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Self generated goodwill

kunal (rt) (51 Points)

24 November 2011

IS SALE OF SELF GENERATED GOODWILL IS TAXABLE U/H CAPITAL GAIN???IF YES THEN Y??

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Z ( ) (2960 Points)
Replied 24 November 2011

More info. required

Wheteher the Goodwill is of business or profession?

If its the self generated goodwill of the BUSINESS then cost of acquisition shall be NIL and there will be capital gain on sale as according to sec 2(14) Property of any kind whether held by an assessee , whether or not connected with his business or profession. And further nowhere in this chapter or any other provision , goodwill has been excluded from definition of capital asset.

Further If its the case of self generated goodwill of profession then according to the principles laid down in the case of B.C.Srinivasa Setty (SC) , Cost of self generated asset is indeterminate and hence No capital gain.

The provision was partially ameneded , Goodwill of business was considered but of profession was not specifically included.

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CA Dhiraj Ramchandani (CA, M. com) (10823 Points)
Replied 24 November 2011

Yes it is chargeable to income tax under head "CAPITAL GAINS"..

And as it is self generated, its cost of acquisition will be considered NIL, and whole of sale consideration will be considered as capital gain..

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kunal (rt) (51 Points)
Replied 24 November 2011

but i was readin some articles n cases in wich it was not taxable(goodwill of business)

CA RICHA BADALIA (CA,CS) (1682 Points)
Replied 24 November 2011

There was a controversy regarding this fact,But subsequently sec 55(2)(A) was inserted to provide that cost of self generated asset would be NIL and whole amount would be chargeable to CG tax.Hence it is taxable.

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Z ( ) (2960 Points)
Replied 24 November 2011

Can you give any refference to the article or case , you mentioned?

Giving you some extracts of the case "CIT v. M/s Mediworld Publications Pvt."

Once it is accepted that the brand names, trademark, copyright and goodwill in the aforesaid journals was sold/transfered by the assessee to the transferee, it would be a case of sale of capital asset and the gain therefrom would be computed as capital gain;

Court held Goodwill as intangible and liable to capital gain tax

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