1986 (2) TMI 92 - AT - Income Tax

Summary

Issues:
1. Valuation of goodwill in a professional firm for estate duty.
2. Whether goodwill can be separately valued apart from other firm assets.

Analysis:

Issue 1: Valuation of Goodwill
The case involved the valuation of goodwill in a professional firm for estate duty purposes. The deceased partner's share of goodwill in the firm was disputed. The Assistant Controller valued the deceased's 19% share of goodwill at Rs. 4.50 lakhs based on two years' purchase of the firm's average profits. However, the Appellate Controller deleted this addition, citing the precedent in Arundale v. Bell, which held that in a professional firm, there is no goodwill.

Issue 2: Separate Valuation of Goodwill
The Appellate Tribunal disagreed with the Appellate Controller's decision and held that the firm did have goodwill, and the deceased partner's share in the goodwill passed on his death. The Tribunal found support in a previous Special Bench decision and the Bombay High Court's ruling in CGT v. Smt. Lalita B. Shah, which recognized goodwill as a property with a distinct value. The Tribunal concluded that the deceased partner's share of goodwill should be separately valued from other firm assets.

The Tribunal directed the Assistant Controller to revalue the deceased partner's share in all firm assets, including goodwill. The Assistant Controller was instructed to consider the objections raised by the accountable person regarding the valuation of goodwill and to assess all relevant evidence before determining the final value. The decision deemed the departmental appeal to be allowed, emphasizing the need for a comprehensive valuation process for the deceased partner's estate duty assessment.