Estate duty valuation includes profit-based reserves as partner property; aggregation provisions for lineal descendants upheld under binding precedent.

Reserves created out of profits for investment allowance and development rebate were treated as partners' property, not as firm liabilities, so the deceased partner's share in those reserves formed part of the property passing on death for estate duty valuation. The estate duty provisions therefore required inclusion of that share without resort to wealth-tax principles. The challenge to aggregation of lineal descendants' shares under the estate duty scheme also failed, as binding Punjab and Haryana High Court precedent upheld the constitutional validity of the aggregation provisions. On that basis, the assessment was restored and the Revenue's position was accepted.

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Issues: (i) Whether investment allowance reserve and development rebate reserve standing in the balance sheets of firms in which the deceased was a partner formed part of the partner's property passing on death and were to be included in the valuation of his interest. (ii) Whether the inclusion of lineal descendants' shares for aggregation under the estate duty provisions was constitutionally valid.

Issue (i): Whether investment allowance reserve and development rebate reserve standing in the balance sheets of firms in which the deceased was a partner formed part of the partner's property passing on death and were to be included in the valuation of his interest.

Analysis: The reserves required to be created under the income-tax provisions were to be made out of profits and in cash. Their character was that of property belonging to the partners and not a liability of the firms. The provisions governing estate duty required the deceased's share in such property to be brought into account for determining the value of his interest, and recourse to the wealth-tax provisions was unnecessary for this purpose.

Conclusion: The reserve amounts were includible as property passing on death, and the Revenue's view was correct.

Issue (ii): Whether the inclusion of lineal descendants' shares for aggregation under the estate duty provisions was constitutionally valid.

Analysis: The challenge based on earlier Madras decisions was not accepted. The binding Punjab and Haryana High Court authority upheld the aggregation provisions and expressly disagreed with the contrary view. The argument against inclusion of the reserves in the lineal descendants' shares could not displace the constitutional position already settled by binding precedent.

Conclusion: The aggregation provisions were treated as constitutionally valid, and the objection failed.

Final Conclusion: The assessment made by the Assistant Controller was restored, the contrary appellate order was reversed, and the Revenue succeeded on the issues decided.

Ratio Decidendi: A reserve created out of profits to obtain statutory tax allowance is part of the partners' property and, for estate duty purposes, forms part of the deceased partner's passing interest rather than a firm liability; aggregation provisions for lineal descendants remain operative where binding precedent upholds their constitutional validity.

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