1976 (10) TMI 31

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....al Fabriks (India), Ludhiana. The Zonal Appellate Controller confirmed this order of the Assistant Controller, but the Income-tax Appellate Tribunal, following a judgment of the High Court of Punjab and Haryana in Controller of Estate Duty v. Ved Parkash Jain [1974] 96 ITR 303 (Punj) held that the share of goodwill of a deceased person in the assets of a firm did not pass on his death and, therefore, it could not be taken into account in computing the principal value of the estate of the deceased. The addition of Rs. 93,480 was, therefore, deleted. The Tribunal did not go into the question whether the share of goodwill was correctly valued at Rs. 93,480. At the instance of the revenue, the following question has been referred to us for our ....

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....7, 1148, the Supreme Court referred to section 14 of the Partnership Act and observed : " Goodwill of the firm is expressly declared to be the property of the firm. " Referring to section 55 which makes provision for the sale of goodwill after dissolution, the Supreme Court further observed : " But it is not enacted thereby that goodwill may be taken into account only when there is a general dissolution of the firm, and not when the representatives of a partner claim his share in the firm, which by express stipulation is to continue notwithstanding the death of a partner... These provisions (sections 39, 42 and 46) deal with the concept and consequences of dissolution of the firm ; they do not either abrogate the terms of the contr....

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....nding any clause in the deed of partnership to the effect that the surviving partners are entitled to carry on the business on the death of the partner. A term extinguishing the right of a deceased partner to a share in the assets is not to be implied merely because the deed provides for continuance of business by the surviving partners. The earliest case to which we have been referred is the decision of the Privy Council in Perpetual Executors and Trustees Association of Australia Ltd. v. Commissioner of Taxes of the Commonwealth of Australia [1954] 25 ITR (Suppl) 47 (PC). Under the terms of the partnership deed, it was provided that on the death of a partner, the surviving partners had the option of purchasing his share without any sum....

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....he Partnership Act dealing with the concept and consequences of the dissolution of the firm cannot be said to extinguish the proprietary right of the deceased partner in the assets of the firm including the goodwill. The fact that the accountable persons had not in fact got a share in the goodwill of the managing agency firm from the surviving partners as found by the Tribunal will not affect the legal consequences of the devolution of the deceased's interest in the goodwill to the accountable persons. It may be that in the instant case the accountable persons did not as a matter of fact get anything other than the deceased's share in the capital and the profits of the business. But, as already stated, the entitlement of the accountable per....

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....n whether the goodwill passed to the heirs of the deceased or not. They did not consider the question whether the devolution of the goodwill on the surviving partners on the death of the deceased partner was itself not sufficient to constitute passing of property with the meaning of section 5 of the Act. Since the actual decision of the learned judges proceeded on a construction of the relevant clause of the deed of partnership, we do not think that it is necessary for us to say anything more about the view expressed by the learned judges. We may, however, add that the view of the learned judges appears to be opposed to the decision of the Privy Council in Perpetual Executors and Trustees Association of Australia Ltd. v. Commissioner of Tax....