Firm goodwill passes on death and is chargeable to estate duty; valuation must reflect profits and business risk.

A deceased partner's share in a firm's goodwill is treated as property passing on death and is chargeable to estate duty because the deceased's interest in firm assets passes to the legal representative, not the surviving partners. Goodwill need not be valued by any rigid fixed-years formula; a fair valuation based on average profits and the business's circumstances is appropriate. In a speculative business, a higher deduction for return on capital may be justified than for a safe investment. On the facts, the goodwill charge was upheld, while the deceased partner's working allowance and the deduction for interest on capital were increased to reflect business risk.

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Issues: (i) whether the deceased partner's share in the goodwill of the firm was property passing on death and liable to estate duty; (ii) whether the goodwill was correctly valued and the deductions for working allowance and interest on capital were properly determined.

Issue (i): whether the deceased partner's share in the goodwill of the firm was property passing on death and liable to estate duty.

Analysis: Goodwill of a firm is an asset, and on the death of a partner the deceased's interest in the assets of the firm passes to the legal representative and not to the surviving partners. The value of the deceased's share in the goodwill is therefore property passing on death and is chargeable to estate duty.

Conclusion: The issue was decided against the assessee and the deceased's share in goodwill was held liable to estate duty.

Issue (ii): whether the goodwill was correctly valued and the deductions for working allowance and interest on capital were properly determined.

Analysis: There is no rigid rule that goodwill must be valued at a fixed number of years' purchase; the proper approach is to adopt a fair method based on average profits and the circumstances of the business. In a speculative business, a higher deduction for return on capital is justified than in a safe or gilt-edged investment. On the facts, the allowance for the deceased partner was found to be insufficient and was increased, while the deduction for interest was enhanced to reflect the risk involved in the business.

Conclusion: The valuation was upheld in principle, but the assessee succeeded to the extent of increase in the deceased's working allowance and enhancement of the interest deduction.

Final Conclusion: The appeal succeeded only in part, with the goodwill charge upheld but the valuation adjusted in the assessee's favour on the deductions allowed.

Ratio Decidendi: A deceased partner's share in firm goodwill passes on death and is chargeable to estate duty, and goodwill may be valued on a fair profits-based method with deductions reflecting the nature and risk of the business.

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