TaxTMI 
TaxTMI 
1982 (11) TMI 9
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....n question. For instance, there is the doctrine of partnership law which says that a partner, during the subsistence of his partnership, cannot put his finger on any asset of the partnership and say that he has such and such a share in that asset nor can he say that he has got a particular share in all the assets of the partnership put together. The conception of partner's interest in the partnership, during the subsistence of the partnership, is that that interest entitles him only to a share in the profits of the partnership and perhaps a right to an accounting of such profits in terms of the articles of partnership. When the partnership is alive and the business is being carried on, the partner cannot demand from the other partners that his title, to any extent, be recognised in any of the assets of the partnership. The position is different when the partnership becomes dissolved. In one sense, it is only at a dissolution that the true character of a partner's interest is laid bare. At that moment only, and not at any time before, he is entitled to demand a winding-up of the business, which would involve the realisation of all the assets of the partnership and the payment of all....
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.... be taken into account in making the estate duty assessment on the principal value of all properties passing on his death. How to evaluate such an interest is the problem which has been debated in this reference. It would appear from the order of assessment in this case that the firm concerned in this reference went by the name of V. Guruviah Naidu and Sons. The deceased, Guruviah Naidu, was a partner in that firm with a 15% share. We have no idea of the nature of the business of the partnership. We do not also have a complete list of the assets of the partnership firm. It would, however, appear from the assessment order passed by the Assistant Controller of Estate Duty that the only partnership asset worth mentioning was an item of immovable property, namely, a building situate in R.S. Puram, Coimbatore. The record shows that in the account books of the firm, this building was valued at Rs. 1,18,637 either on the date of death or nearabout that date. Other details regarding the financial position of the partnership as at the date of the death of the deceased were furnished by the accountable person before the Assistant Controller. From these details, the Assistant Controller fo....
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....sp; -------- 1,23,186 -------- This amount of Rs. 1,23,186 was included in the dutiable estate as representing the market value of the deceased's partnership interest. Objection was taken by the accountable person to the addition of Rs. 4,704 in the dutiable estate. The objection did not relate to the quantum of valuation of the property. The objection, rather, was sought to be founded....
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....m of Rs. 4,704 on the ground that there was no dissolution of the firm and hence the value to be adopted is the book value and not the market value of the property ? We have been able to indicate even in our narrative giving the gist of the Tribunal's order that there is an essential contradiction in the Tribunal's order. Whereas, the principle adumbrated by the Tribunal was that in the case of a firm, which under the articles of partnership, does not get dissolved by the death of a partner, the deceased's share must be determined only on the basis of book value of his share and not on the basis of the market value thereof, the Tribunal had not gone the whole-hog with the idea nor considered the correctness of the determination made by the assessing authority on that basis but had stopped short with the deletion of only Rs. 4,704. It is perhaps due to this internal contradiction in the Tribunal's determination of the question that Mr. S. V. Subramaniam before us took broader line in his submission. As we earlier indicated, his submission was that the relevant valuation provisions in the E.D. Act do not warrant the assessing authority to value anything other than the partnersh....
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....r value. This is shown by the next succeeding entry in the same account which relates to a case where no balance-sheet is available. According to the remarks column, in such a case, the accountable person is enjoined by the form of account to make an-estimate and say what according to his estimate is the value of the interest of the deceased in the partnership. Quite apart from the internal evidence contained in the text of the form of estate duty account as such, we are satisfied, on the terms of s. 36, that the balance-sheet value cannot be regarded as the last word on the subject of valuation of a partnership interest any more than an entry in the estate duty account filed by an accountable person is conclusive of the respective value of the property shown therein. On the contrary, s. 36, in clearest terms, imposes on the assessing authority, namely, the Assistant Controller, the responsibility of estimating the principal value of each and every one of the items of property which go to make the dutiable estate. The section, in so many words, says that the principal value of any property shall be estimated to be the price which, in the opinion of the Controller, it would fetch if....
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.... part of the entries in the said account. Mr. Subramaniam then submitted that as a matter of construction of s. 36(1), what the assessing authority is enjoined to determine is the amount which would be arrived at by imagining an open market sale at the time of the deceased's death. In so doing, according to learned counsel, the Assistant Controller ought not to overlook the peculiar incidents which might attach to any property and might be susceptible, to market fluctuations. Learned counsel submitted that in a case such as the present one, where the partnership article provided that the firm should continue notwithstanding the death of any partner, the principle to be applied would be not to go into the detailed break-up valuation of the firm's assets, but merely to adopt the book figures of valuation of the deceased's interest, because under the terms of the partnership articles as well as under the general law of partnership, there being no dissolution, the value of assets ought not to be taken on the basis of a winding up and a, distress sale of the firm's assets. Learned counsel cited a few decisions in support of his contention, namely, Surajmall Gouti v. CED [1979] 119....
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....eased partner's interest devolves, the view adumbrated in the decision aforesaid may be accepted as correct. But that view is apposite for the purpose of the E.D. Act. Estate duty is not an inheritance tax. A tax on inheritance is a levy on the person who inherits the property, the burden being made to fit in with the size of the inheritance of the heir or the legatee, as the case may be. Estate duty, on the contrary, is a levy on property on the occasion when it passes hands, the occasion being the death of a person. This is why estate duty is sometimes referred to as a species of a mutation duty, a levy on the occasion of the property changing hands. That the inheritance has nothing whatever to do with the charge to estate duty is illustrated by the fact that part of the dutiable estate under the E.D. Act, can be on " Estate per antre vie " under the Act, an estate per antre vie has to be regarded as a separate estate independent of the general estate liable for estate duty. This illustrates the real nature of the impost under the E.D. Act. The fact that, on the death of a partner and depending upon the terms of the partnership, the surviving partners take the partner's interest,....
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....erms of the partnership, the beneficiaries of that interest were exclusively the surviving partners. On the basis of this contention, it was urged that no part of the goodwill could be included in the dutiable estate as forming part of the deceased's interest in the partnership. This contention was, however, negatived by this court. The Bench held that, goodwill, being an asset of the firm, belonged to all the partners, and the death of the deceased resulted in augmenting the interest of the surviving partners in the goodwill and hence there was a passing of the deceased's share in the goodwill even if there was no devolution of the deceased's interest in the goodwill on the legal representatives. We rely on this decision for a limited purpose, namely, that in the very nature of the charge to estate duty, the inquiry to whom the property passes is a matter of indifference, but whether the property passes at all and what is the value of the property which passes are the only criteria. The court expressed the view that estate duty is not restricted in its scope to that which devolves on the heirs of the deceased. The partners in that case, who were strangers, were nevertheless entitl....
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.... the valuation provisions in the E.D. Rules in regard to valuation of a partner's interest. Those provisions only adopt the break-up value method, involving as it does, the valuation of a partnership asset, in the first instance, and then proceeding therefrom to ascertaining the aliquot share of the partner concerned. If, therefore, in the present case, the Assistant Controller concentrated his attention on the market value of the property in R. S. Puram, Coimbatore, belonging to the firm, that was but a necessary step for the valuation of the partnership interest. The valuation of the firm's property is not an end in itself, but means to arrive at the deceased's own interest in the partnership. Mr. Subramaniam, however, said that the Assistant Controller was wrong in picking up only one asset of the partnership firm for the purpose of ascertaining the market value thereof. The suggestion was that the Assistant Controller ought to have done the same thing in each and everyone of the individual assets of the partnership. What the learned counsel says is perfectly correct. But we must in this case assume one of two things. Either there were no assets of the firm worth mentioning o....