1980 (10) TMI 116 - AT - Income Tax

Summary

Issues:
- Interpretation of Section 9 of the Estate Duty Act, 1953 regarding the passing of property on death.
- Determination of whether the deceased's share in the goodwill of two firms should be included in the principal value of her estate.

Analysis:

The case involved an appeal under the Estate Duty Act against the order of the Controller of Estate Duty (A) regarding the inclusion of the deceased's share in the goodwill of two firms in the principal value of her estate. The deceased, a partner in two firms, retired from one firm and the other firm was dissolved before her death. The Assistant Controller of Estate Duty included her share in the goodwill of both firms in the estate value under Section 9 of the Act. However, on appeal, the CED (A) upheld this decision, stating that the deceased's retirement within two years of her death triggered the application of Section 9, deeming the property to pass on her death.

The Appellate Tribunal considered the arguments presented by the Accountable Person, who contended that there was no gift at the time of the deceased's retirement based on a Bombay High Court decision. The Accountable Person argued that the assets and liabilities of the firms were taken over by the continuing partners simultaneously, with each party receiving consideration for their rights and obligations. It was asserted that the deceased did not give up her share without consideration, and therefore, it did not constitute a gift under Section 9. The Tribunal agreed with these submissions, emphasizing that the retirement involved a mutual exchange of rights and liabilities, negating the notion of a gift.

Regarding the firm that was dissolved, the Tribunal noted that all partners equally divided their shares and liabilities, leaving nothing for one partner to give up to another. This mutual division further supported the conclusion that no gift occurred. By referencing a partnership deed executed after the deceased's retirement, the Tribunal found that the continuing partners took over the deceased's liabilities, providing a clear consideration for the transfer of rights. Consequently, the Tribunal held that the deceased's share in the goodwill of both firms should not be included in the principal value of her estate.

In conclusion, the appeal was allowed, and the amount added to the principal value based on the deceased's share in the goodwill was deleted. The Tribunal's decision rested on the absence of a gift due to the mutual exchange of rights and liabilities upon the deceased's retirement and the dissolution of the other firm.