Partnership goodwill excluded from estate duty where deed denied any right on death and no interest passed to heirs.

Goodwill of a partnership firm does not pass on the death of a partner for estate duty where the partnership deed expressly excludes any adjustment for goodwill on death or retirement. In that situation, the firm stands determined on death, no contractual or proprietary benefit in the goodwill accrues to the deceased partner's heir, and a later partnership with the surviving partner is treated as an independent arrangement. The result is that the goodwill is not includible in the estate under sections 5 and 7 of the Estate Duty Act, 1953.

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Issues: Whether the goodwill of a partnership firm passed on the death of a partner so as to be includible in the estate for estate duty under sections 5 and 7 of the Estate Duty Act, 1953.

Analysis: The partnership deed expressly provided that no adjustment would be made for alleged goodwill on the death or retirement of any partner. On the death of the partner, the firm stood determined and no contractual or proprietary benefit in the goodwill accrued to the deceased partner's heir. The subsequent fresh partnership with the surviving partner was treated as an independent arrangement, not as a transmission of the deceased's goodwill interest. In these circumstances, the goodwill did not devolve or pass on the death of the partner and could not be brought to estate duty.

Conclusion: The question was answered in the affirmative, against the Department and in favour of the assessee.

Ratio Decidendi: Where the partnership deed specifically negatives any right to goodwill on death or retirement of a partner, and no benefit in the goodwill passes to the heir on death, the goodwill does not pass for purposes of estate duty under sections 5 and 7 of the Estate Duty Act, 1953.

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