Deb, J.:— The following question is involved in this reference under s. 256(1) of the I.T Act, 1961:
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that there was no mistake apparent from the record in its order dated 25th August, 1973, which could be rectified under section 254(2) of the Income-tax Act, 1961?”
2. The statement of the case relates to the assessment year 1965–66. The assessee is an individual. He was the owner of a business and sold it to a company in the relevant previous year. He also sold the goodwill of the said business to that company for Rs. 60,000. The ITO brought Rs. 60,000 to tax under the head “capital gains”. The appeals filed by the assessee were dismissed by both the appellate authorities. The assessee then made an application before the Tribunal under s. 254(2) of the I.T Act, 1961, without asking for setting aside of the appellate order of the Tribunal.
3. It may be now noted here that two grounds were taken before the Tribunal in that application but only one ground has been argued before us, which was argued before the Tribunal on behalf of the assessee. It was in substance argued before the Tribunal that the goodwill of a business is nor a capital asset as held in CIT v. Chunilal Prabhudas & Co., [1970] 76 ITR 566 (Cal), by a Division Bench of this court, and the Tribunal should, therefore, rectify its mistake.
4. The departmental representative, on the other hand, cited several decisions including a judgment of the Supreme Court in the case of Devidas Vithaldas & Co. v. CIT, [1972] 84 ITR 277, in support of the contention that goodwill of a business is a capital asset.
5. The Tribunal rejected the contention of the assessee and dismissed the said application. Thereafter, at the instance of the assessee, the Tribunal referred the above question to this court.
6. Mr. N.K Poddar, learned advocate for the assessee argues before us that by following the case of Chunilal Prabhudas & Co., [1970] 76 ITR 566 (Cal), we should hold that the goodwill of a business is not a capital asset and, therefore, there is a mistake apparent from the record in the appellate order of the Tribunal which should have been rectified by the Tribunal under s. 254(2) of the Act. He also argues that the goodwill of a business which is built up in the course of carrying on the business cannot be regarded as a capital asset for the purposes of capital gains because there cannot be any cost of acquisition of such a goodwill.
7. Mr. Ajit Sengupta, learned counsel for the revenue, disputes the above contentions and cites two subsequent decisions of this court in support of his contentions that the goodwill of the business is a capital asset and any profit or gain arising from its sale is taxable under the head “Capital gains”. Mr. Sengupta also argues that in any event two conceivable opinions being possible as to whether the goodwill of the business is a capital asset for the purposes of capital gains, it cannot be said that there is any mistake apparent from the record in the order of the Tribunal and, therefore, it was not a rectifiable mistake under s. 254(2) of the Act.
8. Before dealing with the aforesaid arguments we would like to dispose of the two cases cited by Mr. Poddar in support of his another argument, that the Tribunal should have followed the case of Chunilal Prabhudas & Co., [1970] 76 ITR 566 (Cal).
9. In CIT v. Ramjibhai Hirjibhai & Sons, [1977] 110 ITR 411 (Guj), at the time of original assessment the ITO did not charge any interest under s. 139 of the 1961 Act for late filing of the return of income by the assessee. He thereafter charged interest by acting under s. 154 of the Act. The appeal filed by the assessee from the rectification order was allowed by the A AC who held that the ITO having already exercised his discretion in not levying any interest was no longer competent to charge it under s. 154 of the Act. The department then filed an appeal. The Tribunal held that the ITO was wrong in acting under s. 154 of the Act, as there was a diver gence of judicial opinion on the question as to whether any interest was leviable in those circumstances. On a reference, the Gujarat High Court held that, so far as that court was concerned, the point being well settled, the Tribunal was not right in its aforesaid conclusion although the other High Courts, had taken a different view on the said question.
10. The other case cited by Mr. Poddar is Mettur Chemical Industrial Corporation Ltd. v. CIT, [1977] 110 ITR 822 (Mad). In that case the income from the business was assessed after deducting the wealth-tax paid by the assessee. Subsequently, the ITO, acting under s. 154 of the I.T Act, 1961, deducted the wealth-tax paid by the assessee from the computation of ills income from the business. The AAC dismissed the appeal filed by the assessee. The Tribunal, however, held that there was no mistake apparent from the record which could be rectified by the ITO under s. 154 of the Act. The Madras High Court, on a reference, disagreed with the Tribunal in view of a decision of that court in which it was held that the wealth-tax paid by a company was not an allowable expenditure and at page 825 of the report observed as follows:
“We are not referring to the subsequent decisions on this question and the retrospective amendment of the law in this behalf because at the time when the Income-tax Officer took proceedings under section 154 this was the only binding decision in existence and, therefore, it was not merely the right but the duty of the Income-tax Officer to give effect to the law as declared by this court in the decision referred to above by correcting the mistake which he had already committed.”
11. But in T.S Balaram, ITO v. Volkart Brothers, [1971] 82 ITR 50, at page 53 of the report, the Supreme Court says thus:
“A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two Opinions. As seen earlier, the High Court of Bombay opined that the original assessments were in accordance with law though, in our opinion, the High Court was not justified in going into that question. In Satyanarayan Laxminarayan Hegde v. Mallikarjun Bhavanappa Tirumale, [1960] 1 SCR 890 this court while spelling out the scope of the power of a High Court under article 226 of the Constitution ruled that an error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions cannot be said to be an error apparent on the face of the record. A decision on a debatable point of law is not a mistake apparent from the record—See Sidhramappa Andannappa Manvi v. Commissioner of Income-tax, [1952] 21 ITR 333 (Bom).”
12. Hence, if there is a divergence of judicial opinion on a question of law or two conceivable views are possible on it, proceedings under s. 154 or under s. 254(2) of the I.T Act, 1961, cannot be taken at all. It is also not the law that the ITO or the appellate authorities under the I.T Act for the purposes of a rectification application should only look at the decisions of a particular High Court under whose advisory jurisdiction it acts in order to find out whether that High Court has taken different views on the question of law involved before it. They must consider the decisions of all the High Courts and if there is a divergence of judicial opinion on the question of law or two conceivable opinions are possible on it, they must hold that the mistake is not apparent from the records. The contention of Mr. Poddar is, therefore, rejected.
13. Now, as to the main argument of Mr. Poddar, namely, that we should follow the case of Chunilal Prabhudas & Co., [1970] 76 ITR 566 (Cal). In the case of Devidas Vithaldas & Co., [1972] 84 ITR 277 (SC), at page 286 of the report, the Supreme Court says thus:
“Acquisition of the goodwill of the business is, without doubt, acquisition of a capital asset, and, therefore, its purchase price would be capital expenditure.”
14. Therefore, the case of Chunilal Prabhudas & Co., [1970] 76 ITR 566 (Cal) can no longer be regarded as good, law. Further, a later Division Bench of this court in the case of K.N Daftary v. Commissioner Of Income-Tax, West Bengal., [1977] 106 ITR 998 (Cal) has held that the goodwill of a business is undoubtedly a capital asset for the purposes of s. 45 of the I.T Act, 1961, although the case of Chunilal Prabhudas, [1970] 76 ITR 566 (Cal) was cited in the same as it was cited in CIT v. Bird & Co. (P.) Ltd., [1977] 108 ITR 253 (Cal) and none the less it was held by a Division Bench of this court that the goodwill of a business is both a fixed and a capital asset. Accordingly, we reject his main argument.
15. There is also no merit in his other argument. Even if no cost is incurred in building up the goodwill of a business it is still a capital asset for the purposes of capital gains and the cost of acquisition being “nil” amount, the entire sale proceeds relating to the goodwill must be brought to tax under the head “capital gains”. It being now well settled that the goodwill of a business is a capital asset, vide the decision of the Supreme Court in the case of Devidas Vithaldas & Co., [1972] 84 ITR 277, we answer the question in the affirmative and against the assessee. There will be no order as to costs.
Sudhindra Mohan Guha, J.:— I agree.