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Issues: Whether the share of goodwill of a deceased partner in the assets of a firm passes on his death under the Estate Duty Act.
Analysis: Section 5 of the Estate Duty Act charges duty on the principal value of property passing on death, and section 2(16) gives an inclusive meaning to property passing on death. Under section 14 of the Indian Partnership Act, 1932, goodwill is property of the firm, and section 55 of that Act recognises its sale after dissolution. Relying on the principle that goodwill is an asset of the firm and that a partner's share in the assets devolves on his legal representatives unless expressly extinguished, the Court held that the deceased partner's share in goodwill does pass on death. The contrary view that goodwill in a continuing firm has no value was rejected as inconsistent with the statutory scheme and earlier authoritative decisions.
Conclusion: The question was answered in the negative against the assessee and in favour of the revenue; the deceased partner's share in goodwill passes on death under the Estate Duty Act.
Ratio Decidendi: Goodwill is a partnership asset, and in the absence of an express provision extinguishing the deceased partner's proprietary interest, the share in goodwill devolves on death and constitutes property passing on death for estate duty purposes.
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