Precatory will language and goodwill valuation rules: equal life interests were recognised, and tax could be deducted in profits.

A testamentary clause expressed in precatory language did not create a binding trust or obligation for household expenses; read as a whole, the will conferred defeasible life interests on the widow, mother and adopted son, and those interests were held in equal shares as tenants-in-common rather than jointly. In valuing goodwill under the super profits method, maintainable profits were not immune from tax deduction merely because tax had already been reflected in net assets; tax could be considered at the profit stage where the method required it, and the Tribunal was wrong to treat that as double deduction.

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Issues: (i) Whether the will created only a precatory arrangement for household expenses or conferred life interests on the widow, mother and adopted son, and whether those interests were held jointly or in equal shares; (ii) whether, in valuing goodwill under the super profits method, maintainable profits were to be taken after deduction of tax so as to avoid a double deduction.

Issue (i): Whether the will created only a precatory arrangement for household expenses or conferred life interests on the widow, mother and adopted son, and whether those interests were held jointly or in equal shares.

Analysis: The will had to be read as a whole. Clauses conferring enjoyment of the income, together with prohibitions on alienation and the surrounding testamentary scheme, showed that the beneficiaries were given life interests, while the clause dealing with peace in the household and monthly allowances was expressed in precatory language and did not create a trust or binding obligation. The beneficiaries were named individuals and not a class, and Hindu law does not recognise joint tenancy except in coparcenary. In the absence of any contrary indication, and supported by the structure of the will and the equal monthly allowance contemplated for each, the interests were to be treated as equal shares.

Conclusion: The will created defeasible life interests in favour of the three beneficiaries, and those life interests were held in equal shares; on the death of one life tenant, the surviving life tenants took equally, and the surviving remainderman's lesser interest merged in the greater interest.

Issue (ii): Whether, in valuing goodwill under the super profits method, maintainable profits were to be taken after deduction of tax so as to avoid a double deduction.

Analysis: Goodwill had to be valued separately from net assets. Deduction of tax in computing net assets did not answer the distinct question of how maintainable profits for goodwill were to be calculated. If goodwill was being valued independently on the super profits method, tax had to be considered at the profit stage where the method so required, and treating that step as a second deduction of tax was incorrect. The tribunal had also referred the question in a form that did not precisely match the real controversy, so the question was reframed to reflect the actual issue.

Conclusion: The Tribunal was not right in holding that tax could not be deducted from maintainable profits on the footing that it would amount to a double deduction.

Final Conclusion: The reference was answered against the applicant on both issues, and the valuation dispute concerning goodwill was left for the Tribunal to decide in the light of the ruling.

Ratio Decidendi: A testamentary clause expressed in precatory terms does not create a binding trust, and where a Hindu will gives enjoyment of income to named beneficiaries without specifying shares, the beneficiaries take equal life interests as tenants-in-common rather than as joint tenants.

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