Capital Gain-Transfer of Self Generated Goodwill

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Gaurav (Querist)
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22 January 2010 Hi,

In case self generated goodwill is transferred by professional firm then no capital gain. However in other case it is taxable as cost of self generated goodwill is specifically stated in law as NIL.

Please let me know is there any law/circular for not charging CG on self generated goodwill transferred by professional firm ?

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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22 January 2010 Generally there is no capital gain on transfer of self-generated assets as the cost of acquisition of such assets cannot be computed. But certain amendments have been made in the Income-tax Act and now capital gain arising on the transfer of the following assets is chargeable to tax:
(i) goodwill of a business. There will, however, be no capital gain on sale of goodwill of a profession;
(ii) trademark or brand name associated with the business;
(iii) right to manufacture, produce or process any article or thing, for a consideration e.g. patent, copyright, formula, design;
(iv) right to carry on any business;
(v) tenancy rights;
(vi) route permits;
(vii) loom hours.
The cost of acquisition of the above self-generated assets shall be taken as nil.
However, other self-generated assets like goodwill of a profession, etc. are still not subject to capital gains as for such assets cost cannot be identified or envisaged as per Supreme Court decision in CIT v B.C. Srinivasa Setty (1981) 128 ITR 294 (SC).

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