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of <h1>Legal Ruling: Goodwill of a Firm Transfers on Death, Valuation Method Upheld.</h1> The Supreme Court affirmed that goodwill of a firm is an asset, passing to legal representatives upon death. The absence of a provision for firm ... Estate Duty, Goodwill Issues Involved:1. Valuation of goodwill for estate duty purposes.2. Dissolution of the firm upon the death of a partner.3. Correctness of the method adopted for valuing the goodwill of the firm.Issue-wise Detailed Analysis:1. Valuation of Goodwill for Estate Duty Purposes:The court examined whether the goodwill of the firm could be valued for estate duty purposes. Section 14 of the Partnership Act states that the property of the firm includes the goodwill of the business, making it an asset of the firm. The Supreme Court in *Kushal Khemgar Shah v. Mrs. Khorshed Bann Dadiba Boatwalla* affirmed that the goodwill of a business is the property of the firm. The deceased had a share in the goodwill, which passed to his legal representatives upon his death. The court noted that goodwill is an intangible asset and its value is based on the reputation and connections of the business. The court cited various definitions and judicial interpretations of goodwill, emphasizing that it is the attractive force that brings in custom and adds value to a business. The court concluded that the firm had goodwill based on its growing business and profits, despite being dissolved thrice between 1959 and 1968.2. Dissolution of the Firm Upon the Death of a Partner:The court addressed whether the firm was dissolved upon the death of the deceased partner. The Tribunal found that the partnership deed did not contain any provision for the continuance of the firm upon the death of a partner. In the absence of such a provision, Section 42(c) of the Partnership Act mandates the dissolution of the partnership upon the death of a partner. Consequently, the firm stood dissolved on the death of the deceased.3. Correctness of the Method Adopted for Valuing the Goodwill of the Firm:The court evaluated whether the method adopted by the Tribunal for valuing the goodwill was correct in law. The Assistant Controller calculated the value of the goodwill by averaging the profits of the firm for three years, deducting interest on the invested capital at 9%, and remuneration for six working partners. The Tribunal adjusted the interest rate to 10% and increased the remuneration to Rs. 81,000 but maintained the three years' purchase formula. The court reviewed various methods of valuing goodwill, including the 'super-profits' and 'total capitalisation' methods. The court found that the method adopted by the Tribunal was consistent with accepted practices in accountancy and judicial precedents. The court also noted that the three years' multiple applied by the Tribunal was appropriate given the firm's progressive profits.Conclusion:The court answered all three questions in the affirmative, in favor of the department and against the assessee. The Tribunal's method of valuing the goodwill was upheld, and the goodwill was included in the principal value of the estate for estate duty purposes. The court awarded costs of Rs. 200 to the department, with counsel's fee assessed at the same figure.
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