1993 (4) TMI 16 - HC - Income Tax

A Partner, Article 14 Of The Constitution, Law Applicable, Legal Representative, Registered Firm, Search And Seizure, State Legislature, Unregistered Firm

Issues Involved:
1. Whether the value of the goodwill passed on the death of the deceased under section 9 of the Estate Duty Act, 1953.
2. Whether the deduction of Rs. 50,000 as provision for the marriage of daughters of the deceased in the smaller Hindu undivided family is allowable.

Issue 1: Goodwill Passing on Death

The Tribunal initially held that the value of the goodwill did not pass on the death of the deceased under section 9 of the Estate Duty Act, 1953, as the deceased had retired from the firm before his death. The Assistant Controller of Estate Duty argued that the deceased's share in the goodwill should be included in the estate as a deemed disposition under section 9, read with section 2(15) of the Act, since the retirement occurred within two years of death.

The Tribunal referred to the Bombay High Court decision in Smt. Urmila v. CED, which held that the goodwill did not pass on death if the deceased had retired, leaving the assets and liabilities with surviving partners. However, the Department contended, citing the Punjab and Haryana High Court in State v. Prem Nath and the Madras High Court in CED v. Ibrahim Gulab Hussain Currimbhoy, that the goodwill of a firm is an asset that passes to legal representatives upon a partner's death, regardless of any partnership deed clauses.

The court considered the Supreme Court's stance in Khushal Khemgar Shah v. Mrs. Khorshed Banu Dadiba Boatwalla, which emphasized that goodwill is an asset of the firm and does not extinguish upon a partner's death unless explicitly stated. The court also referenced CED v. Mrudula Nareshchandra, where the Supreme Court held that a partner's interest in goodwill is property under section 2(15) of the Estate Duty Act and passes to surviving partners upon death.

Based on these precedents, the court concluded that the Tribunal erred in holding that the goodwill did not pass on death. The retirement of the deceased 35 days before his death was deemed a gift under section 9, as it occurred within two years of death. The Tribunal was directed to determine whether the gift was bona fide.

Issue 2: Deduction for Marriage Provision

The accountable person claimed a deduction of Rs. 50,000 for the marriage of the deceased's daughters, which was initially rejected by the Assistant Controller of Estate Duty due to lack of documentary evidence and the provision being mentioned only in the deceased's will. The Tribunal, however, allowed the deduction, recognizing it as a reasonable provision for marriage expenses in a smaller Hindu undivided family.

The court examined the legal obligation under Hindu law to incur marriage expenses for daughters, citing several judgments, including CGT v. Basant Kumar Aditya Vikram Birla, which recognized this obligation as part of the family's duty. The court also referred to the Hindu Adoptions and Maintenance Act, 1956, which defines maintenance to include marriage expenses for unmarried daughters.

The court held that the obligation to provide for marriage expenses is enforceable against the family property and must be considered a liability under section 44 of the Estate Duty Act. This liability should be deducted from the deceased's share in the family property before calculating estate duty.

Conclusion:

1. The Tribunal was not justified in holding that the value of the goodwill did not pass on the death of the deceased under section 9 of the Estate Duty Act, 1953. The matter was remanded to the Tribunal to determine the bona fides of the gift.
2. The Tribunal was justified in directing the Assistant Controller of Estate Duty to allow a deduction of Rs. 50,000 for the marriage provision of the deceased's daughters when computing the deceased's share in the smaller Hindu undivided family.

No order as to costs.

← Previous Next →