Open market valuation governs a deceased partner's estate duty interest, allowing scrutiny of the firm's underlying assets and liabilities.

For estate duty valuation of a deceased partner's interest in a firm, the principal value must be estimated at its open market price at the date of death. The assessed value is not confined to the balance-sheet figure, the amount credited in the partnership accounts, or the sum ultimately payable under the deed. To determine the partner's fractional interest, the assessing authority may examine the firm's assets and liabilities, including the market value of specific assets, because that exercise is part of assessing the open market value of the interest itself. A continuation clause in the partnership deed does not make book entries conclusive for valuation purposes.

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Issues: Whether, for valuing a deceased partner's interest in a firm for estate duty, the assessing authority was bound to adopt the book value or the amount credited in the partnership accounts, or whether he could examine the market value of the firm's underlying assets in order to arrive at the principal value of the partnership interest.

Analysis: Section 36 of the Estate Duty Act, 1953 requires the principal value of property to be estimated at the price it would fetch in the open market at the date of death. The prescribed estate duty account and rule 7(c) of the Estate Duty Rules do not create a binding valuation formula that makes the balance-sheet value conclusive. A partnership interest is itself property, but its market value cannot be ascertained in the abstract without considering the net worth of the firm. For that purpose, the assessing authority may necessarily examine the individual assets and liabilities of the firm, including the market value of particular assets, because that exercise is only a step in valuing the partner's fractional interest. The fact that the partnership deed provided for continuation of the firm after death did not justify confining the valuation to the book entries or the amount ultimately paid to the heirs.

Conclusion: The assessing authority was entitled to determine the market value of the partnership interest by looking into the market value of the firm's assets, and the deletion of the addition of Rs. 4,704 was not justified.

Final Conclusion: The reference was answered against the accountable person and in favour of the Revenue, affirming that estate duty valuation of a deceased partner's interest must be made on open market value principles and not be confined to book figures or amounts payable under the partnership accounts.

Ratio Decidendi: For estate duty purposes, a deceased partner's interest must be valued at its open market principal value under Section 36, and the assessing authority may examine the market value of the firm's assets as a necessary step in determining that interest.

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