Sale of client base of deceased properitor

Hardik Desai (Querist) 06 December 2012 This query is : Resolved
My father was a tax consultant and he expired last year. He was a sole proprietor. We gave the clients to somebody else and took consideration from him. The person to whom we sold the client base will not be using my father's name and will pay us over a period of 5 years consideration in-case clients stay till end of 5 years.In case clients leave then we will have to pay him back. I wanted to know how tax liability should be paid as final amount will be ascertained in the 5th year and further is there any tax liability? Whether it will be treated as business income or Income from other sources or capital gains?
My mother is housewife and the MOU has been executed in her name. What has been sold is client base subject to client acceptance so will it be treated as goodwill?
I had read a case law Deputy Commissioner of Income-tax, Circle-16(2) Versus Mrs. Lakshmi M. Aiyar can the rationale of the judgement given here under be applicable in our case and the amount received by my mother be treated as capital receipt and hence not taxable?

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ajay sethi (Expert) 06 December 2012
viist CAclubindia.com for your query redressal

Raj Kumar Makkad (Expert) 08 December 2012
The receipts in the given case shall be treated as income from other sources as goodwill is not at sale because this is the option of the clients to avail the services of the buyer or not.

Hardik Desai (Querist) 10 December 2012
Why it cannot be treated as capital receipt? My mother is house wife and the payment is not made for any business she has done in past. What nexus or rational is behind treating it as income from other sources? Under which section of income from other sources will it be taxable?

Raj Kumar Makkad (Expert) 10 December 2012
Implementation of do not depend upon the sole desire of any assessee rather it has its own application.

Hardik Desai (Querist) 11 December 2012
sir under which section of income from other sources will it fall?how it should be shown in the return? Whether tax on full amount should be paid in the 1st year itself or it will be on each yearly receipt?

prabhakar singh (Expert) 11 December 2012
Your agreement is too complicated,not that easy as you think,amount received may have an occasion of return then its' accounting would certainly be a bit complicated,in addition I can not level it any good will sale and agreement entered into seems void one in my view as hardly any one can conceive that even clients or their cause can legally be a salable item.To me things are misconceived and a lot of mind taxing work is required to do the same in the legal form.

Raj Kumar Makkad (Expert) 11 December 2012
Nothing to add in the opinion of Mr. Singh.

Guest (Expert) 11 December 2012
Depends upon the nature of contents of the agreement. With reference to the contents of your present query, the existing agreement may not stand on account of several reasons. You may, if you like, contact me with detail along with copy of agreement at dcgroup1962@gmail.com

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