The Tax Publishers2020 TaxPub(DT) 0162 (Kol-Trib)

INCOME TAX ACT, 1961

Section 14

Where assessee was having substantial experience, reputation and credentials in the business of mining, which was a valuable intangible asset; the amount paid by a company to assessee to use his name and credentials to pursue its object of conducting mining activities, would be considered towards transfer of goodwill and hence, the said amount would be assessable under the head 'Capital gains.'

Head of Income - Income from other sources or Capital gains - Receipt on account of sale of self-generated goodwill -

Assessee was engaged in business of mining of bauxite and other minerals. It received certain amount from a company 'G' as he was made director of the said company. He explained that the said amount was received towards his self-generated goodwill on account of his experience in operation of mining and accordingly, he treated such receipt as capital gain on sale of self-generated goodwill. AO noticed that the assessee did not discontinue his proprietorship business, thus, his 'right to conduct business' was not transferred and therefore, there was no transfer of capital asset giving rise to capital gain. Further, the AO also noticed that none of the other directors who were appointed during the same period was paid any goodwill. Accordingly, the AO concluded that the said receipt would not be assessable under the head 'Capital gains.' but assessable under the head “Income from other sources”. Held: It was found that assessee was engaged in business of mining for over 40 years, he therefore garnered substantial experience, reputation and credentials in the business of mining, which was a valuable intangible asset. Further, G sought to use the name and credentials of the assessee to pursue its object of conducting mining activities. Although, the assessee continued to use his name in his personal business but he transferred partial right to G permitting them to use his name and credentials as a part of the company, therefore, it could be said that the amount received by the assessee from G was towards transfer of goodwill, which is a capital asset within the meaning of section 2(14) and therefore, transfer of such capital asset was rightly offered to tax under the head capital gains.

REFERRED : CIT v. Smifs Securities Ltd. (2012) 210 taxman 428 (SC): 2012 TaxPub(DT) 2430 (SC) ACIT v. S.P. Sambandam (Dead) through L. Rs (2011) 15 taxmann.com 388 (Chen): 2011 TaxPub(DT) 0728 (Chen-Trib)

FAVOUR : In assessee's favour

A.Y. : 2009-10

IN THE ITAT, KOLKATA BENCH

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