Taxability of goodwill

The following cases is on a different point i.e., excess amount received by the assessee on retirement from the partnership firm is not assessable to capital gains, but it is chargeable under the head income from other sources u/s 56(2)(vii)

The Gujarat High Court in CIT vs. Mohanbhai Pamabhai (1973) 91 ITR 393 (Guj) : TC 20R.866 wherein it has been held that where a partner retires from a partnership and the amount of his share in the net partnership assets after deduction of liabilities and prior charges is determined on taking accounts in the manner prescribed by the relevant provisions of the partnership law there is no element of transfer of interest in the partnership assets by the retired partner to the continuing partners. The said judgment of the Gujarat High Court has been affirmed by this Court in Addl. CIT vs. Mohanbhai Pamabhai (1987) 165 ITR 166 (SC) : TC 20R.865.

Same view in the landmark case CIT v. R. Lingmallu Raghukumar (Supreme court)

But, there is the issue of the goodwill (self generated asset)

CIT vs. B.C. Srinivasa Setty (1981) 21 CTR (SC) 138 :(1981) 128 ITR 294 (SC). Therein, it has been held that goodwill generated in a business cannot be described as an `asset' within the terms of s. 45 of the IT Act, 1961 (or of s. 12B of the Indian IT Act, 1922) and the transfer of goodwill initially generated in a business does not give rise to a capital gain for the purposes of income-tax. The cost of acquisition of a self generated asset is indeterminate; therefore, capital gains cannot be computed when a self generated asset is transferred.
However, this case law has been overruled by amending section 55. So now, Cost of acquisition of self generated asset is nil.
Therefore, there is a transfer of share in the goodwill of the business to the remaining partners; it would amount to capital gains in the hands of the retiring partner.

hi darshan

HYdrabad ITAT in I.T.A. No. 297/Hyd/2012 in the case of  Smt. Girija Reddy where in it was held that 

it was a case of lump sum payment in consideration of the retiring partner assigning or relinquishing her share or right in the partnership and its assets in favour of the continuing partners. We are of the view that the manner of the retirement in case of the assessee is such that it can be regarded as assigning or relinquishing by the retiring partner of her share or right in the partnership firm and its assets in favour of the continuing partners.

therefore, there was a transfer of interest of the retiring partner over the assets of the partnership firm on her retirement and, therefore, there was a liability to tax on account of capital gain.

if as you say, goodwill cost is nil and is taxable at hands of partner.

would the goodwill be taxed as short terms or long terms.