JUDGMENT
Kantawala, C.J.
1. The rule has been issued in relation to the decision of the Tribunal to the effect that tax on the capital gains is not attracted on the transfer of goodwill. We propose to dispose of this rule on a very marrow ground. It is the contention of the revenue that having regard to the indenture dated February 17, 1969, capital gain has accrued to the assessee and tax is leviable having regard to the provisions of the Income-tax Act. Under this indenture Maneck Pheroze Mistry, who is described as party of the first part, agreed with the other parties to this indenture that the goodwill of the firm as on March 31, 1967, was worth Rs. 1,50,000 and, the party of the first part was entitled to the same up to March 31, while the remaining parties to this indenture were entitled to the goodwill as and from April 1, 1967. It was the contention of the revenue that as the party of the first part was entitled to Rs. 1,50,000 the provision as regards tax on capital gain were attracted. This question is whether tax on capital gain can only arise provided it is established that capital gain has arisen. Under the terms of clause 8 of the indenture it is, inter alia, clearly agreed that on retirement of the party of the first part he shall be entitled to the sum of Rs. 1,50,000 and that the same shall be paid on such terms and conditions as the parties may agree upon. On the death of the party of the first part of sum of Rs. 1,50,000 shall be paid to the legal heirs or such persons as may be nominated by the party of the first part in ten equal annual installments not exceeding Rs. 15000. Having regard to these provision of the indenture it is quite clear that the party of the first part had no right to receive any portion of the value of goodwill during the accounting year. Even though it was declared and agreed between the parties that he was entitled to the goodwill only up to March 31, 1967, he was entitled to receive the sum of Rs. 1,50,000 either on retirement or on death as provided in the indenture. During the accounting year he had no right to receive a single penny out of the sum of Rs. 1,50,000. If that is so, there was no capital gain made and the question of imposing a tax on capital gain could not arise.
2. Reference was made by Mr. Joshi to the decision of the Madras High Court in T. V. Sundaram Iyengar and Sons Ltd. v. Commissioner of Income-tax [1959] 37 ITR 26. This decision, in our opinion, instead of supporting the contention of Mr. Joshi is against him. It is held in this case that in order to attract liability to tax on capital gains under section 12B of the Indian Income-tax Act, 1922, it is sufficient if in the relevant accounting year profits have arisen out of the sale of capital assets, that is to say, if the assessee has a right to receive the profits. It is not necessary that the assessee should have received them. Having regard to the provision of clause 8 of the indenture referred to above, in the present case, during the accounting period the assessee had no right to receive the profits. His right to receive the sum of Rs. 1,50,000 was only going to arise or accrue either on retirement or on death in the manner provided by the indenture. That being the position the question of levying tax on capital gains will never arise.
3. In the result, the rule is discharged with costs.