CIT v. B.C. Srinivasa Setty

[1981] 128 ITR 294 (SC)(1981) 2 SCC 460

Date of order: 19 February 1981

Appellant: Commissioner of Income Tax

Respondent: B.C. Srinivasa Setty

In favour of: Assessee

Legislation referred / considered

Capital gains — charge & computation (old Sections 45 & 48)

Headnote — editorial summary

Catchwords: Capital gains; cost of acquisition; self-generated goodwill; integrated code

No capital gains tax can be charged on the transfer of an asset — such as self-generated goodwill — whose cost of acquisition cannot be conceived or computed. The charge and computation provisions are one integrated code.

Judgment

What it decided

The charging section and the computation machinery form an integrated code. If the cost of acquisition of an asset cannot be determined (here, self-generated goodwill), the computation fails and no capital gains charge arises.

Why it matters

A cornerstone principle applied to many self-generated intangibles — 'no cost, no capital gains'.

Current status

The legislature has since plugged specific gaps — cost is deemed nil for self-generated goodwill of a business, tenancy rights, route permits, etc. — so the principle now applies only to assets not so covered. (Note: depreciation on goodwill was withdrawn from AY 2021-22.)

Status

✔ Good law — followed, not overruled

Verified against later citations. citator soon

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