1976 (6) TMI 9 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of sections 9 and 10 of the Estate Duty Act to the sum of Rs. 28,000.
2. Existence and valuation of goodwill for the retail business of the firm A. M. Saliah and Company.

Detailed Analysis:

Issue 1: Applicability of Sections 9 and 10 of the Estate Duty Act to the Sum of Rs. 28,000
The first question addressed whether the sum of Rs. 28,000 credited to the accounts of Smt. Farita Bivi and Abdul Rasheed could be included in the estate of the deceased, A. M. Saliah, under sections 9 and 10 of the Estate Duty Act, 1953.

Assistant Controller's View:
The Assistant Controller argued that the amounts were gifts made by adjustment entries in the accounts. Consequently, the donor had not parted with possession, nor had the donees obtained exclusive possession, making the amounts liable to be included in the estate under section 10 of the Act. The Assistant Controller also distinguished between entries made on October 1, 1963, and April 1, 1964, noting that the latter fell within two years of the donor's death and thus should be included under section 9.

Appellate Controller's View:
The Appellate Controller expressed doubt over whether a valid gift of money could be made through transfer entries. Nonetheless, he held that the gift of Rs. 13,000 made on April 1, 1964, was within two years of the donor's death and thus fell under section 9. He also contended that the entire amount of Rs. 28,000 was liable under section 10 since the amounts continued to be invested in the firm, giving the donor beneficial control.

Tribunal's View:
The Tribunal held that the transfers should be treated as gifts through an "actionable claim" as defined by section 3 of the Transfer of Property Act. It concluded that the donor was completely excluded from the subject matter of the gifts, relying on the decisions in Hajee Abdul Kareem and Son v. Commissioner of Income-tax and Controller of Estate Duty v. C. R. Ramachandra Gounder.

Court's Analysis:
The court noted that the applicable section 9 of the Estate Duty Act, 1953, at the time of the donor's death, contained the words "one year" rather than "two years." Thus, both gifts made on October 1, 1963, and April 1, 1964, fell outside the scope of section 9. Regarding section 10, the court referred to two Supreme Court decisions-Controller of Estate Duty v. C. R. Ramachandra Gounder and Commissioner of Income-tax and Controller of Estate Duty v. N. R. Ramarathnam-which established that transfers by adjustment entries should not be included in the estate of the deceased if the donor was completely excluded from the subject matter. Consequently, the court answered the first question in the affirmative and in favor of the accountable person.

Issue 2: Existence and Valuation of Goodwill for the Retail Business of the Firm A. M. Saliah and Company
The second question addressed whether the retail business of the firm A. M. Saliah and Company had any goodwill and if so, whether the valuation of Rs. 23,374 was appropriate.

Assistant Controller's View:
The Assistant Controller assumed that every business inherently has goodwill and assessed its value at Rs. 35,060.

Appellate Controller's View:
The Appellate Controller considered various factors constituting goodwill and reduced the value to Rs. 23,374.

Tribunal's View:
The Tribunal concluded that the business had no goodwill, reasoning that the retail trade in textiles did not involve any unique trade-mark or manufacturing process. The Tribunal emphasized that the nature and circumstances of each case must be considered, and in this instance, the business was not unique enough to possess goodwill.

Court's Analysis:
The court agreed with the Tribunal's view, noting that the firm's business was retail in nature and did not involve any unique trade-mark or manufacturing process. The court acknowledged that while the location of a business is an important factor, it alone does not establish goodwill. Consequently, the court found no question of law arising from the Tribunal's conclusion and answered the second question in the affirmative and in favor of the accountable person.

Conclusion:
Both questions were answered in the affirmative and in favor of the accountable person. The accountable person was entitled to costs from the Controller of Estate Duty, Madras, with counsel's fee fixed at Rs. 500.