M/S. S. C. CAMBATTA & CO. PRIVATE LTD., vs. THE COMMISSIONER OF EXCESS PROFITS TAX, BOMBAY

CIVIL APPEAL No. 776/1957Supreme Court[1961] 2 S.C.R. 80530 November 1960Bench: 3 JudgesAuthor: J.L. KAPUR, M. HIDAYATULLAH, J.C. SHAH7 pages
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What were the facts?

The appellant, M/s. S. C. Cambatta & Co. Private Ltd., operated a theatre and restaurant. In October 1943, a subsidiary, Eros Theatre and Restaurant Ltd., was formed. The appellant transferred assets, including goodwill, to the subsidiary. For excess profits tax, the appellant claimed Rs. 5,00,000 for goodwill as part of the subsidiary's capital. The Department and Tribunal disallowed this, applying Section 8(3) of the Excess Profits Tax Act. The High Court directed a reference on two questions. Upon re-examination, the Tribunal valued the goodwill at Rs. 2,00,000, attributing it solely to the site and lease, not the business itself. Appeals were filed against the Tribunal's order and the High Court's rejection of further reference.

What did the Supreme Court hold?

The Supreme Court held that the Tribunal had considered goodwill too narrowly, focusing only on the value of the leasehold of the site to the subsidiary company and rejecting other considerations that constitute goodwill. The Court referenced various legal definitions and observations, including those from Cruttwell v. Lye, Trego v. Hunt, Inland Revenue Commissioners v. Muller & Co.'s Margarin, Ltd., Daniell v. Federal Commissioner of Taxation, and Federal Commissioner of Taxation v. Williamson, to explain that goodwill is a composite thing dependent on a variety of circumstances such as nature of the business, location, service, standing, honesty of management, and lack of competition. The Court found that a question of law did arise and that the High Court should have directed the Tribunal to state a case upon it. Civil Appeal No. 776 of 1957 was allowed, with the High Court to frame a suitable question and ask for a statement of the case from the Tribunal. Civil Appeal No. 777 of 1957 had no order.

What were the issues?

1. Whether, on the facts, the Appellate Tribunal was right in applying Section 8(3) of the Excess Profits Tax Act? (Question of law) 2. Whether, in the computation of capital employed, the Tribunal erred in not including the value of goodwill or any portion thereof? (Question of mixed law and fact) Assessee's Contentions: The assessee argued that goodwill should be considered in a broader sense, encompassing various factors beyond just the site or lease. They relied on the High Court's earlier direction that the Tribunal should allow for the value of goodwill at the date of transfer. They contended that the Tribunal's subsequent valuation, focusing solely on the lease and site, was incorrect and did not reflect the true nature of goodwill as established in various legal precedents. Revenue's Contentions: The revenue's primary contention, as reflected in the Tribunal's initial decision, was that Section 8(3) of the Excess Profits Tax Act applied, disallowing the claim for goodwill as part of the capital. They argued that the goodwill, if any, was not acquired by the business as such but was intrinsically linked to the site and lease, which did not qualify for inclusion in capital computation under the relevant provisions.

Which sections of the Income-tax Act were involved?

Section 8(3),Section 8(5),Section 66(1),Section 66(2),Section 21

AI-generated summary — verify with the full judgment below

2 s.c.R. SUPREME COURT REPORTS 805 case reported as Liverpool Gorn Trade .Association v.

Monks (1).

In our opinion the judgment of the High Court is right and the appeals are therefore dismissed with costs. One hearing fee.

Appeals dismissed. M/S. S. C. CAMBATTA & CO. PRIVATE LTD., BOMBAY v. THE COMMISSIONER OF EXCESS PROI!'ITS TAX, BOMBAY (J. L. KAPUR, M. HIDAYATULLAH and J. c. SHAH, JJ.)

Excess Profits Tax-Assessment-Sale of theatre and restaurant -Goodwill-Value of-Principle of computation-Excess Profits Tax Act, z940 (XV of I940).

The appellant carried on various businesses and one such was the running of a Theatre and Restaurant. In October, 1943, a subsidiary company was formed which was using the premises of the Theatre under a lease granted to it from April, 1944· In working out the capital of the two companies for excess profits tax, a claim of rupees five lakhs for goodwill as part of the capi- tal of the subsidiary company was not taken into account.

On reference to the High _Court it held that the Tribunal should have allowed the value of the goodwill whatever it thought was reasonable at the date of transfer. Thereafter the Tribunal took into

The order continues below.

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