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Reconstitution of firm (Sec 45(4) with 9b)

Others 605 views 1 replies

samyak jain

7 Points Posted on 25 March 2023

Doubt regarding self generated goodwill
In case of 45(4) applies sec 9(b)
Reconstitution of firm
Capital gain arising on difference between consideration to exiting partner and his capital balance after sec 9b is attributed to remaining assets including self generated goodwill.
Since tax has now been paid today on such attributed amount so we add the same to the cost of asset in ration of increase in value.
But in future while calculation on tax on self generated goodwill COA is considered nil. So why are we doing apportionment on self generated goodwill?

Replies (1)

CA Rakesh Ishi

Working at Private Company

8637 Points Posted on 27 March 2023

The concept of cost of acquisition is relevant only for capital assets, which are assets that are held by the firm for the purpose of generating profits or income. Since self-generated goodwill is not acquired by the firm through purchase or transfer, it is not considered a capital asset and does not have a cost of acquisition.

It's important to note that if the buyer creates the goodwill through his own efforts after the acquisition, it would be considered self-generated goodwill and would not have a cost of acquisition. In such cases, the buyer can claim depreciation on the self-generated goodwill based on the actual cost of creating it.