1973 (9) TMI 13 - HC - Income Tax

Estate Duty Act, 1953 - (1) Whether the inclusion of the share of goodwill at 2 years purchase of average profits in M/s. Ismail Haji Suleman Sait, Hospet, as belonging to the deceased is valid in law ? (2) Whether the inclusion of Rs. 71,900 being the gifts (inclusive of interest) made by the deceased to his wife and five sons, by applying the provisions of section 10 of the Estate Duty Act, 1953, is valid in law ? (3) Whether Tribunal was justified in not entertaining the additional ground raised by the assessee ? - On the material on record, it cannot be said that the Tribunal had no material to hold that there was a goodwill of the business. The usual rate of capitalisation in the case of ordinary retail customary business not very well established is two years average profits. Therefore, there is no error in the valuation made by the Tribunal. Accordingly, question No. 1 is answered in the affirmative and against the accountable person

Summary

Issues:
1. Validity of inclusion of goodwill share in deceased's estate.
2. Validity of inclusion of gifts to wife and children in deceased's estate.
3. Justification of Appellate Tribunal's refusal to entertain additional ground raised by the assessee.

Detailed Analysis:
Issue 1: The first issue pertains to the validity of including the deceased's share of goodwill in the estate. The deceased was a partner in a firm engaged in foodgrains and oil business. The Assistant Controller of Estate Duty valued the deceased's share of goodwill at Rs. 13,860. The Appellate Controller valued the goodwill at two years' purchase of average profits. The Appellate Tribunal affirmed this valuation, considering the firm's reputation, profits, and establishment duration. Citing the Supreme Court's definition of goodwill as an intangible asset based on reputation and customer connections, the Tribunal's valuation was deemed reasonable. Therefore, the court upheld the inclusion of the goodwill share in the deceased's estate.

Issue 2: The second issue concerns the validity of including gifts made by the deceased to his wife and children in the estate. The deceased had gifted Rs. 71,900 to his family, which was utilized in the firm's business. The Appellate Tribunal relied on precedent where similar gifts were not deemed liable for estate duty. Following Supreme Court decisions, the court concluded that the gifted amount did not fall under property passing on death and was not subject to estate duty. Therefore, the court ruled in favor of the accountable person regarding the inclusion of gifts in the deceased's estate.

Issue 3: The final issue questions the Appellate Tribunal's refusal to entertain an additional ground raised by the assessee. Given the court's ruling on the second issue, the third issue became unnecessary to address. The court declined to answer the third question due to its decision on the second issue.

In conclusion, the court upheld the inclusion of the deceased's goodwill share and gifts in the estate, based on the firm's reputation and the nature of the gifts. The decision was supported by legal precedents and definitions of goodwill. As the accountable person succeeded substantially, they were awarded costs for the reference, including advocate's fees.