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Issues: (i) Whether the deceased partner's share of profits for the period up to the date of death passed on his death and was includible in the estate; (ii) Whether the deceased partner's share in the goodwill of the firm passed on death and was includible in the estate.
Issue (i): Whether the deceased partner's share of profits for the period up to the date of death passed on his death and was includible in the estate.
Analysis: Clause 12 of the partnership deed governed retirement and confined a retiring partner's entitlement to profits up to the end of the last preceding financial year. Clause 14 governed death and required the surviving partners, if they exercised the option to purchase, to value the deceased partner's share as on the date of death. The two clauses operated in different fields. For a deceased partner, the relevant valuation had to be made as on the date of death, and the profit attributable up to that date formed part of the property left behind. On the facts, the amount credited to the deceased's account for the period up to the date of death represented his share of profits actually due.
Conclusion: The share of profits up to the date of death passed on death and was rightly included in the estate, against the assessee.
Issue (ii): Whether the deceased partner's share in the goodwill of the firm passed on death and was includible in the estate.
Analysis: The amount described as the right to share future profits was treated as a misdescription of the deceased's interest in the goodwill of the firm. A deceased partner's share in the goodwill is an asset passing on death and must be valued in the manner prescribed for such an interest. The authorities relied on the settled principle that goodwill forms part of the estate of the deceased partner and devolves on the legal heirs.
Conclusion: The share in the goodwill passed on death and was rightly included in the estate, against the assessee.
Final Conclusion: The reference was answered in favour of the Revenue. The deceased partner's share of profits up to the date of death and his interest in the firm's goodwill were both held to be assets passing on death for estate duty purposes.
Ratio Decidendi: In a continuing partnership, the deceased partner's interest must be valued as on the date of death, and both accrued profit up to that date and the deceased's share in goodwill constitute assets passing on death and are chargeable to estate duty.
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