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Issues Involved:
1. Whether the goodwill of the firm in which the deceased was a partner constitutes 'property' passing on his death under the Estate Duty Act, 1953. 2. Whether the value of the deceased's share in the goodwill of the partnership firm is includible in his estate under section 5 of the Estate Duty Act, 1953. 3. Whether the amounts standing to the credit of the deceased's sons in the firm passed on the death of the deceased under section 10 of the Estate Duty Act, 1953. 4. Whether the amounts gifted by the deceased to his wife did not pass on the death of the deceased under section 10 of the Estate Duty Act, 1953. Detailed Analysis: Issue 1: Goodwill as 'Property' Passing on Death The court examined whether the goodwill of the firm in which the deceased was a partner constitutes 'property' passing on his death under the Estate Duty Act, 1953. The Tribunal had previously held that no partner had any specified share in any of the assets of the firm, including goodwill, and thus, the goodwill could not be considered property passing on the deceased's death. The court agreed with this view, emphasizing that a partner's interest in a firm is not an interest in specific items of the partnership property but a right to a share in the net assets of the firm upon dissolution after liabilities are settled. Issue 2: Inclusion of Goodwill Value in Estate The court considered whether the value of the deceased's share in the goodwill of the partnership firm is includible in his estate under section 5 of the Estate Duty Act, 1953. The court noted that the goodwill is an asset of the firm and must be included in the valuation of the total assets of the firm for estate duty purposes. However, the court emphasized that it is not permissible to pick out goodwill as a separate item for valuation. The court concluded that the deceased did not have a defined share in the goodwill of the firm, and thus, such a share could not be included in the estate under section 5. Issue 3: Amounts Credited to Sons' Accounts The court addressed whether the amounts standing to the credit of the deceased's sons in the firm passed on the death of the deceased under section 10 of the Estate Duty Act, 1953. The court referred to the decision in CED v. Kamlavati [1979] 120 ITR 456 and Khatijabai Abdulla Soomar v. CED [1980] 124 ITR 160, holding that these amounts did not pass under section 10. The court affirmed that the amounts credited to the sons' accounts were not includible in the principal value of the estate. Issue 4: Gifts to Wife The court considered whether the amounts gifted by the deceased to his wife did not pass on the death of the deceased under section 10 of the Estate Duty Act, 1953. The court noted that the gifts of money and house property were made eight years prior to the deceased's death, and the deceased had reserved no interest in these gifts. Consequently, sections 9 and 10 of the Act were not attracted, and the income from these properties belonged to the donee. The court concluded that the amounts gifted to the wife did not pass on the death of the deceased under section 10. Summary of Conclusions: 1. The expression "passes" in section 5 means "changes hands" and does not mean "devolves." 2. Property deemed to pass under section 7(1) becomes chargeable to duty under section 5, but its value must be computed under section 40. 3. The definition of "property" in the Act is extensive and includes both tangible and intangible assets. 4. A partner's right in the firm during its subsistence and upon dissolution are separate rights and constitute property. 5. The value of a deceased partner's share in the firm cannot be computed by valuing individual assets separately but must consider the totality of assets and liabilities. 6. The department's method of valuing goodwill separately was unjustified and unsustainable in law. Answers to Referred Questions: 1. Estate Duty Reference No. 2 of 1973: The Tribunal was justified in holding that the goodwill of the firm did not constitute 'property' passing on the deceased's death. 2. Estate Duty Reference No. 2 of 1974: - Question 1: The deceased did not have a defined share in the goodwill of the firm. - Question 2: In the negative, in favor of the accountable person. - Question 3: In the affirmative, in favor of the accountable person. - Question 4: In the affirmative, in favor of the accountable person. 3. Estate Duty Reference No. 9 of 1979: The Tribunal was right in holding that the share of the deceased in the goodwill of the firm was not to be included in the principal value of the estate. In each reference, the applicant will pay the costs of the reference to the respondent, fixed at Rs. 1,000.
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