S C CAMBATTA AND CO PVT LIMITED Vs. COMMISSIONER OF EXCESS PROFITS TAX

JUDGEMENT

(1.) THE assessee is a private limited company, which carried on, inter alia, the business called "THE Eros THEatre & Restaurant", which was commenced 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 : <FRM>JUDGEMENT_463_ITR68_1968Html1.htm</FRM>

(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 :

(3.) 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.