1983 (2) TMI 143 - AT - Income Tax

Issues Involved:

1. Inclusion of goodwill in the principal value of the estate.
2. Interpretation of partnership deed clauses.
3. Proper valuation of the deceased's share in the firm.
4. Direction for further investigation and reassessment.

Detailed Analysis:

1. Inclusion of Goodwill in the Principal Value of the Estate:

The appeal concerns the inclusion of Rs. 52,500 as the value of goodwill in the principal value of the estate of the deceased, Smt. Sunanda S. Gosavi. The Assistant Controller included this amount based on the deceased's 20% share in the goodwill of the firm A.V. Bhat & Co. The Appellate Controller deleted this inclusion, citing a specific provision in the partnership deed that stated there is no goodwill on the death or retirement of a partner. This decision was influenced by the Gujarat High Court's ruling in CED v. Babubhai Harjivandas [1981] 129 ITR 276, which held that the value of the deceased's share in the goodwill of the firm could not be included in the principal value of the estate.

2. Interpretation of Partnership Deed Clauses:

The key dispute revolves around the interpretation of clause 13 of the partnership deed, which states, "The retiring partner shall not share in the assets or properties of the firm." The Assistant Controller and the departmental representative, Mr. Trimal, argued that the deceased's share in the goodwill should be included in the estate's value, as it passed to the surviving partners upon the deceased's death. This view was supported by the Bombay High Court's decisions in Smt. Urmila v. CED [1980] 122 ITR 958 and CED v. N.H. Kotak [1982] 134 ITR 256, which held that the deceased's share in the goodwill of the firm should be included in the principal value of the estate under section 5 of the Estate Duty Act, 1953.

3. Proper Valuation of the Deceased's Share in the Firm:

Mr. Gadgil, representing the accountable person, argued that the Assistant Controller had improperly valued the deceased's share by picking only the goodwill and not considering the totality of the firm's assets and liabilities. He cited the Bombay High Court's decision in CED v. Fakirchand Fatehchand Sachdev [1982] 134 ITR 268, which emphasized that the valuation must consider the total assets and liabilities of the firm. The Tribunal agreed with Mr. Gadgil's submission that the Assistant Controller's approach was erroneous and that the valuation should include all assets and liabilities as per the partnership deed dated 1-4-1971.

4. Direction for Further Investigation and Reassessment:

The Tribunal concluded that the proper course of action was not merely to dismiss the Controller's appeal but to direct the Assistant Controller to reassess the deceased's share in the firm's property. This direction aligns with the Supreme Court's decision in Kapurchand Shrimal v. CIT [1981] 131 ITR 451, which mandates that an appellate authority must correct all errors and issue appropriate directions for a fresh assessment. The Assistant Controller is instructed to value the deceased's right, title, and interest in the firm's property, considering all transactions up to the date of death and in light of the partnership deed and relevant High Court decisions.

Conclusion:

The appeal is partly allowed, with directions for the Assistant Controller to reassess the deceased's share in the firm's property, ensuring that all assets and liabilities are considered in accordance with the partnership deed and judicial precedents.

← Previous Next →