Estate duty on partner's death: partnership terms govern profit shares, goodwill may pass, and contingent refund claims do not.

In estate duty analysis of a deceased partner's interest, the partnership deed governed distribution of accumulated profits, displacing the default equal-sharing rule, so only the specifically declared Rs. 9,000 share was treated as passing on death. Undeclared profits for the accounting year up to death had not accrued and were not property passing on death. Goodwill could still pass as a commercial asset despite a deed clause excluding goodwill claims, and its valuation, including a one-year multiplier, was accepted as a factual determination. A refund claim determined only after death was contingent and not an enforceable right at the date of death, so it was not property passing on death.

---

---

Issues: (i) Whether the deceased partner had a share in the accumulated profits and the share value was to be fixed at Rs. 9,000 rather than by applying an equal or notional share under partnership law; (ii) whether profits of the accounting year up to the date of death had accrued so as to pass on death; (iii) whether goodwill of the firm passed on death, and if so, the proper method of valuation including the multiplier to be adopted; (iv) whether a refund determined after the death of the deceased constituted property passing on death.

Issue (i): Whether the deceased partner had a share in the accumulated profits and the share value was to be fixed at Rs. 9,000 rather than by applying an equal or notional share under partnership law.

Analysis: The partnership deed contained a specific arrangement governing distribution of profits and accumulated profits, which displaced the default rule of equal sharing. Section 13(b) of the Partnership Act applied only in the absence of a contract to the contrary. On the facts, the deceased's declared share in the profits was Rs. 9,000, and that was the amount that could be treated as passing on death.

Conclusion: The deceased's share was confined to Rs. 9,000; the issue was answered in favour of the Department.

Issue (ii): Whether profits of the accounting year up to the date of death had accrued so as to pass on death.

Analysis: The accounting year had not ended when the deceased died, and the profits for that year had not been declared. Undeclared profits could not be treated as accrued or as property that had passed on death merely because the death occurred before the close of the accounting year.

Conclusion: The profits for the year up to the date of death did not accrue as property passing on death; the issue was answered in favour of the assessee.

Issue (iii): Whether goodwill of the firm passed on death, and if so, the proper method of valuation including the multiplier to be adopted.

Analysis: A clause in the partnership deed excluding any claim to goodwill did not prevent goodwill from being treated as property passing on death. Goodwill is a commercial asset whose value depends on the facts and circumstances of the business. The Tribunal's approach to valuation, including the adoption of a one-year multiplier, was treated as a factual determination based on the material before it and not a question warranting interference.

Conclusion: Goodwill passed on death, and the one-year multiplier was upheld; the issue was answered in favour of the assessee.

Issue (iv): Whether a refund determined after the death of the deceased constituted property passing on death.

Analysis: A mere right to claim refund, which may or may not materialise, is not property unless an enforceable amount is due as of right at the date of death. No such vested right existed at the time of death in respect of the refund claimed.

Conclusion: The refund determined after death did not constitute property passing on death; the issue was answered in favour of the assessee.

Final Conclusion: The decision sustained inclusion only to the limited extent of the deceased's Rs. 9,000 share, while rejecting inclusion of post-death accruals and post-death refund claims, and upholding the passing of goodwill with the valuation adopted on facts.

Ratio Decidendi: In estate duty matters, only property or rights that have vested or accrued as of the date of death can be brought to charge; default partnership rules yield to the partnership contract, goodwill may pass as property notwithstanding a denial clause, and a contingent refund claim is not property.

---