1990 (6) TMI 52 - HC - Income Tax

Summary

Issues:
1. Interpretation of section 9 of the Estate Duty Act regarding the inclusion of goodwill in the computation of the principal value of the deceased's estate.
2. Determination of the deceased's share in the goodwill and development rebate reserve of a partnership firm for estate duty purposes.

Analysis:
The High Court of Bombay was tasked with interpreting section 9 of the Estate Duty Act in the context of the inclusion of goodwill in the calculation of the deceased's estate value. The Tribunal had to decide whether only 25% of the goodwill and development rebate reserve should be considered for estate duty purposes. The deceased initially owned a business that later became a partnership with his son, with the deceased having a 60% share in the profits and assets, including goodwill. However, a subsequent partnership agreement reduced the deceased's share in the goodwill to 25%.

The Assistant Controller of Estate Duty included 60% of the goodwill and development rebate reserve in the estate value, alleging that the deceased had transferred 35% of his goodwill share to his son without consideration within two years of his death, triggering section 9. The Appellate Controller upheld this decision, but the Tribunal ruled that the transfer was bona fide, rendering section 9 inapplicable. The Tribunal directed that only 25% of the goodwill and development rebate reserve should be included in the estate value.

The court considered the conditions for applying section 9, which required a transfer within two years of death and that the transfer must not be bona fide. Since the Tribunal found the transfer to be bona fide, the court held that section 9 did not apply. Consequently, only the deceased's 25% share in the goodwill and development rebate reserve could be included in the estate value, as per the partnership agreement.

The court referred to relevant case law and emphasized that the transfer being bona fide was crucial in determining the applicability of section 9. As the transfer was found to be bona fide, the court ruled in favor of the accountable person, affirming that only 25% of the goodwill and development rebate reserve should be considered for estate duty calculation. The judgment clarified the interpretation of section 9 and its application in cases involving transfers within two years of death.