Partnership deed overrides default sharing rules; goodwill passes on death, but post-death tax refund stays outside the estate.

A partnership deed that regulates profit distribution displaces the statutory default of equal sharing, so a notional one-fifth share in the deceased partner's interest could not be sustained. Current-year profits up to the date of death were not treated as automatically accruing to the deceased and were excluded from the estate. Goodwill was held to pass on death as part of the firm's property, but its valuation had to be recomputed on commercial profits, tax, realistic managerial remuneration, and a one-year purchase multiplier. An income-tax refund and related interest arising after death were excluded, while interest on the estate duty demand and denial of residential-flat exemption were upheld subject to recomputation of interest.

---

---

Issues: (i) Whether the partnership deed displaced the statutory rule of equal sharing under section 13(b) and prevented adoption of a notional one-fifth share in the deceased partner's interest; (ii) whether current year profits up to the date of death were includible in the estate; (iii) whether goodwill passed on death and, if so, how it was to be valued; (iv) whether income-tax refund and interest received after death were includible in the estate; (v) whether the levy of interest and the denial of exemption in respect of the residential flat were sustainable.

Issue (i): Whether the partnership deed displaced the statutory rule of equal sharing under section 13(b) and prevented adoption of a notional one-fifth share in the deceased partner's interest.

Analysis: The deed expressly regulated distribution of current and accumulated profits, losses, and ultimate sharing by agreement from time to time, and it negatived any fixed or equal share in accumulated profits. Where the contract itself prescribes the basis and method of sharing, the statutory default rule of equal division does not operate.

Conclusion: The statutory rule under section 13(b) was inapplicable, and the earlier one-fifth computation could not be sustained.

Issue (ii): Whether current year profits up to the date of death were includible in the estate.

Analysis: Profits do not accrue from day to day in a manner capable of automatic apportionment without taking the accounts as a whole. The business continued to have transactions in the short interval after death, and the later ascertainment of profits did not mean that those profits had accrued to the deceased on the date of death.

Conclusion: The current year's profits up to the date of death were not includible, and their inclusion was deleted.

Issue (iii): Whether goodwill passed on death and, if so, how it was to be valued.

Analysis: Goodwill is part of the firm's property and a partner has a marketable interest in the firm's assets, including goodwill, even during subsistence of the partnership. The partnership clause excluding a specified share in goodwill did not prevent the passing of the deceased's interest. For valuation, commercial and not merely assessable profits were relevant, tax had to be allowed for, managerial remuneration had to reflect a realistic return for the business, and the multiplier had to match the risks of a single-customer export business.

Conclusion: Goodwill was includible, but it had to be recomputed on the basis of book profits, deduction of tax, higher capital return, enhanced managerial remuneration, and a one-year purchase multiplier.

Issue (iv): Whether income-tax refund and interest received after death were includible in the estate.

Analysis: A refund arising only after death was not property available at the date of death and therefore did not pass on death within the meaning of the charging provision for estate duty.

Conclusion: The refund and related interest were not includible and were directed to be excluded.

Issue (v): Whether the levy of interest and the denial of exemption in respect of the residential flat were sustainable.

Analysis: The levy of interest remained justified on the facts, though the quantum had to be recomputed on the duty ultimately payable. The claim for exemption in respect of the flat failed for want of evidence showing use as the deceased's residence.

Conclusion: The interest levy and the denial of exemption were upheld, subject to redetermination of the interest amount.

Final Conclusion: The appeal succeeded only in part: the notional share in current year profits was deleted, the refund component was excluded, and the goodwill valuation was required to be recomputed on revised parameters, while the remaining additions and the interest levy were substantially sustained.

Ratio Decidendi: Where a partnership deed itself provides the basis and timing for distribution of profits and accumulated profits, the statutory default of equal sharing does not apply; for estate duty, goodwill and partnership rights are property passing on death, but later-accruing refunds are not.

---