Charging section & computation provisions together constitute an integrated code: SC in B.C. Srinivasa setty case

 

Every income is taxable is the wrong notion of many taxpayers. For taxation, it has to be the part of the charging section in the Income Tax Act- 1961.

On taxation of capital gain, Section 45 charges the profits or gains arising from the transfer of a capital asset to income-tax. The asset must be one which falls within the contemplation of the section. It must bear that quality which brings s. 45 into play.

Sec. 45 is a charging section. For the purpose of imposing the charge, Parliament has enacted detailed provisions in order to compute the profits or gains under that head. No existing principle or provision at variance with them can be applied for determining the chargeable profits and gains.

All transactions encompassed by s. 45 must fall under the governance of its computation provisions.

A transaction to which those provisions cannot be applied must be regarded as never intended by s. 45 to be the subject of the charge. This inference flows from the general arrangement of the provisions in the IT Act, where under each head of income the charging provision is accompanied by a set of provisions for computing the income subject to that charge.

The character of the computation provisions in each case bears a relationship to the nature of the charge. Thus, the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. Otherwise, one would be driven to conclude that while a certain income seems to fall within the charging section there is no scheme of computation for quantifying it.

The legislative pattern discernible in the Act is against such a conclusion. It must be borne in mind that the legislative intent is presumed to run uniformly through the entire conspectus of provisions pertaining to each head of income. No doubt there is a qualitative difference between the charging provision and a computation provision. And ordinarily the operation of the charging provision cannot be affected by the construction of a particular computation provision. But the question here is whether it is possible to apply the computation provision at all if a certain interpretation is pressed on the charging provision. That pertains to the fundamental integrality of the statutory scheme provided for each head.

 

With above observation, the Hon’ble Supreme Court have held that no capital gain tax liability arises if there is no cost of acquisition. This is the principle laid down in the case of  CIT vs. B.C. Srinivasa Setty (1981) 128 ITR 0294 (SC), (1981) 21 CTR (SC) 138. It may be noted that this judgment is of various high relevance and can be understood by the fact that this is referred, applied, followed, distinguished in number of cases subsequently. For ease of reference, one may note the following as far as this case is concerned.

….Referred in (1982) 134 ITR 268 (Bom) : (1981) 25 CTR (Bom) 376

….Relied on in (1982) 137 ITR 350 (Cal) : (1982) 26 CTR (Cal) 358

….Relied on in (1982) 137 ITR 493 (Bom) : (1981) 25 CTR (Bom) 128

….Applied in (1983) 140 ITR 200 (Del)

….Followed in (1983) 142 ITR 702 (Bom) : (1982) 30 CTR (Bom) 209

….Referred in (1983) 143 ITR 186 (Mad) : (1982) 30 CTR (Mad) 174

….Distinguished in (1983) 144 ITR 693 (MP) : (1983) 33 CTR (MP) 241

….Followed in (1984) 148 ITR 14 (Cal) : (1982) 27 CTR (Cal) 300

….Followed in (1984) 148 ITR 21 (Cal) : (1983) 33 CTR (Cal) 190

….Referred in (1984) 149 ITR 29 (Del) : (1985) 47 CTR (Del) 12

….Referred in (1984) 149 ITR 215 (Del) : (1984) 42 CTR (Del) 168

….Followed in (1984) 150 ITR 539 (SC) : (1984) 43 CTR (SC) 164

….Referred in (1985) 151 ITR 781 (Mad) : (1984) 40 CTR (Mad) 114

….Referred in (1985) 155 ITR 681 (Kar) : (1985) 45 CTR (Kar) 68

….Followed in (1985) 156 ITR 177 (Mad) : (1984) 39 CTR (Mad) 17

….Followed in (1985) 156 ITR 509 (SC) : (1985) 49 CTR (SC) 172

….Referred in (1985) 156 ITR 751 (Mad)

….Followed in (1986) 158 ITR 1 (Pat) : (1986) 52 CTR (Pat) 165

….Referred in (1986) 158 ITR 324 (Del) : (1985) 46 CTR (Del) 8

….Followed in (1986) 158 ITR 636 (Guj) : (1986) 53 CTR (Guj) 260

….Applied in (1986) 162 ITR 93 (MP) : (1986) 51 CTR (MP) 146

….Referred in (1986) 162 ITR 420 (Bom) : (1986) 52 CTR (Bom) 149

….Referred in (1987) 163 ITR 321 (Raj) : (1985) 47 CTR (Raj) 200

….Referred in (1987) 164 ITR 107 (Guj) : (1986) 51 CTR (Guj) 309

….Followed in (1987) 165 ITR 386 (AP) : (1987) 63 CTR (AP) 108

….Referred in (1987) 166 ITR 477 (Cal) : (1987) 59 CTR (Cal) 33

….Relied on in (1987) 168 ITR 733 (Bom) : (1987) 63 CTR (Bom) 251

….Applied in (1988) 169 ITR 291 (AP) : (1987) 65 CTR (AP) 44

….Applied in (1988) 171 ITR 128 (AP) : (1987) 66 CTR (AP) 238

….Referred in (1988) 172 ITR 311 (SC) : (1988) 70 CTR (SC) 31

….Referred in (1988) 172 ITR 744 (Mad) : (1988) 69 CTR (Mad) 95

….Distinguished in (1988) 173 ITR 615 (Ker) : (1988) 68 CTR (Ker) 1

….Applied in (1988) 174 ITR 11 (Mad) : (1988) 69 CTR (Mad) 49

….Distinguished in (1989) 176 ITR 417 (SC) : (1989) 76 CTR (SC) 18

….Followed in (1989) 177 ITR 84 (Bom)

….Referred in (1989) 178 ITR 259 (Mad) : (1989) 75 CTR (Mad) 203

….Followed in (1989) 179 ITR 569 (SC)

….Referred in (1989) 180 ITR 86 (P&H)

….Applied in (1989) 180 ITR 345 (Ker) : (1989) 79 CTR (Ker) 189

….Followed in (1990) 181 ITR 192 (Bom) : (1989) 80 CTR (Bom) 135

….Followed in (1990) 181 ITR 502 (Bom) : (1990) 81 CTR (Bom) 47

….Referred in (1990) 182 ITR 107 (Ker)

….Distinguished in (1990) 185 ITR 134 (Ker)

….Referred in (1990) 186 ITR 301 (Cal) : (1991) 92 CTR (Cal) 37

….Applied in (1991) 189 ITR 128 (Pat) : (1991) 98 CTR (Pat) 57

….Applied in (1991) 192 ITR 153 (Bom) : (1992) 103 CTR (Bom) 299

….Followed in (1991) 192 ITR 382 (SC) : (1992) 102 CTR (SC) 161

….Applied in (1991) 192 ITR 495 (All) : (1992) 101 CTR (All) 226

….Followed in (1991) 192 ITR 533 (Cal)

….Referred in (1991) 192 ITR 547 (Kar) : (1992) 101 CTR (Kar) 152

….Applied in (1992) 193 ITR 561 (Mad) : (1991) 93 CTR (Mad) 220

….Referred in (1992) 193 ITR 694 (Bom) : (1991) 96 CTR (Bom) 54

….Distinguished in (1992) 194 ITR 65 (Guj) (FB) : (1992) 102 CTR (Guj) 212 (FB)

….Relied on in (1992) 194 ITR 391 (Cal) : (1992) 104 CTR (Cal) 95

….Applied in (1992) 194 ITR 458 (P&H) : (1991) 100 CTR (P&H) 214

….Referred in (1992) 195 ITR 28 (Bom) : (1992) 101 CTR (Bom) 425

….Referred in (1992) 195 ITR 688 (Del) : (1992) 103 CTR (Del) 127

….Referred in (1992) 198 ITR 351 (Guj) : (1992) 103 CTR (Guj) 142

….Followed in (1992) 107 CTR (Bom) 176

….Followed in (1993) 200 ITR 612 (SC)

….Followed in (1993) 200 ITR 715 (Guj) : (1993) 110 CTR (Guj) 343

….Applied in (1993) 200 ITR 984 (Kar) : (1993) 109 CTR (Kar) 33

….Referred in (1993) 202 ITR 835 (Bom) : (1994) 120 CTR (Bom) 405

….Applied in (1993) 205 ITR 9 (Cal) : (1993) 113 CTR (Cal) 219

….Distinguished in (1994) 208 ITR 882 (Cal)

….Applied in (1994) 209 ITR 412 (Cal) : (1994) 122 CTR (Cal) 211

….Relied on in (1994) 210 ITR 770 (Bom) : (1994) 118 CTR (Bom) 212

….Referred in (1994) 210 ITR 956 (Bom) : (1994) 121 CTR (Bom) 283

….Applied in (1995) 213 ITR 705 (Mad)

….Applied in (1995) 214 ITR 691 (Bom) : (1995) 127 CTR (Bom) 39

….Distinguished in (1995) 215 ITR 530 (Bom) : (1995) 127 CTR (Bom) 390

….Followed in (1996) 221 ITR 155 (Guj) : (1996) 134 CTR (Guj) 388

….Referred in (1996) 221 ITR 810 (Cal) : (1997) 137 CTR (Cal) 257

….Relied on in (1996) 222 ITR 77 (Mad) : (1997) 137 CTR (Mad) 352

….Distinguished in (1996) 222 ITR 799 (Kar) : (1996) 132 CTR (Kar) 1

….Applied in (1996) 135 CTR (MP) 45

….Referred in (1997) 223 ITR 854 (Pat)

….Relied on in (1997) 226 ITR 34 (Cal) : (1997) 140 CTR (Cal) 454

….Referred in (1997) 227 ITR 638 (MP) : (1996) 134 CTR (MP) 149

….Applied in (1997) 228 ITR 427 (Kar) : (1997) 142 CTR (Kar) 314

….Referred in (1998) 229 ITR 682 (Mad) : (1997) 137 CTR (Mad) 629

….Referred in (1998) 230 ITR 918 (Cal) : (1998) 148 CTR (Cal) 430

….Referred in (1999) 235 ITR 534 (P&H) : (1999) 157 CTR (P&H) 108

….Referred in (1999) 236 ITR 35 (SC) : (1999) 152 CTR (SC) 515

….Referred in (1999) 236 ITR 515 (SC) : (1999) 156 CTR (SC) 519

….Referred in (1999) 237 ITR 445 (Kar) : (1999) 152 CTR (Kar) 314

….Referred in (1999) 237 ITR 549 (Bom) : (1999) 153 CTR (Bom) 272

….Referred in (1999) 238 ITR 603 (Gau) : (2000) 159 CTR (Gau) 410

….Referred in (2000) 242 ITR 57 (Mad) : (2000) 161 CTR (Mad) 351

….Applied in (2001) 249 ITR 162 (AAR) : (2001) 166 CTR (AAR) 226

….Distinguished in (2001) 249 ITR 265 (Bom) : (2001) 166 CTR (Bom) 7

….Referred in (2001) 250 ITR 436 (Del) : (2001) 167 CTR (Del) 82

….Referred in (2001) 252 ITR 213 (Del)

….Distinguished in (2001) 252 ITR 491 (Del) : (2001) 168 CTR (Del) 509

….Referred in (2002) 253 ITR 63 (Cal) : (2002) 172 CTR (Cal) 519

….Referred in (2002) 253 ITR 159 (Ker) : (2001) 171 CTR (Ker) 145

….Applied in (2002) 253 ITR 564 (Guj) : (2001) 171 CTR (Guj) 386

….Distinguished in (2002) 255 ITR 517 (Del) : (2002) 172 CTR (Del) 190

….Referred in (2003) 261 ITR 488 (Cal) : (2003) 182 CTR (Cal) 427

…Followed in (2003) 262 ITR 1 (Cal) : (2003) 183 CTR (Cal) 67

….Relied on (2003) 262 ITR 10 (Cal) : (2003) 183 CTR (Cal) 75

….Referred in (2003) 264 ITR 124 (Kar) : (2003) 180 CTR (Kar) 87

….Referred in (2004) 265 ITR 346 (Bom) : (2004) 187 CTR (Bom) 162

….Referred in (2004) 265 ITR 460 (Ker) : (2004) 187 CTR (Ker) 326

….Referred in (2004) 265 ITR 606 (P&H)

….Applied (2004) 265 ITR 649 (Ker) : (2003) 183 CTR (Ker) 166

….Distinguished in (2004) 268 ITR 436 (Mad) : (2004) 190 CTR (Mad) 517

….Relied on in (2004) 269 ITR 399 (Raj) : (2004) 186 CTR (Raj) 125

….Referred in (2005) 273 ITR 1 (SC) : (2005) 193 CTR (SC) 578

….Applied in (2005) 199 CTR (GUJ) 223

….Applied in (2005) 199 CTR (CAL) 255

….Applied in (2006) 282 ITR 126 (Mad) : (2006) 203 CTR (Mad) 42

….Referred in (2006) 282 ITR 126 (Mad) : (2006) 203 CTR (Mad) 42

….Applied in (2006) 204 CTR (Bom) 274

….Referred in (2007) 207 CTR (P&H) 178

….Referred in (2007) 289 ITR 312 (AAR) : (2007) 208 CTR (AAR) 197

….Referred in (2007) 292 ITR 390 (P&H)

….Distinguished in (2007) 293 ITR 35 (Kar)

….Relied on (2008) 297 ITR 167 (SC) : (2008) 214 CTR (SC) 293

….Distinguished in (2007) 292 ITR 390 (P&H) : (2007) 212 CTR (P&H) 422

….Applied in (2008) 297 ITR 87 (Mad)

….Applied in (2008) 299 ITR 183 (MP) :(2008) 215 CTR (MP) 326

….Applied in (2008) 299 ITR 14 (P&H)

….Referred in (2008) 299 ITR 183 (MP) : (2008) 215 CTR (MP) 326

….Relied on (2008) 297 ITR 87 (Mad) : (2008) 219 CTR (Mad) 44

….Applied in (2008) 299 ITR 14 (P&H) : (2008) 219 CTR (P&H) 65

….Relied on (2008) 307 ITR 75 (SC) : (2008) 220 CTR (SC) 110

….Referred in (2008) 220 CTR (Bom) 649

….Referred in (2008) 220 CTR (Mad) 156

….Referred in (2009) 221 CTR (Bom) 440

….Referred in (2009) 308 ITR 302 (Mad)

….Referred in (2009) 308 ITR 302 (Mad) : (2009) 222 CTR (Mad) 270

….Applied in (2009) 312 ITR 225 (SC) : (2009) 223 CTR (SC) 20

….Referred in (2009) 223 CTR (Del) 191

….Referred in (2009) 224 CTR (Del) 168

….Distinguished in (2009) 226 CTR (Kar) 260

….Relied on (2009) 227 CTR (AAR) 441

….Referred in (2010) 228 CTR (Kar) 334

….Referred in (2009) 319 ITR 156 (Kar)

….Applied in (2010) 322 ITR 378 (AAR) : (2010) 230 CTR (AAR) 19

….Referred in (2010) 230 CTR (AAR) 218

….Distinguished in (2010) 232 CTR (Guj) 268

….Referred in (2010) 326 ITR 193 (AAR) : (2010) 233 CTR (AAR) 334

….Referred in (2010) 235 CTR (Ker) 393

….Referred in (2010) 329 ITR 91 (Ker) : (2010) 236 CTR (Ker) 337

….Referred in (2011) 237 CTR (Ker) 80

….Referred in (2011) 330 ITR 397 (Guj)

…. Referred in (2011) 237 CTR (Mad) 227

….Applied in (2011) 331 ITR 192 (Del) : (2011) 238 CTR (Del) 1

….Referred in (2011) 239 CTR (Cal) 449

….Referred in (2011) 240 CTR (Ker) 148

….Relied on (2011) 334 ITR 69 (AAR) : (2011) 240 CTR (AAR) 209

….Referred in (2011) 241 CTR (Bom) 1

….Referred in (2011) 334 ITR 48 (P&H)(FB)

….Referred in (2011) 337 ITR 277 (AAR) : (2011) 241 CTR (AAR) 497

….Distinguished in (2011) 334 ITR 48 (P&H)(FB) : (2011) 241 CTR (P&H)(FB) 520

….Referred in (2011) 337 ITR 131 (AAR) : (2011) 242 CTR (AAR) 449

….Referred in (2011) 244 CTR (Del)(FB) 1

….Relied on (2012) 343 ITR 115 (Bom) (2012) 250 CTR (Bom) 402 : (2012) 80 CCH 031 MumHC

….Referred in (2012) 343 ITR 366 (Delhi) : (2012) 246 CTR (Del) 40

….Referred in (2012) 344 ITR 211 (Guj) : (2010) 232 CTR (Guj) 268

….Referred in (2012) 344 ITR 382 (Delhi) : (2012) 80 CCH 177 DelHC

….Referred in (2012) 344 ITR 581 (MP) : (2012) 80 CCH 225 MPHC

….Referred in (2012) 345 ITR 11 (AAR) : (2012) 249 CTR (AAR) 225 : (2012) 81 CCH 289 IAAR

….Referred in (2012) 345 ITR 421 (Delhi) : (2012) 250 CTR (Del) 151 : (2012) 80 CCH 73 DelHC

….Referred in (2012) 348 ITR 351 (AAR) : (2012) 254 CTR (AAR) 479 : (2012) 82 CCH 315 IAAR

….Referred in (2012) 349 ITR 432 (All) : (2012) 82 CCH 382 AllHC

….Referred in (2013) 357 ITR 1 (All) : (2013) 85 CCH 079 AllHC

….Referred in (2014) 366 ITR 381 (P&H) : (2014) 88 CCH 378 PHHC

….Referred in (2015) 370 ITR 325 (Bom) : (2014) 91 CCH 014 MumHC

….Referred in (2015) 370 ITR 567 (Orissa) : (2014) 90 CCH 305 OriHC

….Referred in (2015) 370 ITR 750 (Mad) : (2014) 90 CCH 228 ChenHC

….Referred in (2015) 374 ITR 118 (Delhi) : (2015) 92 CCH 106 DelHC

….Referred in (2016) 380 ITR 527 (Delhi) : (2016) 95 CCH 002 DelHC

….Referred in (2016) 381 ITR 1 (AAR) : (2016) 95 CCH 034 IAAR

….Referred in (2016) 381 ITR 55 (AAR) : (2016) 95 CCH 018 IAAR

….Referred in (2016) 381 ITR 117 (Delhi) : (2015) 94 CCH 121 DelHC

….Referred in (2016) 381 ITR 154 (Delhi) : (2015) 94 CCH 156 DelHC

….Referred to (2016) 381 ITR 180 (Guj) : (2016) 95 CCH 075 GujHC

….Referred in (2016) 381 ITR 227 (Delhi) : (2015) 94 CCH 162 DelHC

….Referred in (2016) 384 ITR 161 (Delhi) : (2016) 95 CCH 192 DelHC

….Referred in (2016) 385 ITR 35 (Delhi) : (2015) 94 CCH 155 DelHC

….Referred in (2016) 385 ITR 169 (Bom) : (2015) 94 CCH 241 MumHC

….Referred in (2016) 389 ITR 519 (SC) : (2016) 97 CCH 025 ISCC

….Referred in (2017) 391 ITR 145 (P&H) : (2017) 98 CCH 021 PHHC

….Referred in (2017) 394 ITR 638 (Bom) : (2017) 98 CCH 105 MumHC

….Referred in (2018) 402 ITR 373 (AAR) : (2018) 101 CCH 086 IAAR

….Referred in (2018) 404 ITR 37 (SC) : (2018) 101 CCH 158 ISCC

….Referred in (2019) 412 ITR 480 (Delhi) : (2019) 104 CCH 230 DelHC

….Referred in (2019) 418 ITR 530 (Mad) : (2019) 106 CCH 168 ChenHC

 

Here is the copy of the full judgment:

 

COMMISSIONER OF INCOME TAX vs. B.C. SRINIVASA SETTY

SUPREME COURT OF INDIA

P.N. Bhagwati, V.D. Tulzapurkar & R.S. Pathak, JJ.

Civil Appeals Nos. 1146 of 1975 c/w Civil Appeals Nos. 1378 of 1976 & 926 of 1973

19th February, 1981

(1981) 49 CCH 0137 ISCC

(1981) 21 CTR 0138 : (1981) 128 ITR 0294 : (1981) 5 TAXMAN 0001

Legislation Referred to

Sections 2(14), 45(1), 48

Case pertains to

Asst. Year 1966-67

Decision in favour of:

Assessee

PATHAK, J.:

The question in these appeals is whether the transfer of the goodwill of a newly commenced business can give rise to a capital gain taxable under s. 45, IT Act, 1961.

2. The assessee, a registered firm, manufactured and sold agarbattis. Clause (13) of the instrument of partnership executed on the 28th July, 1954, showed that the goodwill of the firm had not been valued, and the valuation would be made on dissolution of the partnership. The period of the partnership was extended by an instrument dated 31st March, 1964, and it contained a similar cl. (13). Subsequently, the assessee-firm was dissolved by deed dated 31st December, 1965. At the time of dissolution, it seems, the goodwill of the firm was valued at Rs. 1,50,000. A new partnership by the same name was constituted under an instrument dated 2nd December, 1965, and it took over all the assets, including the goodwill and liabilities of the dissolved firm.
3. The ITO made an assessment on the dissolved firm for the asst. yr. 1966-67 but did not include any amount on account of the gain arising on transfer of the goodwill. The CIT, being of the view that the assessment order was prejudicial to the Revenue, decided to invoke his revisional jurisdiction and, setting aside the assessment order directed the ITO to make a fresh assessment after taking into account the capital gain arising on the sale of the goodwill.
4. In appeal before the Tribunal, the assessee maintained that the sale did not attract tax on capital gains under s. 45 of the IT Act, 1961. Accepting the contention, the Tribunal allowed the appeal. At the instance of the CIT, it referred a question of law to the High Court of Karnataka which, as reframed by the High Court, reads as follows :

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that no capital gains can arise under s. 45 of the IT Act, 1961, on the transfer by the assessee- firm of its goodwill to the newly constituted firm ?”

By its judgment dated 4th July, 1974, the High Court answered the question in the affirmative, holding that the value of the consideration received by the assessee for the transfer of its goodwill was not liable to capital gains tax under s. 41 of the Act. Civil Appeal No. 1146 of 1975 is directed against that judgment.

Civil Appeal No. 1378 of 1976 arises out of a judgment by the same High Court in which it has followed its earlier view.

Civil Appeal No. 926 of 1973 has been preferred against the judgment of the Kerala High Court where a similar opinion has been expressed, but in respect of the provisions of s. 12B, Indian IT Act, 1922.

At the relevant time s. 45, IT Act, 1961, provided :

“45. (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in ss. 53 and 54, be chargeable to income-tax under the head ‘Capital gains’, and shall be deemed to be the income of the previous year in which the transfer took place.”

The section operates if there is a transfer of a capital asset giving rise to a profit or gain. The expression “capital asset” is defined in s. 2(14) to mean “property of any kind held by an assessee”. It is of the widest amplitude, and apparently covers all kinds of property except the property expressly excluded by cls. (i) to (iv) of the sub-section which, it will be seen, does not include goodwill. But the definitions in s. 2 are subject to an overall restrictive clause. That is expressed in the opening words of the section : Cont’d “unless the context otherwise requires”. We must, therefore, enquire whether contextually s. 45, in which the expression “capital asset” is used, excludes goodwill.

5. Goodwill denotes the benefit arising from connection and reputation. The original definition by Lord Eldon in Cruttwell vs. : Lye (1810) 17 Ves 335 that goodwill was nothing more than “the probability that the old customers would resort to the old places” was expanded by Wood V. C. in Churton vs. Douglas (1859) John 174 to encompass every positive advantage “that has been acquired by the old firm in carrying on its business, whether connected with the premises in which the business was previously carried on or with the name of the old firm, or with any other matter carrying with it the benefit of the business”. In Trego vs. Hunt (1896) AC 7 (HL) Lord Herschell described goodwill as a connection which tended to become permanent because of habit or otherwise. The benefit to the business varies with the nature of the business and also from one business to another. No business commenced for the first time possesses goodwill from the start. It is generated as the business is carried on and may be augmented with the passage of time. Lawson in his Introduction to the Law of the Property describes it as property of a highly peculiar kind. In CIT vs. Chunilal Prabhudas & Co. (1970) 76 ITR 566 the Calcutta High Court reviewed the different approaches to the concept :

“It has been horticulturally and botanically viewed as ‘a seed sprouting’ or an ‘acorn growing into the mighty oak of goodwill’. It has been geographically described by locality. It has been historically explained as growing and crystallising traditions in the business. It has been described in terms of a magnet as the ‘attracting force’. In terms of comparative dynamics, goodwill has been described as the ‘differential return of profit’. Philosophically it has been held to be intangible. Though immaterial, it is materially valued. Physically and psychologically, it is a ‘habit’ and sociologically it is a ‘custom’. Biologically, it has been described by Lord Macnaghten in Trego vs. Hunt (1896) AC 7 (HL) as the ‘sap and life’ of the business. Architecturally, it has been described as the ‘cement’ binding together the business and its assets as a whole and a going and developing concern.”

6. A variety of elements goes into its making, and its composition varies in different trades and in different businesses in the same trade, and while one element may preponderate in one business, another may dominate in another business. And yet, because of its intangible nature, it remains insubstantial in form and nebulous in character. Those features prompted Lord Macnaghten to remark in IRC vs. Muller & Co.’s Margarine Ltd. (1901) AC 217 (HL), that although goodwill was easy to describe, it was none the less difficult to define. In a progressing business goodwill tends to show progressive increase. And in a failing business it may begin to wane. Its value may fluctuate from o