V.S. Desai, J.
1. The assessee is a private limited company, which carried on, inter alia, the business called 'The Eros Theatre & Restaurant', which was comvmenced in the year 1938. The assessee transferred the said business on the 1st of October, 1943, to Eros Theatre & Restaurant Ltd., another private limited company formed with a capital of Rs. 7,91,100 divided into 7,911 shares of Rs. 100 each. 7,901 shares fully paid up were held by the assessee in full satisfaction of the goodwill and other assets and liabilities and the remaining 10 shares were distributed amongst the members of the Cambatta family. The sum of Rs. 7,90,100, which was received by the assessee in the form of the fully paid up shares as consideration for the transfer, was adjustified in the assessee's accounts books as follows :
Sundry assets 1.28,968
Books Debts 100 Rs
Capital Reserve 6,21,032
In the books of the transfer, viz., the Eros Theatre and Restaurant Ltd., the purchase was recorded as follows :
Sundry assets 2,50,000
Book debts 100
2. In its return for the excess profits tax for the chargeable accounting periods ended on 31st December, 1943, 31st December 1944, and 31st December, 1945, the assessee claimed abatement on the increase in capital employed on the basis of the goodwill of the transferred business at Rs. 5 lakhs. The claim of the assessee was negatived by the department and the Tribunal, because in their view the case was governed by the assessee was, therefore, not available. On a reference to the court under section 66(2), this court came to the conclusion the the assessee's case was governed not by section 8(3) of the Excess Profits Tax Act but by section 8(5) and, consequently, the goodwill had to be valued fort whatever it was worth. It accordingly directed the Tribunal to determined and allow for the value of the goodwill whatever it thought was reasonable at the date of the transfer. When the matter went back to the Tribunal, it considered the question of the value of the goodwill and came to the conclusion that the only factor which could be taken into account for the purpose of determining the value of the goodwill, was the value of the lease to the company. Since there were restrictions placed by the landlord on the leases, this value also could not be a very large amount and could be valued at the most at a figure of Rs. 2 lakhs. It accordingly took a figure of Rs. 2 lakhs for the value of the goodwill and allowed the said amount in the assessment of the assessee for all the three years. The assessee, it appears had contended before the Tribunal that it was necessary for the value of the goodwill to be determined as at the beginning of each of the three periods. The Tribunal disregarded the said submission of the assessee on the ground that under the directions of this court what was required to be determined and allowed was the value at the date of the transfer. From the said decision and order of the tribunal of the assessee applied for a reference to this court under section 66(1) but the said application of the assessee was rejected. It then applied to this court under section 66(2) but that application was also rejected by the court. The assessee then by special leave went to the Supreme Court. The decision of the Supreme Court is in S. C. Cambatta Co. & Pvt. Ltd. v. Commissioner of Excess Profits Tax. The assessee's contention before the Supreme Court was that the Tribunal had erred in arriving at the valuation of the goodwill only on the basis of the benefit under the lease and without taking into consideration several other important and material circumstances. The Supreme Court upheld the said submission of the assessee and after having considered a number of cases dealing with the concept and content of 'goodwill' it observed :
'It will thus be seen that the goodwill of a business depends upon a variety of circumstances or a combination of them. The location, the service, the standing of the business, the honesty of those who run it, and the lack of competition and many other factors go individually or together to make up the goodwill, though locality always plays a considerable part. Shift the locality, and the goodwill may be lost. At the same time, locality is not everything. The power to attract custom depends on one or more of the other factors as well. In the case of a theatre or a restaurant, what is catered, how the service is run and what the competition is, contribute also to the goodwill.'
3. According to the Supreme Court the Tribunal had not considered the material having regard to all these circumstances and, therefore, a question of law did arise as to whether the goodwill was calculated according to law by the Tribunal. The Supreme Court, therefore, directed this court to frame a suitable of the case from it on the said question and decide the same according to law. In view of the direction of the Supreme Court, this court required the Tribunal to draw up a statement of the case and refer the following two questions to this court :
'(1) Whether the goodwill of the Eros Theatre and Restaurant Limited was calculated according to law and
(2) Whether the Tribunal erred in not valuing the goodwill of the said business separately as on the first day of January, 1943, 1st day of October, 1943, 1st day of January, 1944, and 1st day of January 1945 ?'
4. The Tribunal has accordingly drawn up a statement of the case and referred the said questions to this court under section 66(2) of the Indian Income-tax Act.
5. Now, so far as the first question is concerned, there can be no doubt whatsoever, in view of the Supreme Court decision referred to above, that the said question must be answered in the negative. As has been observed by the Supreme Court, the matter of goodwill needs to be considered in a much broader way than what the Tribunal had done. Consequently, it would follow that the goodwill has not been calculated according to law by the Tribunal and it will have to consider the question of valuation of the goodwill again on a consideration afresh of the entire material on record in the light of the principle contained in the Supreme Court decision referred to above.
6. As to the second question, although the question as framed requires the valuation to be determined on the 1st January 1943, also, it has been fairly conceded by the learned counsel appearing for the assessee that the determination of the valuation for the first year would be only on the 1st of October, 1943, and not also on 1st January, 1943. The said question, therefore, will only have to be considered as confined to the valuation of the goodwill as on 1st October, 1943, and on the 1st of January of the later two years, viz., 1944 and 1945. Now, the value of goodwill is a varying thing and its valuation as arrived at on 1st January, 1943, may not necessarily be the same as on 1st January, 1944, or as on 1st January, 1945. The length of time as also the other circumstances affecting the business have got to be considered and consequently there can be fluctuation in its value at different stages. If for the purpose of the assessment the valuation of the goodwill is necessary, such valuation has to be made as on the 11th day of the relevant year. In deciding, therefore, what amount for the value of the goodwill could be allowed to the assessee for each of the years, it would be necessary to ascertain the value of the goodwill as on the 1st day of each of the relevant years. It is not doubt true that once the value is determined as on 1st October 1943, in the subsequent valuation of the goodwill on 1st January, 1944, and 1st January, 1945, the circumstances, which may have the effect of increasing or decreasing the valued of the goodwill during the interval will only have to be considered. The Tribunal had apparently refused to consider the valuation on different dates because the direction give by this court calling upon it to determine the value of the goodwill was that the value should be determined as on the date of the transfer. Now, the said direction of this court was not intended to mean that the valuation as determined on 1st October, 1943, was to be taken as constant for the subsequent years. That observation was made by this court in relation to the first year since it was the valuation on that date that was material.
7. Our answer to the second question, confining to the three dates, viz., 1st October, 1943, 1st January, 1944, and 1st January, 1945, is in the affirmative. The assessee will get his costs from the Commissioner.