Goodwill in a deceased partner's estate, dissolution on death, and super-profits valuation were upheld for estate duty purposes.

A deceased partner's share in the goodwill of an established partnership was treated as property passing on death and therefore includible in the principal value of the estate for estate duty purposes. In the absence of any contractual clause preserving continuity, the partnership was held to dissolve on the partner's death. The super-profits or direct valuation method for goodwill, based on average profits, a reasonable return on capital, partner remuneration, and a years' purchase multiple, was accepted as a recognised and lawful approach, and the valuation was upheld.

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Issues: (i) Whether the goodwill of a partnership firm could be included in the principal value of the deceased partner's estate for estate duty purposes. (ii) Whether the firm stood dissolved on the death of the deceased partner in the absence of a clause for continuance. (iii) Whether the method adopted for valuing the firm's goodwill was correct in law.

Issue (i): Whether the goodwill of a partnership firm could be included in the principal value of the deceased partner's estate for estate duty purposes.

Analysis: Goodwill is part of the property of a firm under the Partnership Act, but every firm does not necessarily possess goodwill of substantial or any value. For estate duty, the property passing on death has to be valued on an open-market basis. On the facts, the firm had an established business, substantial profits, and no material showing absence of goodwill. The deceased had a share in that goodwill which passed to his legal representatives.

Conclusion: The goodwill was includible in the deceased's estate and the finding was against the assessee.

Issue (ii): Whether the firm stood dissolved on the death of the deceased partner in the absence of a clause for continuance.

Analysis: In the absence of a contractual provision to the contrary, the death of a partner attracts the statutory rule that the partnership is dissolved on death. The partnership deed contained no term preserving the firm after a partner's death.

Conclusion: The firm stood dissolved on the death of the deceased partner and the finding was against the assessee.

Issue (iii): Whether the method adopted for valuing the firm's goodwill was correct in law.

Analysis: The valuation method used by the authorities was the super-profits or direct method, involving average profits, deduction of a reasonable return on capital, deduction of partner remuneration, and application of a years' purchase multiple. That approach is recognised in valuation practice and had support in judicial authority. No reliable basis was shown to reject the three-years' multiple on the facts.

Conclusion: The valuation method was held to be correct and the finding was against the assessee.

Final Conclusion: All the referred questions were answered in favour of the revenue, with the deceased partner's share in goodwill held liable to be included in the estate and the valuation upheld.

Ratio Decidendi: A deceased partner's share in the goodwill of an established partnership is property passing on death for estate duty purposes, and its value may be assessed on a recognised super-profits based open-market valuation method.

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