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Issues Involved:
1. Whether any portion of the goodwill of the firm could be deemed to be property passing on the death of the deceased under section 10 of the Estate Duty Act. 2. Whether the shares in the goodwill of the firm were property taken under a gift made by the deceased, and whether the deceased was excluded from possession and enjoyment of such share. Issue-wise Detailed Analysis: 1. Goodwill as Property Passing on Death: The court examined whether any portion of the goodwill of the firm of Messrs. M. Madhukar & Co. could be deemed to be property passing on the death of the deceased under section 10 of the Estate Duty Act. The deceased, Nagji Raghavji, was initially the sole proprietor of the business, which later became a partnership with his sons, Ramanlal and Dhirajlal. The partnership deeds executed in 1951, 1955, and 1959 were scrutinized, especially focusing on the clauses related to goodwill. The Tribunal had earlier held that the goodwill vested in the firm and that Nagji retained a 55% interest in the goodwill, while Ramanlal and Dhirajlal held 30% and 15% interests, respectively. However, the Tribunal also concluded that the entire value of the goodwill should be included in the estate of the deceased, as he was not wholly excluded from its enjoyment. 2. Shares in Goodwill as Gift: The second issue was whether the shares of Ramanlal and Dhirajlal in the goodwill were considered a gift from the deceased and whether the deceased was excluded from possession and enjoyment of such shares. The court referred to previous judgments, including the unreported decision in Estate Duty Reference No. 1 of 1967 and gift-tax references, which established that the contribution of labor and management by the partners constituted adequate consideration. The court concluded that the shares in the goodwill given to Ramanlal and Dhirajlal were not gifts, as they were granted in exchange for their contributions to the business. The Tribunal's finding that the conferment of goodwill was not for commercial considerations was deemed incorrect. The court emphasized that the relationship and mutual obligations of the partners should be considered holistically. It was noted that Ramanlal's share in profits was reduced, and he lost his commission, which indicated that the share in goodwill was not given without consideration. Similarly, Dhirajlal's share in the goodwill was linked to his role as a working partner, supported by a clause providing him a salary. The court rejected the Tribunal's conclusion that the transfer of goodwill was a gift and held that section 10 of the Estate Duty Act did not apply. Conclusion: The court answered both questions in favor of the accountable persons, determining that there was no gift of the 45% share in the goodwill and other assets to Ramanlal or Dhirajlal. Consequently, the provisions of section 10 of the Estate Duty Act were not relevant. The court clarified that the accountable persons did not dispute the inclusion of Nagji's 55% share in the estate. The revenue was ordered to pay the costs of the reference to the accountable persons.
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