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2003 (7) TMI 22 - HC - Income TaxEstate Duty Act, 1953 - (i) Whether, on the demise of the deceased did any property in the form of a share of the deceased in the accumulated profits and goodwill in the firm of Saraf Trading Corporation pass in terms of section 5 of the Estate Duty Act? - (ii) If any property passed, was the Tribunal justified in determining the same at 10 per cent, of the value or should the Tribunal have restricted it to Rs. 9,000? - (iii) Whether the profits arising to the firm up to the date of the demise should be considered in determining the quantum of accumulated profits? - (iv) Whether in determining the super profits for the purpose of valuing the goodwill a deduction has to be allowed for interest on capital at 20 per cent, as against 12 per cent, allowed by the assessing authority? - (v) Whether in determining the value of goodwill a multiplier of one year or three years has to be adopted? - (vi) Whether any refund determined after the demise of the deceased could be regarded as property passing on the death of the deceased?
Issues Involved:
1. Whether any property in the form of a share of the deceased in the accumulated profits and goodwill in the firm passed in terms of section 5 of the Estate Duty Act. 2. Whether the Tribunal was justified in determining the value at 10% or should it have been restricted to Rs. 9,000. 3. Whether the profits arising to the firm up to the date of the demise should be considered in determining the quantum of accumulated profits. 4. Whether a deduction has to be allowed for interest on capital at 20% as against 12% allowed by the assessing authority in determining the super profits for valuing the goodwill. 5. Whether a multiplier of one year or three years has to be adopted in determining the value of goodwill. 6. Whether any refund determined after the demise of the deceased could be regarded as property passing on the death of the deceased. Issue-wise Detailed Analysis: 1. Property Passing on Death: The court examined whether any property in the form of a share of the deceased in the accumulated profits and goodwill in the firm passed in terms of section 5 of the Estate Duty Act. The Assistant Controller of Estate Duty had applied section 13(b) of the Partnership Act, which was overruled by the Tribunal, stating that section 13(b) applies only when there is no contract to the contrary. Clause 7 of the partnership deed specified the distribution method of profits, indicating a contract to the contrary. The court upheld the Tribunal's view that the share of the deceased partner was Rs. 9,000 and not 10%. 2. Determination of Value: The Tribunal fixed the share of the deceased at 10%, which was contested. The court agreed with the Tribunal that section 13(b) of the Partnership Act did not apply due to the specific provisions in the partnership deed. The court concluded that the share of the deceased should be Rs. 9,000, not 10%. 3. Profits Accrued at Death: The court considered whether profits earned up to the date of the demise should be included. The Tribunal held that profits for the entire year were not declared at the time of death, and thus, no profit had accrued. The court agreed with the Tribunal that no profit had accrued at the time of death. 4. Interest on Capital: The Tribunal allowed a deduction for interest on capital at 20% instead of the 12% allowed by the assessing authority. The court upheld the Tribunal's decision, agreeing that 20% interest on capital should be allowed. 5. Multiplier for Goodwill: The Tribunal determined that a multiplier of one year should be adopted instead of three years for valuing goodwill. The court reviewed various precedents and agreed with the Tribunal, stating that the multiplier of one year was appropriate based on the facts and circumstances of the case. 6. Refund as Property: The court examined whether any refund determined after the demise of the deceased could be regarded as property passing on death. Citing a Division Bench decision, the court held that the mere right to claim a refund, which might or might not materialize, is not property under the Estate Duty Act. Therefore, the right to refund did not pass on the death of the deceased. Conclusion: - Question 1: Answered in the positive in favour of the Department. - Question 2: The Tribunal should have restricted the profit to Rs. 9,000. - Question 3: Answered in the negative in favour of the assessee. - Question 4: Answered in the positive in favour of the assessee. - Question 5: Answered in favour of the assessee and against the Department. - Question 6: Answered in favour of the assessee and against the Department.
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