Retiring partner goodwill share supported by mutual consideration, so no deemed gift arose on the transfer.

A retiring partner's share in a firm's goodwill was treated as supported by mutual consideration where the continuing partners took over the business and its liabilities. The transfer of the outgoing partner's rights in partnership assets, including goodwill, was not a unilateral relinquishment of property without consideration. On that basis, the share in goodwill was not regarded as a deemed gift or taxable disposition, and the addition made on that footing was deleted.

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Issues: Whether the retiring partner's share in the goodwill of the firm could be treated as a deemed gift or disposition of property so as to attract estate duty.

Analysis: The deceased had retired from the firm shortly before her death, had only a 10 per cent share at the relevant time, was not a working partner, and had a small capital investment. On retirement, the continuing partners took over the business and its liabilities. In such a situation, the transfer of rights in the partnership assets, including goodwill, is accompanied by a corresponding taking over of obligations by the continuing partners. The transaction therefore involves mutual consideration and a quid pro quo, rather than a unilateral relinquishment of property without consideration.

Conclusion: The share in goodwill was not a deemed gift or taxable disposition by the deceased, and the addition made on that basis was unsustainable.

Final Conclusion: The appeal was allowed and the addition in respect of the alleged gift of goodwill was deleted.

Ratio Decidendi: Where a partner retires and the remaining partners continue the business while taking over the outgoing partner's corresponding rights and liabilities, the transaction is supported by mutual consideration and does not amount to a deemed gift of goodwill.

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