 (Mad), took the view that no capital gains could arise under s. 45 of the I. T. Act, 1961, on the transfer by the assessee-firm of its goodwill to the newly constituted firm. Before the Karnataka High "C"ourt, reliance was placed by the revenue on the observations of this court in Mohanbhai Pamabhai's case [1973] 91 ITR 393 (Guj). The Karnataka High "C"ourt did not agree with the reasoning of this court in Mohanbhai Pamabhai's case [1973] 91 ITR 393 (Guj) and observed (p. 670 of 96 ITR) :

"When two views are possible on a question concerning the interpretation of a tax law, the one which is fair both to the assessee and the department should be followed. The view that capital gains tax is not attracted to transfer of goodwill is a fair and just interpretation. If the view of the Gujarat High "C"ourt is correct, the cost of acquisition of a good will being nil, the full value of the consideration for its transfer has to be brought to charge to capital gains tax. Such a levy will not be a tax on profits or gains but, in substance, a tax on the capital value of the asset. The capital value of goodwill, it will be unfair to levy another tax calling it as capital gains on the same value of the goodwill in the same assessment year, merely because the goodwill has been transferred for consideration."

33. The Karnataka High "C"ourt also noted the further fact that the ratio of the Madras High "C"ourt in K. Rathnam's case [1969] 71 ITR 433 was accepted by the department as laying down the correct law.

34. Our attention was also invited to a decision of the Bombay High "C"ourt in "C"IT v. Home Industries and "C"o. [1977] 107 ITR 609, decided by Tulzapurkar, Acting "C". J., and Desai J. A question identical with the question which has been posed for our decision arose before the Bombay High "C"ourt. The Bombay High "C"ourt held, agreeing with the Full Bench in Jacob's case [1973] 89 ITR 88 (Ker) as well as K. Rathnam's case [1969] 71 ITR 433 (Mad), that goodwill which was a self-created or self-generated asset was not a capital asset which could be said to have been acquired by the assessee-firm at any particular point of time and was not a capital asset which could be said to have cost something in terms of money to the assessee and, consequently, the transfer of such goodwill would not give rise to chargeable capital gain under s. 12B (1) of the Indian I. T. Act, 1922. While referring to s. 12B(1) of the Indian I. T. Act, 1922 and s. 45 of the 1961 Act, the High "C"ourt of Bombay observed (p. 633) :

"..... the incidence of tax is on 'profits or gains' arising from the transfer or sale of a capital asset..... The concept of 'profit or gain' arising from transfer or sale necessarily implies that there is something received in excess of the cost of the capital asset which is transferred or sold.... The charging provision in both the Acts itself brings in the concept of actual cost to the assessee of the capital asset and what is done by the machinery provision which is contained in section 12B (2) of the 1922 Act, and section 48 of the 1961 Act, is to elaborate that concept and lay down the mode or method by which such profit or gain is to be computed; the machinery provision reiterates what is contained in the charging provision and goes on to indicate that capital gain is to be arrived at after deducting the actual cost from the full value of the consideration for which the transfer of the capital asset is made. If the capital asset is such that it has cost nothing in terms of money to the assessee, the charging provision must be interpreted as being not referable to such capital asset and self-created or self-generated goodwill being such asset, will be outside the purview of the charging provision."

35. It was further observed (p. 634) :

"..... on a proper interpretation of the charging provision itself, it seems clear that the concept of actual cost expressed in terms of money to the assessee of the capital asset at some particular point of time would be a necessary ingredient before the transfer of that capital asset can be rise to chargeable capital again. Since self-created or self-generated goodwill is not a capital asset which could be said to have been acquired by the assessee-firm at any particular point of time and is not a capital asset which could be said to have cost something in terms of money to the assessee, such goodwill will not be a capital asset the transfer of which will give rise to chargeable capital gain either under section 12B (1) of the 1922 Act or section 45 of the 1961 Act."

36. The aforesaid decision also considered the observations of this court in Mohanbhai Pamabhai's case [1973] 91 ITR 393 (Guj). The Bombay High "C"ourt was inclined to agree with the view of the Madras High "C"ourt in K. Rathnam's case [1969] 71 ITR 433 (Mad) and the view of the Full Bench of the Kerala High "C"ourt in Jacob's case [1973] 89 ITR 88 and did not agree with the observations of this court in Mohanbhai Pamabhai's case [1973] 91 ITR 393. While referring to the observations of this court in Mohanbhai Pamabhai's case, it was observed by the Division Bench of the Bombay High "C"ourt :

"The decision on the concerned point is clearly obiter."

37. It was further observed that this court had not considered the question whether irrespective of the machinery provision which is to be found in s. 48 of the 1961 Act, the charging provisions, viz., s. 45, itself implies the concept of "actual cost" to the assessee of the capital asset as being a relevant aspect for bringing in chargeability to tax under the charging provision. That this court had proceeded on an elaborate discussion of the exact connotation of the expression "acquired" and had gone on to observe that the said expression is not confined to obtaining of a thing from a third party and creation or production of a capital asset is not foreign to the concept of acquisition and even where a capital asset is a self-created asset of the assessee, it would be covered by clause (ii) of s. 48. These observations of this court were dissented from. In the view of the Bombay High "C"ourt, the relevant aspect which needs to be emphasised is whether the concept of "actual cost" of the capital asset to the assessee is implied in the charging provision itself or not and if it is implicit therein, then, the charge or the incidence of capital gains tax cannot fall upon such types of capital assets as would cost nothing to the assessee for acquiring the same. Such capital assets which cost nothing to the assessee in terms of money will have to be regarded as being outside the purview of the charging provision itself.

38. Our attention was also invited to the decision of the Madhya Pradesh High "C"ourt in "C"IT v. Jaswantlal Dayabhai [1978] 114 ITR 798. The Division Bench of the Madhya Pradesh High "C"ourt also took a similar view as the Madras High "C"ourt in K. Rathnam's case [1969] 71 ITR 433 as well as the Kerala High "C"ourt in Jacob's case [1973] 89 ITR 88 [FB]. It also agreed with the view of the "C"alcutta High "C"ourt in "C"hunilal Prabhudas's case [1970] 76 ITR 566 ("C"al). The decision of the Delhi High "C"ourt in Jagdev Singh's case [1971] 81 ITR 500 was also referred to with approval by that court. The view taken by the Madhya Pradesh High "C"ourt was that under s. 48 of the Act, the charge is on any profits and gains arising from the transfer of a capital asset and not on the capital asset itself. The concept of "profits and gains" made chargeable under s. 45 itself implies that there is something received in excess of the cost of the capital asset which is transferred. In the case of a self-created or self-generated goodwill, the assessee incurs no cost in terms of money. On the transfer of such a goodwill the assessee makes no profits or gains chargeable under s. 45. It was further observed that if the whole of the consideration received on such a transfer is taken to be "profits or gains" of the assessee within the meaning of s. 45, it would amount to taxing the capital asset itself and not "profits or gains" arising from its transfer. This construction of s. 45 is supported by the scheme of s. 48 which provides that the income chargeable under s. 45 is to be computed by deducting from the full value of the consideration "the cost of acquisition of the capital asset and the cost of any improvements thereto". The mode of computation provided in s. 48 shows that the capital asset, transfer of which is taxable under s. 45, is one which cost in terms of money to the assessee, and is also one which can be improved by investing money. Self-created or self-generated goodwill is not that type of capital asset and its transfer cannot be the subject of taxation under s. 45 of the Act.

39. Our attention was also invited to a Division bench judgment of the Andhra Pradesh High "C"ourt in Addl. "C"IT v. Ganapathi Raju Jegi, Sanyasi Raju [1979] 119 ITR 715. Regarding the question of capital gains arising in cases of sales of route permits, the Andhra Pradesh High "C"ourt held that in such cases, where the cost of acquisition of a particular capital asset is nil, especially when the capital asset is the creation of the assessee by his own efforts, the case will be similar to that of a sale of good will be the assessee and the consideration in terms of money realised on the transfer of the said capital asset cannot be brought to tax as capital gains. The Andhra Pradesh High "C"ourt followed the ratio of the Madras High "C"ourt in K. Rathnam's case [1969] 71 ITR 433 as well as the decision of the "C"alcutta High "C"ourt in "C"hunilal Prabhudas's case [1970] 76 ITR 566 ("C"al) and also the decision of the Full Bench of the Kerala High "C"ourt in Jacob's case [1973] 89 ITR 88. It also distinguished the observations of the Supreme "C"ourt in Devidas's case [1972] 84 ITR 277 (S"C"). The observation of this court in Mohanbhai Pamabhai's case [1973] 91 ITR 393 were also considered by the Andhra Pradesh High "C"ourt and, in that connection, it was observed that the view of the Gujarat High "C"ourt was the solitary view on the question of capital gins on the sale of goodwill which is created by the efforts of the vendor. This court had observed that when there is no cost of acquisition, the entire amount of consideration for the sale of goodwill can be brought to tax as capital gains. Disagreeing with this view, it was observed by the Andhra Pradesh High "C"ourt (p. 726 of 119 ITR) :

"For the reasons stated by the Madras High "C"ourt in "C"IT v. Rathnam Nadar [ 1969] 71 ITR 433, which reasoning has appealed to the "C"alcutta High "C"ourt, Delhi High "C"ourt and Karnataka High "C"ourt, but not to the Gujarat High "C"ourt, we hold that, when the cost of acquisition of a particular capital asset is nil, especially when the capital asset is the creation of the assessee by his own efforts, the consideration in terms of money realised on the transfer of the said capital asset cannot be brought to tax."

40. We may also mention at this stage that in subsequent decisions of the Madras and Bombay High "C"ourts, the ratio of their aforesaid earlier decisions has been reiterated. The said decisions are : "C"IT v. T. Kuppuswamy Pillai & "C"o. [1977] 106 ITR 954 (Mad), "C"IT v. Michel Postel [1978] 112 ITR 315 (Bom) and Addl. "C"IT v. K. S. Sheik Mohideen [1978] 115 ITR 243 (Mad) [FB].

41. In view of the aforesaid pronouncement of the various High "C"ourts in this country, we are not able to persuade ourselves to agree with the obiter dicta of this court in Mohanbhai Pamabhai's case [1973] 91 ITR 393. We, on the contrary, agree with the decisions of various High "C"ourts on the point as detailed by us above. We agree with the views expressed by the Madras High "C"ourt, Delhi High "C"ourt, Kerala High "C"ourt, Karnataka High "C"ourt, Bombay High "C"ourt, Madhya Pradesh High "C"ourt and Andhra Pradesh High "C"ourt as well as the views expressed by the "C"alcutta High in "C"hunilal Prabhudas's case [1970] 76 ITR 566. We are, therefore, unable to accept the view expressed by this court in Mohanbhai Pamabhai's case [1973] 91 ITR 393 as this was obiter dicta and as the revenue has accepted the decision in K. Rathnam's case [1969] 71 ITR 433 (Mad) as correct by withdrawing its appeal against that decision before the Supreme "C"ourt after the said appeal was heard for two days.

42. We, therefore, hold that transfer of goodwill, which is a self-creating and self-generating asset, cost of acquisition of which at any given point of time is nil, does not attract the provisions of s. 45 of the Act so as to make it exigible to capital gains tax. As a result of the above discussion, our answers to the questions referred to us are as under :

Q. 1 :- In the affirmative, that is, against the assessee and in favour of the revenue.

Q. 2 :- In the affirmative, that is, against the assessee and in favour of the revenue.

Q. 3 :- In the negative, that is, in favour of the assessee and against the revenue.

43. As the success in the proceedings is divided between the parties, the proper order as to costs is to require each party to bear its own costs.