Goodwill exclusion in partnership deed and cash gifts to relatives were held outside estate duty where no retained benefit was shown.

A partnership deed that expressly excludes goodwill on a partner's death prevents any interest in goodwill from passing to the estate, so the goodwill share is not brought into the principal value. Cash gifts made to relatives are likewise outside the dutiable estate where the donees take bona fide possession and enjoyment, and no retained benefit to the donor is shown to arise from the gift itself. Mere later deposit of the gifted money with the donor's partnership firm does not by itself attract estate duty under section 10.

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Issues: (i) Whether the deceased partner's share in the goodwill of the firm was includible in the principal value of the estate on death. (ii) Whether cash gifts made by the deceased to relatives, later deposited by them with the partnership firm in which he was a partner, were includible in the dutiable estate under section 10.

Issue (i): Whether the deceased partner's share in the goodwill of the firm was includible in the principal value of the estate on death.

Analysis: The partnership deed contained an express stipulation that on the death or retirement of a partner no goodwill of the firm would be treated as subsisting and nothing would be payable towards goodwill. On that contractual footing, the deceased's interest in goodwill ceased on death and no corresponding benefit passed to his legal representatives. The principle applied was that estate duty under the relevant provisions is attracted only where property or an interest in property passes on death, and a contractual exclusion of goodwill prevents such passing.

Conclusion: The share in goodwill was not includible in the principal value of the estate and this issue was decided in favour of the accountable person.

Issue (ii): Whether cash gifts made by the deceased to relatives, later deposited by them with the partnership firm in which he was a partner, were includible in the dutiable estate under section 10.

Analysis: Section 10 applies only when the donee does not immediately assume bona fide possession and enjoyment of the gifted property to the entire exclusion of the donor, or where the donor retains a benefit referable to the gift by contract or otherwise. The later Supreme Court authorities clarified that mere investment of gifted money by the donees in a firm in which the donor was a partner does not, by itself, attract section 10 unless the donor's continued enjoyment is shown to be referable to the gift itself. On the facts, nothing beyond the cash gifts and their deposit with the firm was established to show any retained benefit to the donor in his character as donor.

Conclusion: The cash gifts were not includible under section 10 and this issue was decided in favour of the accountable person.

Final Conclusion: Both references were answered in favour of the accountable person, and the revenue was held not entitled to include either the goodwill value or the gifted cash amounts in the principal value of the estate.

Ratio Decidendi: Where a partnership deed expressly excludes goodwill on a partner's death, no interest in goodwill passes on death; and cash gifts later placed with a partnership firm are not brought within section 10 unless the donor's continued benefit is shown to arise from the gift itself and not merely from the donor's separate status in the firm.

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