Estate duty on partnership goodwill depends on bona fide disposition, while a goodwill exclusion clause alone is not decisive.

For estate duty purposes, a retiring partner's exclusion from partnership goodwill does not by itself prevent inclusion of that goodwill in the deceased partner's estate; a clause barring individual transmission to heirs is not enough on its own. However, section 9 of the Estate Duty Act applies only where a disposition within two years of death is shown to be not bona fide. Where retirement was compelled by sickness and disability, and the exclusion from goodwill arose from an existing partnership term rather than a tax-avoidance device, the statutory condition for section 9 was not met, so inclusion on that basis failed.

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Issues: (i) Whether the goodwill of a partnership firm was includible in the principal value of the deceased partner's estate where the partnership deed excluded any individual share in goodwill and the deceased had retired before death. (ii) Whether the retirement arrangement, treated as a transfer of the deceased's interest in goodwill within two years of death, attracted section 9 of the Estate Duty Act, 1953.

Issue (i): Whether the goodwill of a partnership firm was includible in the principal value of the deceased partner's estate where the partnership deed excluded any individual share in goodwill and the deceased had retired before death.

Analysis: A retiring partner ceases to be a partner, and on the date of death cannot be said to have a subsisting disposable interest in the firm's goodwill as a partner. The earlier understanding that a clause excluding transmission of goodwill could itself defeat estate duty treatment was distinguished, and the governing principle is that goodwill does not escape estate-duty consequences merely because the agreement prevents devolution on legal heirs and continues the business with the remaining partners.

Conclusion: The answer on this issue was in favour of the Revenue and against the assessee; the Tribunal was not right in excluding the goodwill on the basis of the partnership clause alone.

Issue (ii): Whether the retirement arrangement, treated as a transfer of the deceased's interest in goodwill within two years of death, attracted section 9 of the Estate Duty Act, 1953.

Analysis: Section 9 applies only where the disposition within two years of death is not bona fide. On the admitted facts, the deceased's retirement was compelled by sickness and physical disability, and the exclusion from goodwill flowed from an antecedent partnership term, not from any tax-avoidance device. Even assuming a gift in favour of the remaining partners, it was not shown to be lacking in bona fides, and the statutory condition for inclusion under section 9 was not satisfied.

Conclusion: The answer on this issue was in favour of the assessee and against the Revenue; section 9 did not justify inclusion of the goodwill amount in the taxable estate.

Final Conclusion: The reference was answered on mixed lines, with the goodwill-clause issue decided for the Revenue but the section 9 issue decided for the assessee, resulting in no estate-duty inclusion on the footing urged by the Revenue for the retirement transfer.

Ratio Decidendi: For estate duty purposes, a transfer or relinquishment within two years of death is includible under section 9 only if it is shown to be a bona fide-less disposition, and a partnership arrangement excluding a retiring partner from goodwill does not by itself establish such liability.

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