1975 (4) TMI 27 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the valuation of goodwill at Rs. 53,700.
2. Existence of goodwill in the firms at the time of the deceased's death.
3. Passing of goodwill on the death of the deceased.
4. Method of valuation of goodwill.

Summary:

1. Validity of the valuation of goodwill at Rs. 53,700:
The Assistant Controller of Estate Duty included the value of the deceased's share in the goodwill of six firms, valuing it at Rs. 53,700 on a super-profits basis. This valuation was confirmed by the Appellate Controller of Estate Duty and the Tribunal. The court was asked to determine whether this valuation was valid in law.

2. Existence of goodwill in the firms at the time of the deceased's death:
The firms were engaged in the purchase and sale of yarn and cloth and had been in existence for several years with established clientele and business contracts. The Tribunal found that the firms had goodwill. The court noted that goodwill depends on various factors, including the reputation and standing of the business, and upheld the Tribunal's finding that the firms had goodwill.

3. Passing of goodwill on the death of the deceased:
The accountable person argued that the firms dissolved upon the deceased's death, causing the goodwill to cease. However, the court held that goodwill is an asset of the partnership and passes on death. The surviving partners continued the business under the same or similar names, indicating that the goodwill persisted. The court concluded that the goodwill passed on the deceased's death, regardless of subsequent dissolution or reconstitution of the firms.

4. Method of valuation of goodwill:
The Tribunal adopted the super-profits method for valuing the goodwill, which is a recognized method. The court found no objection to this method of valuation and upheld the Tribunal's decision.

Conclusion:
The court answered the reference in the affirmative, validating the valuation of goodwill at Rs. 53,700 and confirming that the goodwill passed on the deceased's death. The revenue was entitled to its costs, with counsel's fee set at Rs. 250.