Goodwill valuation for estate duty must be fixed at death, excluding later losses and allowing factual choice of multiplier.

Goodwill for estate duty is to be valued as on the date of death using recognised profit-based methods, and later profits or losses cannot be brought into the computation of average profits. The court accepted that the super profits method and a three-times multiplier were reasonable on the facts, treating the choice of multiplier as a factual determination rather than a substantial question of law. The loss occurring after death was therefore irrelevant to valuation. The reference was answered against the accountable person, and the goodwill valuation was sustained.

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Issues: (i) Whether the Tribunal was right in valuing the deceased's share of goodwill by adopting the super profits method and a multiplier of three times the super profits; (ii) Whether the profits or loss of the firm for the period after the date of death of the deceased could be taken into account while computing average profits for goodwill valuation.

Issue (i): Whether the Tribunal was right in valuing the deceased's share of goodwill by adopting the super profits method and a multiplier of three times the super profits.

Analysis: Goodwill in a business is ordinarily valued by recognised methods such as the super profits method or capitalisation method. The choice of multiplier depends on the facts of each case, and no rigid formula can be laid down. The Tribunal accepted the valuation made by the authorities below on the basis of five years' average profits and found the adoption of a three-times multiplier to be reasonable on the materials before it. The conclusion reached was factual in nature and did not involve any substantial question of law.

Conclusion: The Tribunal's adoption of the super profits method and the three-times multiplier was upheld, and no question of law arose on this issue, in favour of the Revenue.

Issue (ii): Whether the profits or loss of the firm for the period after the date of death of the deceased could be taken into account while computing average profits for goodwill valuation.

Analysis: Goodwill is to be valued as on the date of death, from the perspective of an intending purchaser who would examine the prior profitability of the business. Financial results for a later period, not known on the date of death, cannot affect the valuation. The loss allegedly suffered after the death of the deceased was therefore irrelevant to the computation of average profits for the super profits method.

Conclusion: The subsequent period's loss was correctly ignored, and the finding on this issue was in favour of the Revenue.

Final Conclusion: The reference was answered against the accountable person, and the valuation of goodwill for estate duty purposes was sustained on both issues.

Ratio Decidendi: Goodwill for estate duty valuation is to be assessed as on the date of death by recognised profit-based methods, and subsequent profits or losses arising after that date cannot be taken into account; the choice of multiplier under the super profits method is a factual determination unless shown to be unreasonable in law.

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