TaxTMI 
TaxTMI 
1986 (5) TMI 31
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.... liable to be included in the principal value of his property. This inclusion was resisted by the accountable person on the ground that the question of adding the value of the share of the deceased in the goodwill of the firm did not arise in view of clause (10) of the partnership deed. Clause(10)was as follows: " The firm shall not stand dissolved on the death of any of the partners and the partner dying shall have no right whatever in the goodwill of the firm. " The accountable person contended on the basis of this clause that on the death of the deceased, his heirs had no right in the goodwill of the firm, and, as such, the value of the said goodwill did not pass under the provisions of the Act and was, therefore, not liable to any estate duty. The Assistant Controller, however, negatived the said contention. He valued the goodwill at Rs. 2,16,900. The share of the deceased in the goodwill was worked out from this value at Rs. 60,732. The Assistant Controller also worked out the value of the interest which the deceased had in the partnership assets and added the above referred amount of Rs. 60,732 as the value of his share in the goodwill. The accountable person, being ....
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....e facts and in the circumstances of the case, the value of the goodwill, if any, would be exempt under the provisions of section 26(1) of the Act ? " The last question was not pressed before the High Court. The High Court, therefore, did not give any answer to that question. The first question the High Court answered in favour of the Revenue and in the affirmative and the second question was answered in the negative. As the first question was in favour of the Revenue and there was no appeal by the accountable person, this appeal is concerned only with the second question, namely, " whether the value of the interest of the deceased in the said partnership would include the goodwill of the partnership firm ". The High Court answered the question in the negative and in favour of the accountable person as mentioned hereinbefore. The High Court noted that the primary object of every taxing statute was to recover tax or duty in cash on the happening of a particular taxable event. This event, under the Act, is the actual or deemed passing of property on the death of a person. Every taxing statute, according to the High Court, contemplated the levy of tax or duty on the valuation dat....
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....tion 2(15) of the Estate Duty Act. Section 2(15) deals with " property It provides as follows: " `property' includes any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale and also includes any property converted from one species into another by any method. " There are two Explanations with which we are not presently concerned. Section 2(16) deals with " property passing on the death " and is as follows : it 'property passing on the death' includes property passing either immediately on the death or after any interval, either certainly or contingently, and either originally or by way of substitutive limitation, and 'on the death ' includes at a period ascertainable only by reference to the death'. " The imposition of estate duty is made by sub-section (1) of section 5. It stipulates that in the case of every person dying after the commencement of this Act, there shall, save as hereinafter expressly provided, be levied and paid upon the principal value ascertained as provided in the Act, all property, settled or not settled, including agricultural land..., which pass....
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.... (b) if the interest extended to less than the whole income of the property, be the principal value of an addition to the property equal to the income to which the interest extended." The other provisions of the Act need not be considered for the present controversy. Section 14 of the Indian Partnership Act, 1932, recognises that, subject to contract between the partners, the property of the firm would include all the property and rights and interests in property originally brought into the stock of the firm or acquired by purchase or otherwise, by the firm or for the purpose of, or in the course of business of, the firm and includes the goodwill of the business. It further provides that unless the contrary intention appears, property and rights in property acquired with money belonging to the firm are deemed to have been acquired for the firm. Section 15 of the said Act provides that the property of the firm shall be held and used exclusively for the purpose of the firm. In partnership, there is a community of interest in which all the partner take in the property of the firm. But that does not mean that during the subsistence of the partnership, a particular partner has a....
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....hould die, his share was to accrue to the sons in equal shares subject only to their paying out to his representatives the value of his share and interest at his death as ascertained by an account to be made as on the day of his death with all proper valuations, but without any valuation of or allowance for goodwill, which goodwill was to accrue to the sons in equal shares. The father died, and the value of his share and interest at his death were ascertained by an account taken as directed by the deed of partnership without any valuation of, or allowance for, goodwill. The share and interest so ascertained amounted to a large sum and estate duty was paid on that sum. The Crown claimed estate duty on the value of the father's share in the goodwill on the ground that it was (1) property which passed on the death of the father within section I of the Finance Act, 1894, or (2) property in which the deceased had an interest ceasing on his death in which a benefit accrued or arose to the sons by the cesser of that interest within section 2, sub-section (1)(b) of the Act, or (3) property passing under settlement by deed whereby an interest for life was reserved to the father and, therefo....
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....n the aspect of section 7 of the Act, this decision certainly supports the Revenue's contentions. In Perpetual Executors and Trustees Association of Australia Ltd. v. Commissioner of Taxes of the Commonwealth of Australia [1954] AC 114; 25 ITR (ED) 47, the Privy Council had to deal with a case where the principal asset of a testator was his interest in a partnership pursuant to a deed of partnership which, inter alia, conferred option on the surviving partners to purchase the testator's share in the capital on his death and further provided that " in computing the amount of purchase money payable on account of exercise of any option, no sum shall be added or taken into account for the goodwill ". It was held by the Privy Council that the whole of the testator's interest including goodwill was assessable to duty. In so far as Boden's case [1912] 1 KB 539, decided that the goodwill did not pass, it was dissented from. But the moot question is, what happens to the share of the partner in the goodwill of the firm. Clause (10) of the partnership deed in the instant case states as indicated before that the firm shall not stand dissolved on the death of any of the partners. Therefor....
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.... existence which divides the past from the future, and is, and yet, instantaneously is not, " at that time property passes or is deemed to pass. The goodwill of the firm after the death of the dying partner does not get diminished or extinguished. Whoever has the benefit of that firm has the benefit of the value of that goodwill. Therefore, if by any arrangement, for instance, clause (10) of the partnership agreement in the instant case, the heirs do not get any share in the goodwill, the surviving partners who will have the benefit of the partnership will certainly have that benefit. The High Court was right in observing at page 312 of the report that section 7 of the Act might apply to the facts of a given case if it could be shown that there was cesser of any interest resulting in some form of benefit. Indeed, in this case whoever gets the partnership firm is the gainer. Therefore, as result of the death of the dying partner, there is cesser of interest as well as accrual or arising of benefit of the said cesser. It is well-settled that during the subsistence of the partnership, no partner can claim any specific share in any particular items of the partnership assets. A partn....
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....ent. There, the son had merely a right to be maintained by the karta out of the common fund to an extent in the karta's absolute discretion and there was no basis of valuation which in relation to such an " interest, " would conform to the scheme prescribed under section 17(6) of the Ordinance with which the judicial Committee was concerned. A Full Bench of the Madras High Court in the case of Alladi Kuppuswami v. CED [1970] 76 ITR 500, had to construe the effect of Hindu Women's Rights to Property Act, 1937, and to consider the nature of the right of the widow, in the property. It was found that at the death of the widow, there was no cesser of any interest she had in the joint family property and, in any case, her interest being entirely undefined, it lapsed on her death resulting in no change in the co-parcenership as such and her interest could not properly by regarded as an interest in property within the meaning of section 7(1) of the Act. Our attention was drawn to certain observations of Veeraswami C.J. at page 507 of the report, wherein it was observed that it was only property that passed in the sense of passing hands by way of inheritance, or other form of devolution ....
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....e with the Gujarat High Court's decision under appeal. The Madras High Court relied on the decision of this court in Khushal Khemgar Shah v. Mrs. Khorshed Banu [1970] 3 SCR 689. Our attention was also drawn to a decision of the Madras High Court in the case of Smt. Surumbayi Ammal v. CED [1976] 103 ITR 358. . But the question under controversy was different in that case and no useful purpose would be served by examining that case in detail. The Full Bench of the Punjab and Haryana High Court in the case of State v. Prem Nath [1977] 106 ITR 446, held that the goodwill of a firm was an asset of the firm, the share of the deceased partner in which, along with his share in the other assets of the firm, devolved, for the purposes of estate duty, on his death, upon his legal representatives notwithstanding any clause in the deed of partnership to the effect that the death of partner should not dissolve the firm and that the surviving partners were entitled to carry on the business on the death of the partner. The Punjab and Haryana High Court noted that the decision under appeal of the Gujarat High Court did not consider the question whether the devolution of the goodwill on the su....
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.... partner under section 5. The Bombay High Court could not agree with the view of the Gujarat High Court under appeal. In the case of CED v. Kanta Devi Taneja [1981] 132 ITR 437, the Gauhati High Court held that passing of property was not a mere change of source or title but change of beneficial possession or enjoyment. The interest of a partner in a partnership firm was property within the meaning of section 2(15) of the Estate Duty Act, 1953, and such interest extended to the share of the partnership including goodwill. Therefore, on the death of a partner, his interest in the entire unit of the firm including goodwill passes, irrespective of the provisions of the partnership deed as to its final devolution. The Calcutta High Court in the case of Controller of Estate Duty v. Annaraj Mehta and Deoraj Mehta [1979] 119 ITR 544, had occasion to consider this question and held that what passed on the death of a partner was his share in the firm, that is, his interest in the entire unit of the firm. This had to include goodwill. The fact that such interest might devolve not on the legal representatives but on a different group or category of persons or that from the goodwill the ....