1975 (1) TMI 3 - HC - Income Tax

Summary

Issues Involved:
1. Valuation of the goodwill of a partnership for estate duty purposes.
2. Determination of the accountable persons for the estate duty.
3. Applicability of Section 7 of the Estate Duty Act, 1953, concerning the benefit accruing to surviving partners due to the cesser of interest of the deceased partner.

Issue-wise Detailed Analysis:

1. Valuation of the Goodwill of a Partnership for Estate Duty Purposes:
The primary issue revolves around the valuation of the deceased's share in the partnership, including its goodwill, for estate duty purposes. The partnership deed dated December 14, 1962, specified that the value of the goodwill should be deemed to be Rs. 1,00,000. However, the Assistant Controller of Estate Duty (Asst. CED) did not accept this valuation and instead fixed the goodwill at Rs. 5,00,000, determining the total value of the estate at Rs. 3,28,745. The Tribunal, following a precedent and the terms of the partnership deed, held that the value of the goodwill should be taken at Rs. 1,00,000 for estate duty purposes, rejecting the hypothetical market value approach.

2. Determination of the Accountable Persons for the Estate Duty:
The accountable persons (the surviving partners) argued that they should not be held liable for the estate duty as the initial assessment was made against the widow of the deceased. The Tribunal held that the accountable persons could not escape liability for estate duty to the extent of the estate of the deceased in their hands, as they had acquired his share in the firm from the widow. This position was upheld by the court, affirming the Tribunal's decision.

3. Applicability of Section 7 of the Estate Duty Act, 1953:
The court considered whether the benefit accruing to the surviving partners due to the cesser of interest of the deceased partner should be valued based on the market value of the goodwill. The revenue argued that while the value of the deceased's share in the partnership should be determined as per the partnership deed (Rs. 1,00,000), the benefit to the surviving partners should be calculated based on the market value of the goodwill minus Rs. 1,00,000. The court agreed, stating that for determining the liability of the surviving partners for estate duty, the market value of the goodwill less the value mentioned in the deed should be taken into account.

Conclusion:
The court concluded that for the purpose of determining the estate duty payable by the personal representative (widow) of the deceased, the valuation should be made in accordance with the provisions of the partnership deed dated December 14, 1962. However, for determining the liability of the surviving partners for the benefit accruing to them due to the death of the deceased, the market value of the goodwill less the value mentioned in the deed should be considered. The court thus answered the question referred accordingly and did not make any order for costs.