Blending of self-acquired property escapes estate duty, while a deceased partner's share in goodwill remains includible in the estate.

A unilateral blending of self-acquired property into the common stock of a Hindu joint family was treated as neither a gift inter vivos nor a disposition attracting estate duty under sections 10 and 27 of the Estate Duty Act, 1953, so the blended amount was excluded from the estate. By contrast, goodwill was recognised as an asset of the firm and property within section 2(15); in the absence of a partnership term excluding heirs, the deceased partner's share in goodwill devolved on death and its value was includible in the principal value of the estate. The matter thus resulted in exclusion of the blending amount but inclusion of the goodwill value.

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Issues: (i) Whether the amount thrown by the deceased into the common stock, including the deposit of Rs. 48,103, was liable to be included in the estate under sections 10 and 27 of the Estate Duty Act, 1953; (ii) Whether the deceased partner's share in the goodwill of the firm was includible in the principal value of the estate.

Issue (i): Whether the amount thrown by the deceased into the common stock, including the deposit of Rs. 48,103, was liable to be included in the estate under sections 10 and 27 of the Estate Duty Act, 1953.

Analysis: The deposit of Rs. 48,103, remaining with the firm, did not attract section 10 because the donor was treated as having excluded himself from benefit within the governing principle applicable to such adjustment-entry gifts. As to the balance, the act of throwing self-acquired property into the common stock was held to be a unilateral act of blending by a coparcener and not a bilateral or multilateral disposition amounting to a gift inter vivos. On that reasoning, such blending was not a disposition within section 27 read with section 9 and did not amount to property deemed to pass on death.

Conclusion: The exclusion of the sum of Rs. 82,702 was upheld in favour of the accountable person.

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

Analysis: Goodwill was treated as an asset of the firm and as property within section 2(15) of the Estate Duty Act, 1953. In the absence of any partnership term excluding the heirs from a share in goodwill, the deceased's interest in goodwill was held to devolve on his legal representatives on death. The value of goodwill, when ascertainable on accepted commercial principles, was therefore capable of inclusion in the estate along with the other assets of the business.

Conclusion: The deletion of the addition of Rs. 6,364 was disallowed and the inclusion of the goodwill value was sustained in favour of the department.

Final Conclusion: The reference was answered by sustaining the exclusion of the blending amount while holding that the deceased's share in goodwill was liable to estate duty, and the matter was disposed of with divided success.

Ratio Decidendi: A unilateral blending of self-acquired property into the common stock of a Hindu joint family is not a disposition or gift inter vivos attracting estate duty, but goodwill is an asset of the firm and, absent a contrary partnership stipulation, the deceased partner's share in it devolves on death and is includible in the estate.

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