# Delhi Sto&k E:t&hange Association Ltd v. Commissioner of Income-la:<, Delhi Kapur ]. November 30. M/s. S. C. Camballa ©- Co

- **Citation:** [1961] 2 S.C.R. 805
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Case number:** Civil Appeals Nos. 776 and 777 of 1957
- **Bench:** J. L. Kapur, M. Hidayatullah, J. c. SHAH
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/delhi-sto-k-e-t-hange-association-ltd-v-commissioner-of-income-la-delhi-kapur-2046
- **Pages:** 7

## Headnote

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 capital 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 account only the value of the lease-hold of
the site to the subsidiary company, and came to the conclusion
that no goodwill had been acquired by the business of the
Theatre as such and whatever goodwill there was related to the
site of building itself, and estimated the value of goodwill at
rupees two lakhs. Petition under ss. 66(1) and 66(2) read with
s. 21 of the Excess Profits Tax Act being rejected by the Tribunal and the High Court, the appellants came in appeal by special leave.
Held, that the goodwill of a business needed to be considered in a broader way. It depended upon a variety of circumstances or a combination of them. The nature, the location, the
(1) (1959) 36 I. T.R. 222,
102
Delhi Sto&k
E:t&hange
Association Ltd.
v.
Commissioner
of Income-la:<,
Delhi
Kapur ].
November 30.
M/s. S. C.
Camballa ©- Co.
PPivale Ltd.,
Bombay
v.
806
SUPREME COURT REPORTS
[1961]
service, the standing of the business, the honesty of those who
run it, and the Jack of competition and many other factors went
individually or together to make up the goodwill, though the
locality always played a considerable part. Shift the locality,
and the goodwill may be lost but it was not everything. The
power to attract custom depended on one or more of the other
factors as well.
The Com1nissioner
In the instant case a question of law did arise, whether the
of E.cess P1oftts goodwill of the Eros Theatre and Restaurant Ltd. was calculated
Ta#, Bo1nbay
in accordance with la\v.
Cruttwell v. Lye, (1810) 17 ves. 335, Trego v. Hunt, (1896)
A. C. 7 (H. L.), Inland Revenue Commissioners v. Muller 0- Co.'s
Margarin, Lid., 1901 A. C. 217 (H. L.), Daniell v. Federal Commissioner of Taxation, (1928) 42 C. L. R. 296 and Federal Commissioner of Taxation v. Williamson, (1943) 67 C.L.R. 561, discussed.
CIVIL
APPELLATE
JURISDICTION:
Civil Appeals
Nos. 776 and 777 of 1957.
Appeals by special leave from the judgment and
order dated September 25, 1956, of the Bombay High
Court in Income-tax Application No. 48of1956; and
from the judgment and order dated March 17, 1954, of
the Income-tax Appellate Tribunal, Bombay, in
E.P.T.A. Nos. 757, 903 and 944 of 1948-49, respectively.
A. V. Viswanatha Sa.!tri and G. Gopalakrishnan, for
the appellants.
A. N. Kripal and D. Gupta, for the respondent.
1960. November 30. The Judgment of the Court
was delivered by
Hidayatullah J.
HIDAYATULLAH, J.-These are two appeals, with
special leave, against an order of the High Court of
Bombay rejecting a petition under s. 66(2) of the
Indian Income-tax Act and the order of the Incometax Appellate Tribunal, Bombay, in respect of which
the petition to the High Court was made. Messrs.
S. C. Cambatta & Co. (Private) Ltd., Bombay, have
filed these appeals, and the Commissioner of Excess
Profits Tax, Bombay, is the respondent.
We are concerned in these appeals with three
chargeable accounting periods, each ending respectively on December 31, beginning with the year, 1943 and
ending with the year, 1945.
.-
II
~
2 S.C.R. SUPREME COURT REPORTS
807
The appellants carry on various businesses, and one
1960
such business was the running of a theatre and restauM
c
rant, called the Eros Theatre and Restaurant. In Cambl~~:·s. c
October, 1943, a subsi

## Text

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 capital 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 account only the value of the lease-hold of
the site to the subsidiary company, and came to the conclusion
that no goodwill had been acquired by the business of the
Theatre as such and whatever goodwill there was related to the
site of building itself, and estimated the value of goodwill at
rupees two lakhs. Petition under ss. 66(1) and 66(2) read with
s. 21 of the Excess Profits Tax Act being rejected by the Tribunal and the High Court, the appellants came in appeal by special leave.
Held, that the goodwill of a business needed to be considered in a broader way. It depended upon a variety of circumstances or a combination of them. The nature, the location, the
(1) (1959) 36 I. T.R. 222,
102
Delhi Sto&k
E:t&hange
Association Ltd.
v.
Commissioner
of Income-la:<,
Delhi
Kapur ].
November 30.
M/s. S. C.
Camballa ©- Co.
PPivale Ltd.,
Bombay
v.
806
SUPREME COURT REPORTS
[1961]
service, the standing of the business, the honesty of those who
run it, and the Jack of competition and many other factors went
individually or together to make up the goodwill, though the
locality always played a considerable part. Shift the locality,
and the goodwill may be lost but it was not everything. The
power to attract custom depended on one or more of the other
factors as well.
The Com1nissioner
In the instant case a question of law did arise, whether the
of E.cess P1oftts goodwill of the Eros Theatre and Restaurant Ltd. was calculated
Ta#, Bo1nbay
in accordance with la\v.
Cruttwell v. Lye, (1810) 17 ves. 335, Trego v. Hunt, (1896)
A. C. 7 (H. L.), Inland Revenue Commissioners v. Muller 0- Co.'s
Margarin, Lid., 1901 A. C. 217 (H. L.), Daniell v. Federal Commissioner of Taxation, (1928) 42 C. L. R. 296 and Federal Commissioner of Taxation v. Williamson, (1943) 67 C.L.R. 561, discussed.
CIVIL
APPELLATE
JURISDICTION:
Civil Appeals
Nos. 776 and 777 of 1957.
Appeals by special leave from the judgment and
order dated September 25, 1956, of the Bombay High
Court in Income-tax Application No. 48of1956; and
from the judgment and order dated March 17, 1954, of
the Income-tax Appellate Tribunal, Bombay, in
E.P.T.A. Nos. 757, 903 and 944 of 1948-49, respectively.
A. V. Viswanatha Sa.!tri and G. Gopalakrishnan, for
the appellants.
A. N. Kripal and D. Gupta, for the respondent.
1960. November 30. The Judgment of the Court
was delivered by
Hidayatullah J.
HIDAYATULLAH, J.-These are two appeals, with
special leave, against an order of the High Court of
Bombay rejecting a petition under s. 66(2) of the
Indian Income-tax Act and the order of the Incometax Appellate Tribunal, Bombay, in respect of which
the petition to the High Court was made. Messrs.
S. C. Cambatta & Co. (Private) Ltd., Bombay, have
filed these appeals, and the Commissioner of Excess
Profits Tax, Bombay, is the respondent.
We are concerned in these appeals with three
chargeable accounting periods, each ending respectively on December 31, beginning with the year, 1943 and
ending with the year, 1945.
.-
II
~
2 S.C.R. SUPREME COURT REPORTS
807
The appellants carry on various businesses, and one
1960
such business was the running of a theatre and restauM
c
rant, called the Eros Theatre and Restaurant. In Cambl~~:·s. c
October, 1943, a subsidiary Company called the Eros
Pri:ate Ltd.,
0
•
Theatre and Restaurant, Ltd. was formed.
The paidBombay
up capital of the subsidiary Company was Rs. 7,91,100
v.
divided into 7,911 shares of Rs. 100 each. 7,901 shares The Commissioner
were allotted to the appellant Company as considera0~/xce~ P~ofits
tion for assets, goodwill, stock-in-trade and book debts
ax,
0111 ay
which were taken over by the subsidiary Company, Hidayatullah J.
and the remaining 10 shares were held by the Cambatta famify. The assets which were transforred were
as follows:
Assets:
Assets transferred
Stock-in-trade
Book debts
Rs. 1,28,968
Rs.
40,000
Rs.
100
Rs. 1,69,068
They together with the capital reserve of Rs. 6,21,032
made up the amount of Rs. 7,90,100. In the books of
the Sl,lbsidiary Company, the share capital account
was shown separately as follows:
Rs. 2,50,000 debited to the various assets account.
Rs. 5,00,000 debited to the goodwill account.
Rs.
40,000 debited to the stock-in-trade account.
Rs.
100 debited to the book debts account.
It will thus appear that goodwill was not shown separately in the appellants' account books, but only in
the accounts of the subsidiary Company. In working
out the capital of the two Companies for excess profits
tax, a sum of Rs. 5,00,000 was claimed as goodwill as
part of the Qaphal of the subsidiary Company. Both
the Department as well as the Tribunal held that
s. 8(3) of the Excess Profits Tax Act. applied; and the
goodwill was not taken into account in working out
the capital. The Tribunal declined to state a case,
but the High Court directed that a reference be made
on two questions, which were framed as follows:
sos
SUPREME COURT REPORTS
[1961)
1960
"(I) Whether on the facts of the case, the Appellate Tribunal was right in applying section 8(3) of the
M/s. s. c.
Excess Profits Tax Act?
Cambqtta ($.. Co.
Privote Ltd.,
(2) Whether in the computation of the capital
Bombay
employed in the business of the assessee, the Tribunal
v.
erred in not including the value of the goodwill or any
"he Commissioner portion thereof?"
0! Excess Profits
The High Court by its judgment and order answerTox, Bqmb•y
ed the first question in the negative and the second,
Hidayatullah J. in the affirmative. It held that sub-s. (5) and not
sub-s. (3) of s. 8 of the Excess Profits Tax Act was
applicable. It, therefore, hel<j. that "the Tribunal
should have allowed for the value of the goodwill
whatever it thought was reasonable at the date of the
transfer."
When the matter went before the Tribunal again,
three affidavits and a valuation report by a firm of
architects were filed.
The goodwill, according to the
report of the architects, amounted to Rs. 25 lakhs.
It may be mentioned here that the subsidiary Company was using the premises under a lease granted on
November 20, 1944, for three years beginning from
April I, 1944, on a rental of Rs. 9,500 per month.
The Tribunal came to the conclusion that no goodwill had been acquired by the business of the Theatre
as such, and that whatever goodwill there was, related
to the site and building itself. They then proceeded
to consider what value should be set upon the goodwill on the date of the transfer of the subsidiary Company as directed by the High Court. They took into
account certain factors in reaching their conclusions.
They first considered the earning capacity of the business, and held that prior to 1942 the business had not
made profits, and that the name of Eros Theatre and
Restaurant thus by itself had no goodwill at all.
They, therefore, considered that the only goodwill
which had. been acquired attached to the lease, which
the trustees had given to the Eros Theatre and Restaurant Ltd., and computing the goodwill as the value
of the lease to the subsidiary Company, they felt that
Rs. 2 lakhs was a liberal estimate of the value of the
goodwill in the hands of Eros Theatre and Restaurant, Ltd. at the material time.
2 S.C.R. SUPREME COURT REPORTS
809
Petitions under ss. 66(1) and 66(2) read withs. 21 of
c96o
the Excess Profits Tax Act were respectively rejected
M
c
by the Tribunal and the High Court; but the appelCamb~~·,;·& ·co.
lants obtained special leave from this Court, and filed
Private Ltd.,
these appeals.
,
,
Bombay
In our opinion, a question of law did arise in the
v •..
case whether the goodwill of the Eros Theatre and The Commissioner
Restaurant, Ltd., was calculated in accordance with
0!/xce~s P;ofits
law. The Tribunal seems to have taken into account
ax,
0
"' ay
only the value of the leasehold of the site to the subHidayatullah J.
sidiary Company, and rejected other considerations
which go to make up the goodwill of a business. No
doubt, in Oruttwell v. Lye (1), Lord Eldon, L. C.
observed that goodwill was "nothing more than the
probability that the old customers would resort to the
old place". The description given by Lord Eldon has
been considered always to be exceedingly narrow.
The matter has to be considered from the nature of
the business, because the goodwill of a public inn and
the goodwill of a huge departmental stores cannot be
calculated on identical principles. The matter has
been considered in two cases by the House of Lords.
The first case is Trego v. Hunt (2), where all the definitions previously given were considered, and Lord
Macnaghten observed that goodwill is f'the whole
advantage, whatever it may be of the reputation and
connection of the firm, which may have been built up
by years of honest work or gained by lavish expenditure of money". In a subsequent case reported in
Inland Revenue Commissioners v. Muller & Oo.'s Margarin, Ltd. (8), Lord Macnaghten at pp. 223 and 224
made the following observations:
"What is goodwill? It is a thing very easy; to
describe, very difficult to define. It is the benefit and
advantage of the good-name, reputation, and connection of a business. It is the attractive force which
brings in custom. It is the one thing which distinguishes an old-established business from a new business at its first start .................. If there is one attribute common to all cases of goodwill it is the attribute
(1) (1810117 Ves. 335, 346.
(2) ( 18Q6) A. r:. 7 (H.L.).
(~) fiooI) A.C. 217 (H.L.).
810
SUPREME COURT REPORTS
[1961]
'960
of locality. For goodwill has no independent existence, It cannot subsist by itself. It must be a.tta.chM/s. S. C.
b
cambatta s, co. ed to a usiness. Destroy the business, and the goodPrivate Ltd.,
will perishes with it, though elements remain which
Bombay
may perhaps be gathered up and be revived a.gain".
· v.
These two cases and others were considered in two
"he Commissio11er A t l"
Th fir t · Da · ll
F-.>
l C
1 E
P 'fit
us ra. ian cases.
e
s 1s
nie
v.
.,.,,era
om0 r.:'.'~.m~~Y' missioner of Taxation (1), where, Knox, C. J. observed:
'
"My opinion is that while it cannot be said to be
Hidayatullah J. absolutely and necessarily inseparable from the premises or to have no separate value, prima facie at any
rate it may be treated as attached to the premises and
whatever its value may be, should be 'treated as an
enhancement of the value of the premises".
In the second case reported in Federal Commissioner
of Taxation v. Williamson('), Rich, J., observed at
p. 564 as follows :
"Hence to determine the nature of the goodwill
in any given case, it is necessary to consider the type
of business and the type of customer which such a.
business is inherently likely to attract as well as the
surrounding circumstances ............ The goodwill of a
business is a composite thing referable in part to its
locality, in pa.rt to the way in which it is conducted
and the personality of those who conduct it, and in
pa.rt to the likelihood of competition, many customers
being no doubt actuated by mixed motives in conferring their custom".
In Earl Jowitt's Dictionary of English Law, 1959
Edn., "goodwill" is defined thus:
"The goodwill of a business is the benefit which
arises from its having been carried on for some time
in a particular house, or by a particular person or firm,
or from the use of a. particular trade mark or trade
name".
It will thus be seen that the goowill of a business
depends upon a. variety of circumstances or a combination of them. The location, the service, the standing of the business, the honesty of those who run it,
and the la.ck of competition a.nd many other factors
go individually or together to make up the goodwill,
(1) (1928) 42 C.L.R. 2g6.
(2) (1943) 67 C.L.R. 561.
2 S.C.R. SUPREME COURT REPORTS
SU
though locality always plays a considerable pa.rt.
1960
Shift the l?cality, ai;id t~e goodwill ~ay be lost., At
M/s. s. c.
the same time, locality is not everythmg.
The:~power cambatta a;. Co
to attract. custom depends on one or more of the other
Pr{vate Ltd.,
factors as well. In the case ofa theatre or restaurant,
Bombay
what is catered, how the service is run and what the
c v .. ,
t•t•
··
t "b t
I
t th
d ill
The
ommissson
compe i ion is, con ~i ~ e a s~ o
e goo w .
of Excess Profit
From the above; it is marufest that the matter of
Tax, Bombay
goodwill needs to be considered in a much broader
way than what the Tribunal has done. A question Hidayatullah J
of law did arise in the case, and, in our opinion, the
High Court should have directed the Tribunal to state
a case upon it.
Civil Appeal No. 776 of 1957 is allowed. The High
Court will frame a suitable question, and ask for a
statement of the case from the Tribunal, and decide
the question in accordance with law. The costs of
this appeal shall be borne by the respondent; but the
costs in the High Court shall abide the result. There
will be no order in Civil Appeal No. 777 of 1957.
· O. A. No. 776 of 1957 allowed.
JESTAMANI GU~ABRAI DHOLKIA
AND OTHERS
v.
THE SCINDIA STEAM NAVIGATION
COMP ANY, BOMBAY AND OTHERS
(P. B. GAJENDRAGADKAR and K. N. WANCHoo, JJ.)
Industrial Dispute--:-Employee loaned to existing air company,
if and when its employ~e'-Air Corporations Act, z953 (XXV II of
x953), s. 20(1).
Section 20(1) of the Air Corporations Act, 1953 (XXVII of
1953)" read with the proviso, is a perfectly reasonable provision
and in the interest of the employees- and it is not c;orrect to say
that it can apply only to the di-rect recruits of the existing air
r960
Novemb" 30