Partnership goodwill and estate duty: retired partner's share was excluded from the principal estate where no interest subsisted at death.

Goodwill of a partnership firm can exist even in a selling agency business, but estate duty under section 5 of the Estate Duty Act depends on property passing on death through a change in beneficial possession or enjoyment. Where the deceased partner had retired more than a month before death and retained only a right to settlement of accounts under section 48 of the Partnership Act, there was no subsisting interest in goodwill on the date of death and no disposition in favour of the continuing partners within section 9(1), section 27(1) or Explanation 2 to section 2(15). The deceased's share in goodwill was therefore excluded from the principal estate.

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Issues: Whether the deceased's share in the goodwill of the partnership firm was includible in the principal estate for estate duty purposes, and whether the retirement of the deceased partner before death amounted to a disposition attracting section 9 of the Estate Duty Act, 1953.

Analysis: The firm was held to possess goodwill even though it was a selling agency business. However, the charging provision under section 5 applies only when property is said to pass on death through a change in beneficial possession or enjoyment. The deceased had retired from the firm more than a month before her death, and on retirement her rights in the firm were confined to settlement of accounts under section 48 of the Indian Partnership Act, 1932. In those circumstances, there was no subsisting interest in the goodwill on the date of death and no disposition by the deceased in favour of the remaining partners within the meaning of section 9(1), section 27(1), or Explanation 2 to section 2(15) of the Estate Duty Act, 1953.

Conclusion: The inclusion of the deceased's share of goodwill in the principal estate was not justified and the addition was deleted, in favour of the assessee.

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