TaxTMI 
TaxTMI 
1978 (3) TMI 22
X X X X Extracts X X X X
X X X X Extracts X X X X
....not stand dissolved but outgoing partner or legal representative of the deceased partner shall be entitled to be paid the capital and the value of his share and interest in the firm including that in the said jute press after the same is determined on valuation by mutual consent. For this purpose, a balance-sheet and profit and loss account shall be prepared as on the date of retirement or death (as the case may be). In case of death of any partner, if the surviving partners so unanimously agree, they are at liberty to take in the legal representative of the deceased partner (or any or all of them in case there are more than one legal representatives). 12. In the event of winding up on dissolution, or for the purposes of clause (11) supra, the share or interest of the four partners and the aforesaid minors (admitted to the benefits of the partnership) in the net assets and properties of the business including leasehold interests and the goodwill and the said jute press (after the same is determined on valuation by mutual consent) shall be the following; the amounts then appearing in the capital account of the respective persons being, however, respectively, their own individually....
X X X X Extracts X X X X
X X X X Extracts X X X X
....so did not accept the valuation of the said jute press. He held the gross rental income of the jute press to be at Rs. 2,25,823 which was the actual rental in the years 2021 and 2022. After deducting taxes, charges for repairs and collection, he applied the formula of a " number of years' purchase " and valued the said jute press at Rs. 21,71,155 and the 1/8th share of the deceased therein was determined to be Rs. 2,57,466 which was included in the estate. Being aggrieved by the order of the Asst. CED, the accountable person preferred an appeal to the Appellate CED. It was contended on behalf of the accountable person in the appeal, inter alia, that under cls. 11 and 12 of the partnership deed, referred to hereinbefore, the value of the ascertained share of the deceased in the firm was only Rs. 1,96,217.86 which had to be accepted as correct and that a separate valuation of the individual assets of the firm was against the provisions of the deed as also the general principles of law relating to partnerships. It was further contended that a valuation made by the recognised valuer was binding on the revenue and could not be questioned unless there was a contrary valuation by anothe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the provisions of s. 36 of the E.D. Act. But the Controller had the power and jurisdiction to enquire into the details of the assets of the firm and the valuations thereof as the balance-sheet was merely an aggregation of such assets and liabilities. The Tribunal held that the Assistant Controller had acted within law when he revalued the jute press and that the method of valuation adopted could not as such be challenged by the assessee. The valuer's report submitted by the assessee was not based on actual figures of the annual gross rental and, therefore, was justifiably discarded. The Tribunal found that there was no reason to interfere with the decision of the Assistant Controller. On an application by the assessee under s. 64(3) of the E.D. Act, the Tribunal has drawn up a statement of case and has returned the following questions for the opinion of this court: " (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the matter of department's valuation of the deceased's interest in the partnership firm, M/s. Chouthmull Joychandlal Gouti, was in accordance with law? (2) Whether, on the facts and in the circumstances of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the estimate being made on the assumption that the whole property is to be placed on the market at one and the same time: Provided that where it is proved to the satisfaction of the Controller that the value of the property has depreciated by reason of the death of the deceased, the depreciation shall be taken into account in fixing the price." The Estate Duty Rides, 1953: "7. (c) The share of a partner in a partnership shall be treated as an indivisible asset for the purpose of determination of its nature and locality. The share of a partner in a partnership is movable property ........" Item in the statutory Form No. E.D--I: " the deceased's share in movable and immovable property as a partner in the firm of...... as per balance-sheet annexed, signed by the surviving partners ..........." Mr. Roy also cited a decision of the Supreme Court in Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300, where the Supreme Court quoted with approval the following passage from Lindley on Partnership, 12th Edn., at page 375 : " What is meant by the share of a partner is his proportion of the partnership assets after they have been all realised and converted into money....
X X X X Extracts X X X X
X X X X Extracts X X X X
....included in the valuation of the estate. On a reference, the Madras High Court held that the goodwill was an asset of the firm and the share of the deceased in the same was not extinguished, but it augmented the interest of the surviving partners. Therefore, the deceased's share in such goodwill passed on his death even if there was no devolution of such interest on the legal representatives. The following observations of Lord Parker in Attorney-General v. Milne [1914] AC 765; 2 EDC 8 (HL) was quoted : " The expression 'passing on the death' is ...... evidently used to denote some actual change in the title or possession of the property as a whole which takes place at the death. For the purpose of this section (s. 1) it is absolutely immaterial to whom, or by virtue of what disposition the property passes." (b) Lynall v. IRC [1972] 83 ITR 563 (HL). This is a decision of the House of Lords, where the House considered s. 7(5) of the British Finance Act, 1894, which is in pari materia with s. 36 of the E.D. Act. (c) Perpetual Executors and Trustees Association of Australia Ltd. v. Commissioner of Taxes (1954] 25 ITR (Suppl.) 47 (PC). Here the principal asset of a testator was his i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he purpose of estate duty, the market value of the goodwill and not the value as stated in the partnership should be taken into account. In reply, Mr. Roy for the assessee has drawn our attention to a passage in the 3rd edition of Halsbury, vol. 15, page 13, para. 22, which reads as follows : " 22. Interests ceasing.--Property in which the deceased or any other person had an interest ceasing on the deceased's death is deemed to pass to the extent to which a benefit accrues or arises by the cesser of the interest. The benefit is the benefit to the property and the extent is measured by comparing the interest ceasing with the total income of the property. " He contended that there was no cesser of interest in the instant case as there was no increase of the value of the property in the hands of any person as it was a continuing business. It has been found by the Tribunal and is undisputed that it is the share of the deceased in the firm which has to be valued for the purposes of estate duty. This is what has passed by devolution or cesser, as the case may be. In our view such valuation has to be made under s. 36 of the E.D. Act, 1953, read with r. 7(c) of the E.D. Rules. In makin....