Partnership goodwill and retained gifts were held includible in estate duty where the donor's interest was not fully excluded.

Goodwill is treated as an asset of the partnership, and a deceased partner's interest in that goodwill can pass on death for estate duty purposes even if the deed excludes legal representatives from claiming it. The court held that the relevant enquiry is whether the deceased's interest in the property changed on death; here, the interest in goodwill passed to the surviving partners and was includible in the estate. Gifts of money to children were also caught by section 10 because the amounts remained invested in the same firm, so the donees did not enjoy the property to the entire exclusion of the donor. Both questions were answered for the Revenue.

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Issues: (i) Whether the deceased partner's share in the goodwill of the firm passed on death so as to be includible in the principal value of the estate under the Estate Duty Act. (ii) Whether the gifts of money made by the deceased to his children, when retained as deposits or capital in the firm, attracted section 10 of the Estate Duty Act.

Issue (i): Whether the deceased partner's share in the goodwill of the firm passed on death so as to be includible in the principal value of the estate under the Estate Duty Act.

Analysis: Goodwill was an asset of the firm and the deceased was entitled to a share in all the assets, including goodwill, during his lifetime. A partnership arrangement excluding legal representatives from claiming goodwill did not mean that the deceased had no interest in that asset at death. On the death of a partner, the relevant enquiry is whether there is an actual change in the interest in the property, not to whom it passes. The partnership deed and the nature of the firm's assets showed that the deceased's interest in the goodwill changed hands in favour of the surviving partners.

Conclusion: The deceased's share in the goodwill did pass on death and was rightly includible in the estate. The finding was against the accountable person and in favour of the Revenue.

Issue (ii): Whether the gifts of money made by the deceased to his children, when retained as deposits or capital in the firm, attracted section 10 of the Estate Duty Act.

Analysis: The amounts gifted by the deceased remained invested in the same firm in which he was a partner. The court followed the earlier decision rendered in the connected reference and held that, because the donees did not enjoy the gifted property to the entire exclusion of the donor, the statutory condition in section 10 was not satisfied in the assessee's favour.

Conclusion: The gifted sum was hit by section 10 and was liable to estate duty. The finding was against the accountable person and in favour of the Revenue.

Final Conclusion: Both referred questions were answered in favour of the Revenue, and the estate duty inclusion was upheld.

Ratio Decidendi: Where a deceased partner retains an interest in goodwill as part of the firm's assets, a partnership clause denying claims by legal representatives does not prevent that interest from passing on death for estate duty purposes; and gifts retained in the same firm are caught by section 10 unless the donees enjoy them to the entire exclusion of the donor.

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