1997 (5) TMI 12 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was right in law in holding that there was no goodwill of the business which could pass on the death of the deceased.
2. Whether the Tribunal was right in law in deleting the sum of Rs. 52,195 representing the value of goodwill of the business from the principal value of the estate of the deceased.

Detailed Analysis:

Issue 1: Goodwill of the Business Passing on Death
The Tribunal held that there was no goodwill of the business that could pass on the death of the deceased. The court examined the definition and nature of goodwill, citing several precedents, including IRC v. Muller and Co.'s Margarine Ltd. and CIT v. B. C. Srinivasa Setty. Goodwill was defined as an intangible asset comprising the reputation, location, and other features that contribute to a business's ability to earn profits over the years.

The court emphasized that goodwill is an asset of the firm, which passes on the death of a partner and must be evaluated for estate duty purposes. The Tribunal's conclusion that the dealership lapsed or was terminated upon the death of the deceased was found to be based on conjectures and not supported by evidence. Therefore, the court held that the goodwill of the firm did constitute the property of the firm and passed to the surviving partners after the death of the deceased.

Issue 2: Deletion of Goodwill Value from Principal Estate Value
The Tribunal deleted the sum of Rs. 52,195, representing the value of goodwill from the principal value of the estate. The court reviewed the principles under Section 14 of the Partnership Act, 1932, and Section 5 and Section 36 of the Estate Duty Act, 1953. It was noted that the goodwill of a business is an asset that must be included in the principal value of the estate for estate duty purposes.

The Assistant Controller and the appellate authority had correctly included the value of goodwill in the principal value of the estate. The Tribunal's decision to delete this value was based on an erroneous interpretation of the law and facts. The court concluded that the goodwill earned by the firm as a dealer of Hindustan Petroleum Corporation Limited's products constituted the property of the firm and should be included in the estate's principal value.

Conclusion:
The court allowed the reference and answered both questions in favor of the petitioner, concluding that the Tribunal erred in its judgment regarding the goodwill of the business and its valuation for estate duty purposes.