Estate duty valuation of coparcenary shares and partnership interests turns on aggregation rules and partnership deed limits.

For estate duty valuation, the share of lineal descendants in coparcenary residential house property is aggregated with the deceased's estate for rate purposes under section 34(1)(c), while the section 33(1)(n) exemption is confined to the deceased's own share on a notional partition and does not extend to descendants' shares. In valuing a deceased partner's interest, the firm is treated as a going concern and the valuation is taken from the balance-sheet as on the date of death, or the latest balance-sheet with necessary adjustments. Where the partnership deed limits the outgoing partner to capital and profit or loss entitlement and excludes goodwill or appreciation, those contractual limits control and notional accretions are not includible.

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Issues: (i) Whether the share of the lineal descendants in the residential house property was includible in the principal estate of the deceased for rate purposes under section 34(1)(c) of the Estate Duty Act, 1953. (ii) Whether the proportionate share in the accretion in the value of assets of the firm was includible in the principal value of the estate passing on death under section 36(1) of the Estate Duty Act, 1953.

Issue (i): Whether the share of the lineal descendants in the residential house property was includible in the principal estate of the deceased for rate purposes under section 34(1)(c) of the Estate Duty Act, 1953.

Analysis: The value of the share of the lineal descendants in coparcenary property is required to be aggregated with the principal value of the estate for the purpose of determining the rate of duty. The exemption under section 33(1)(n) applies only to the deceased's share in the residential house belonging to the Hindu undivided family, determined on the basis of a notional partition immediately before death. That exemption does not extend to the lineal descendants' share when the estate is computed for rate purposes.

Conclusion: The share of the lineal descendants in the residential house property was includible for rate purposes and the answer is against the assessee.

Issue (ii): Whether the proportionate share in the accretion in the value of assets of the firm was includible in the principal value of the estate passing on death under section 36(1) of the Estate Duty Act, 1953.

Analysis: In valuing a deceased partner's interest, the partnership has to be treated as a going concern and the value of the share is to be determined on the basis of the balance-sheet as on the date of death, or the latest balance-sheet with necessary adjustments if required. Where the partnership deed restricts the outgoing partner's entitlement to capital and share of profit or loss and excludes goodwill or appreciation, those contractual restrictions govern the valuation. The Revenue cannot revalue only selected assets and include notional accretions contrary to the deed.

Conclusion: The proportionate share in the accretion in the value of the firm's assets was not includible in the principal value of the estate and the answer is in favour of the assessee.

Final Conclusion: The reference was answered on the first question in favour of the Revenue and on the second question in favour of the assessee, with the valuation of the deceased's interest in the firm confined to the balance-sheet basis and the partnership deed's contractual limitations.

Ratio Decidendi: For estate duty valuation, coparcenary shares of lineal descendants are aggregated for rate purposes under section 34(1)(c), while a deceased partner's interest in a firm is valued on the basis of the open-market value of the going concern subject to the partnership deed's limitations on entitlement.

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