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Issues Involved:
1. Inclusion of the value of the deceased's share in the goodwill of the firm in the dutiable estate under section 5 or section 7 of the Estate Duty Act. 2. Deduction of the amount representing a portion of the penalty levied under the Income-tax Act in determining the value of the property passing on the death of the deceased. Issue-wise Detailed Analysis: 1. Inclusion of the Value of Goodwill in the Dutiable Estate: The primary question was whether the value of any portion of the goodwill of the firm in which the deceased was a partner could be included in the dutiable estate under section 5 or section 7 of the Estate Duty Act. The deceased was a partner in M/s. Kotak & Co., entitled to 8% of the profits and liable for losses in the same proportion. The Tribunal had previously determined that the deceased had no interest in the goodwill immediately before his death, as the goodwill belonged to the surviving partners, particularly the head partner, under the partnership deed's clauses. However, the court found that the Tribunal erred in its interpretation. Clause 9 of the partnership deed conferred overriding powers to the head partner regarding the goodwill, but these powers were not exercised before the deceased's death. Consequently, the rights of the partners regarding the goodwill were governed by Clause 7, which stated that the deceased's share in the goodwill passed to the surviving partners upon his death. Therefore, the deceased's share in the goodwill must be included in the dutiable estate under sections 5 and 7 of the Act. The court referenced a similar case (Estate Duty Reference No. 6 of 1968, Smt. Urmila v. CED) to support its decision, where it was held that the share of the deceased in the goodwill of the firm was includible in the principal value of the property under section 5 of the Act. Thus, the answer to the first question was in the affirmative and against the accountable person. 2. Deduction of Penalty Amount in Determining the Value of the Property: The second issue was whether the amount representing a portion of the penalty levied under the Income-tax Act on the firm could be deducted in determining the value of the property passing on the death of the deceased. The firm had not declared certain transactions for several assessment years, leading to a penalty imposed by the Commissioner after the deceased's death. The accountable person claimed a deduction for the deceased's share of this penalty. The court noted the distinction between a tax liability and a penalty liability. A tax liability is considered a present liability, even if quantified later, and can be deducted as a debt. However, a penalty liability arises only when the competent authority passes an order imposing the penalty. In this case, the penalty order was passed nearly two years after the deceased's death, meaning the liability did not exist at the time of death. The court cited the Supreme Court's decision in Kesoram Industries and Cotton Mills Ltd. v. CWT, which defined a debt as a present obligation to pay an ascertainable sum of money. Since the penalty liability did not exist at the time of the deceased's death, it could not be considered a debt and thus was not deductible under section 44 of the Estate Duty Act. The court upheld the Tribunal's decision, answering the third question in the negative and in favor of the revenue. Conclusion: The court concluded that the value of the deceased's share in the goodwill of the firm should be included in the dutiable estate, and the penalty amount could not be deducted in determining the value of the property passing on the death of the deceased. The accountable person was ordered to pay the costs of the reference.
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