Per Shri Y. R. Meena Judicial Member - This is an appeal by the revenue against the order of the AAC dated 14-10-1982. The assessment year involved is 1979-80. The first issue for our consideration in this appeal is whether the AAC has erred in treating the whole of the consideration received by the assessee on sale of machinery, furniture, fixture and stock-in-trade, etc., as goodwill and allowing the same to be exempt.
2. The relevant facts are that the assessee has received a sum of Rs. 1 lakhs as price of machinery, furniture, fittings, stock-in-trade, etc., along with the goodwill of the business, and claimed before the ITO that the assessee has received Rs. 1 lakh on account of goodwill of the business, and, therefore, it is not taxable. The ITO did not agree with the claim of the assessee. He has taken the value of the goodwill at Rs. 12,500 and estimated the capital gains at Rs. 30,253. Being aggrieved, the assessee carried the matter before the AAC. The AAC has considered the decisions of their Lordships of the Supreme Court and High Court in CIT, Kerala v. West Coast Chemicals and Industries Ltd. : 46ITR135(SC) , CIT (Central) Calcutta v. Mugneeram Bangur and Company : 47ITR565(Cal) and held that the assessee has sold the business of running the printing press known as Technical Printers.... as a going concern together with machineries, furnitures, fittings, stock-in-trade and goodwill, but he allowed the claim of the assessee. According to him, the amount received by the assessee on the sale of Technical Printers was not taxable.
3. Being aggrieved, the revenue came in appeal before us. The submission of the learned departmental representative, Shri Joy was that in this case, there is a transfer of business as a whole and business is an asset; therefore, whatever he received on account of transfer of business, the balance of the cost of acquisition and the consideration received for the business should be taxed as capital gains.
4. We have heard the rival submission and considered the material on record. The fact is not in dispute that the assessee has received Rs. 1 lakh for the transfer of business which includes the assets in business. In our view the business is an asset and on the sale of such assets, the balance from the consideration should be taxed as capital gains tax. The learned counsel for the assessee, Shri R. C. Desai, relied on the decision of the Calcutta High Court in the case of CIT v. Mungeeram Bangur & Co. : 47ITR565(Cal) which was confirmed by the Supreme Court in CIT v. Mungeeram Bangur & Co : 57ITR299(SC) . We have gone through the decisions cited by Shri Desai. The facts before their Lordships of the Supreme Court in the case of Mungeeram Bangur & Co. (supra) was that a firm which carried on business of buying land, developing it and then selling it, under an agreement; the assessee sold the business as a going concern with its goodwill and all stock-in-trade to the company promoted by the partners. The issue was whether by the sale of the whole business concern, it could be held that there was taxable profits in the sum of Rs. 2,50,000. Their Lordships of the Supreme Court held that the sale was the sale of the whole concern and no part of the price was attributable to the cost of the land and no part of the price was taxable. The fact that in the schedule to the agreement, the price of the land was stated did not lead to the conclusion that part of the sale price was attributable to the land sold. What was given in the schedule was the cost price of the land as it stood in the books of the vendor and if the sum of Rs. 2,50,000 attributed to goodwill should be added to the case of the land, there was nothing to show that this represents the market value of the land considering the value taken by their Lordships of the Supreme Court in Mungeeram Bangur & Co.s case (supra). We are of the view, when the business as a whole is sold, it is difficult to give a particular value to any item of the business unless there is sufficient evidence to the exact value of that particular item in the business assets. In this case of the assessee, the assessee has claimed the entire consideration as the price for the goodwill. We do not agree with the claim of the assessee. The AAC has wrongly followed the decision of the Supreme Court. In fact, when there is a sale of the business as a whole, capital gain can be taxed. In this case of the assessee, already the goodwill is estimated by the ITO in last paragraph of his order, i.e., more than sufficient value of the goodwill. Therefore, we uphold the order of the ITO on this aspect and reverse the order of the AAC.
5. The last issue for our consideration in this appeal is whether the AAC has erred in directing the ITO to exempt the depreciation obtained by the assessee in earlier years although it is clearly covered by the provisions of section 41(2) of the Act.
6. The relevant facts are that the assessee had started business of Technical Printers during 1967 and had incurred Rs. 27,589 towards purchase of price of total assets of the business. The assessee had made additions of Rs. 6,063 to the assets during 1968-69 to 1970-71. Total depreciation allowed during the year up to date was Rs. 23,595. During the previous year relevant to the assessment year 1979-80 the assessee had sold business of Technical Printers for total consideration of Rs. 1 lakh. The ITO has charged the profits on sale of his business which includes the machinery and applied sub-section (2) of section 41.
7. We heard the rival submissions and considered the material on record. Sub-section (2) of section 41 provides that where any building, machinery, plant or furniture which is owned by the assessee and which was or has been used for the purposes of business or profession is sold, discarded, demolished or destroyed and the moneys payable in respect of such building, machinery, plant or furniture, as the case may be, together with the amount of scrap value, if any, exceed the written down value, 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 or furniture became due.
In our view, considering the provisions of section 41(2), when the assessee was allowed written down value, while computing the capital gains, the depreciation which was allowed should be taken into account, and the ITO has rightly applied the provisions of section 41(2). Therefore, we restore the order of the ITO and reverse the order of the AAC.
8. The appeal is allowed.