1984 (1) TMI 123 - AT - Income Tax

A Firm, A Partner, Financial Year, Legal Representative, Partnership Deed, Property Passing On Death

Summary

Issues Involved:

1. Inclusion of the deceased's share of profits up to the date of death in the estate.
2. Inclusion of the deceased's share of future profits in the estate.
3. Valuation of the deceased's interest in the goodwill of the firm.

Issue-Wise Detailed Analysis:

1. Inclusion of the Deceased's Share of Profits Up to the Date of Death in the Estate:

The Assistant Controller included Rs. 53,060 as the share of profit of the deceased until the date of death. The Appellate Controller held that this share of profit could not be treated as passing on the death of the deceased. The department contested this finding, arguing that clauses 12 and 14 of the partnership deed were not applicable in this case. The surviving partners had credited the deceased's account with the profit up to the date of death, indicating that the amount should be deemed to pass on his death. The Tribunal found that the surviving partners did not formally invoke clause 14, and the profit was allocated to the deceased in the firm's income-tax assessment. Therefore, the Tribunal held that Rs. 39,021, the amount assessed in the income-tax assessment, should be added to the principal value of the estate, not Rs. 53,060 as determined by the Assistant Controller.

2. Inclusion of the Deceased's Share of Future Profits in the Estate:

The Assistant Controller estimated the value of the deceased's share in future profits at Rs. 98,638, which was confirmed by the Appellate Controller. The accountable person argued that the right to share future profits is not includible in the total value of the estate. The Tribunal clarified that the amount brought to duty was the deceased's right in the goodwill, not merely future profits. The Tribunal referred to established legal principles that goodwill is property and can pass on death, subject to the partnership deed provisions. The Tribunal concluded that the deceased's share in the goodwill passed to the legal representatives, and the inclusion of Rs. 98,638 in the estate was justified.

3. Valuation of the Deceased's Interest in the Goodwill of the Firm:

The accountable person contended that the deceased's share in the goodwill did not pass to the legal representatives due to the provisions in clauses 12 and 14 of the partnership deed. The Tribunal examined conflicting legal precedents and concluded that the deceased's rights, including his share of the goodwill, passed to the legal representatives. The Tribunal noted that the partnership deed did not explicitly state that the deceased's share in the goodwill would not pass to the legal representatives. The Tribunal referenced English cases and the Gujarat High Court's decision in Smt. Mrudula Nareshchandra, which supported the inclusion of the deceased's share in the goodwill in the estate. The Tribunal upheld the inclusion of the deceased's share in the goodwill in the estate valuation.

Conclusion:

The appeal by the department was allowed, resulting in the inclusion of Rs. 39,021 as the deceased's share of profits up to the date of death in the estate. The appeal by the accountable person was dismissed, affirming the inclusion of Rs. 98,638 for the deceased's share in the goodwill in the estate valuation.