Retirement of partners

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This query is : Resolved

chirag savla (Querist)

06 November 2009 wether share of goodwill given to the retiring partner is taxable in hands of retiring partner ?
under what section?
any judgement on the same is given by Hc or Supreme Court.?
if earlier it was not taxable then from which A.Y. it was made taxable?
any recent judgement is available?

CA. B.SRINIVASULU

CA. B.SRINIVASULU (Expert)

07 November 2009 Goodwill in a firm is a capital asset. The gain should be taxed as short term or long term depending on the period.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)

07 November 2009 Upto assessment year 1988-89, the gains arising on the transfer of goodwill were not liable to tax. This was on account of the judicial view approved by the Supreme Court (CIT vs B.C. Srinivasa Shetty - 128 ITR 294). The rationale of the Court was that goodwill being a self-generated asset and not costing anything in terms of money, the gains could not be computed in accordance with the provisions of the Act. By Finance Act, 1987, the method of computing the cost of acquisition as well as the cost of improvement of goodwill was provided for. Where goodwill is purchased by the transferor, the cost of acquisition is taken to be the purchase price and in all other cases it is taken to be nil. The cost of improvement in either case is taken to be nil.

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