goodwill for a partnership

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

05 July 2011 At the time of retirement, If one does not demand goodwill and he demands for current increased valuation of assets and according to the valuation, he gets the amt. In such case, is it taken as goodwill? or goodwill is a different subject that it does not come in this transaction!! Please let me know.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
Follow

16 July 2011 If the case is of retirement, and not of dissolution, the payment is being made by the existing/incoming partners and not by the firm.

.

A firm does not pay to anybody for its own goodwill. It will charge for goodwill who ever wants to purchase it. Firm has to pay capital gains tax in such cases

.

This does not seem to be a case of goodwill. For retiring partner it is a non taxable capital receipt which he can credit to his capital account directly.
A similar reverse treatment is possible in the books of interested partners.