9911796707
TMI Blog1983 (11) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... ntable person in this case was taken to be Shri Sardar Harbans Singh, representing his wife, Smt. Surjit Kaur. The first question in the accountable person's appeal and the only question in the revenue's appeal is regarding the nature of the amount of Rs. 2,01,750 received under a policy of insurance (Policy No. 37215585) taken from the LIC by the deceased. Admittedly, the father of the deceased, Shri Harbans Singh, was the nominee under the said policy. In order to resolve the real point in controversy, it is necessary to decide the nature of the policy. A specimen copy of the policy taken out by the deceased, and which is now in dispute before us, is filed on behalf of the accountable person. It is titled as '20 years money back policy with profits (with the accident benefit)'. We have thoroughly gone through the conditions and privileges mentioned under that policy. It appeared to us that it is an ordinary life policy plus the accident benefit attached to it during the '20 years contractual period' mentioned in the policy. Under the terms of policy, if the insured person does not involve in any accident, and does not default in paying the premium for the whole of the 20 years pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of money as he can direct it to be given to any of his representatives but he did not acquire any interest in money paid under the policy. Hence, the policy money does not pass on the death of the deceased under section 5 of the Estate Duty Act, 1953 ('the Act'). On 27-6-1978 the accountable person filed a letter intimating that the claim under the policy in question was settled with LIC at Rs. 2,01,750. However, it was contended in the letter that the deceased had no interest for the money as such because that comes into existence the moment after the death and is payable to the nominee or to the legal representative. It is also noted in the said letter that as per the wishes of the deceased expressed before his father, mother and other family members on many occasions, the amount received under the personal accident policy should be shared equally by the younger brother of the deceased, Mr. Manpreth Singh, his younger brother, Jasjeev Singh and Harjeev Singh, sons of his elder brother Mr. Surender Singh. During the course of hearing, the accountable person filed a letter stating that since the beneficial interest did not result in reduction in the estate of the deceased, the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 34(3) of the Act as the said money received under the policy was considered to be an estate by itself falling under section 34(3). As the assessee did not receive any substantial relief from the impugned order of the Appellate Controller, second appeal is preferred before this Tribunal. In grounds 1 and 2 of the appeal, the following contentions are raised : "1. The learned Appellate Controller of Estate Duty erred in holding that the sum of Rs. 2,01,750 being the amount due on deceased's personal accident policy is liable to duty under the Estate Duty Act. 2. The learned Appellate Controller of Estate Duty ought to have held that the deceased had no interest in the aforesaid amount, that it came into existence after the death of the deceased and that, therefore, it was not a property which passed on his death." 5. In the departmental appeal, the contention put forward in grounds 2 and 3 is that the policy in question was not personal accident policy but a double accident policy and as per its terms the sum assured along with bonuses passes on the death of the deceased under section 5 and, therefore, it is to be aggregated. Nextly, it is contended that it is the ratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icy on the death of the deceased, it is not a property which passed on the death of the deceased. To buttress this argument, reliance was placed upon the Andhra Pradesh High Court's decision in Smt. Lakshmisagar Reddy v. CED [1980] 123 ITR 601, where it is held in the headnote as follows : "In order to attract section 5(1) of the Estate Duty Act, 1953, (1) the property must be in existence at any time before the death of the deceased ; (2) the deceased must have a beneficial interest, be it in praesenti or contingent, in the property ; (3) the deceased must be in possession and control, be it actual, constructive or beneficial, of the property ; (4) the deceased must have power to dispose of such property. Property or any interest held by the deceased in any property and which passes on the death immediately or contingently after a certain interval is also includible in the estate. But the condition precedent in order to include such property in the estate is that the deceased must have a right or interest in the property and be competent to dispose of such property or have such general power as would, if he were sui juris, enable him to dispose of the property. Unless both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to have been paid under the accident benefit contemplated under the policy. He further argued that the decision of the Gujarat High Court in Bharatkumar Manilal Dalal's case is more appropriate to be followed than the Madras High Court decision in M. Ct. Muthiah's case. In the Gujarat High Court case, it is specifically held that the deceased had a property in the nature of interest to receive payment in case of loss of limb arising as a result of an accident or the deceased purchased an interest for the benefit of his legal representatives in case of loss of life as a result of an accident. Therefore, while appreciating the position under an accident policy, the Gujarat High Court held that since the property in the nature of interest was in existence in the lifetime of the deceased which passed on his death to the beneficiaries designated or to his legal representatives, the sum was, therefore, dutiable under section 5. So also the Gujarat High Court held that inasmuch as the deceased can dispose of the property under the policy by will, therefore, the interest under policies should be deemed to have passed on his death under section 6. So also the learned departmental represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble only after the death of the deceased. We prefer to follow the ratio of the Madras High Court decision in M. Ct. Muthiah's case over that of the Gujarat High Court decision in Bharatkumar Manilal Dalal's case. We hold that a personal accident policy is not a contract of indemnity. The amount payable on the death of the insured is fixed in the policy itself. It is in the contemplation of the parties even at the time of the contract that in case of death, the amount would be payable either to the nominee or the legal representatives and not to the insured. It is, thus, in the nature of a provision made by the deceased for such nominee or his legal representatives. The deceased has no interest for the money as such because the amount comes into existence the moment after his death and is payable to the nominee or to the legal representatives. But the deceased had a right for the payment on his death to his legal representatives. Thus, the deceased had interest over payment of money but not in the money itself. In the case of a personal accident policy, the property is the ultimate money that is paid and that shall be deemed to pass on the death of the deceased because of his compet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le for application of sections 6 and 15. We have already held that the deceased never had any interest in the moneys paid under the accident benefit clause of the policy though he was competent to dispose of the same by a will. Therefore, we hold that the amount of Rs. 1,00,000 paid under the accident benefit clause of the policy is not aggregatable under section 34(3) as it constitutes an estate by itself. Our view was supported by the Madras High Court in M. Ct. Muthiah's case. According to us, the ratio of the Andhra Pradesh High Court in Smt. Lakshmisagar Reddy's case does not apply to the facts of the present case, inasmuch as in that case their Lordships of the Andhra Pradesh High Court were dealing with a case of a deceased pilot under the service rules of Indian Airlines Corporation and with the compensation amount which was paid on the death of one captain in an air accident. So obviously, the Andhra Pradesh High Court was not dealing with any insurance policy or the rights flowing therefrom. Their Lordships specifically distinguished the Gujarat High Court decision in Bharatkumar Manilal Dalal's case and the Madras High Court decision in M. Ct. Muthiah's case. They held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the him or her only with the power to receive the money under the policy from the insurer without prejudice to the question of title to the money. Consequently, it confers on the nominee a bare right to collect the policy money when the money becomes payable and by such nomination and the collection of the money the nominee does not become the owner of the money payable under the policy and he or she is liable to make it over to whomsoever is entitled to the same under the law . . . ." 11. Thus, it can be seen that the nominee is a mere custodian or a trustee of the money received under the policy and she or he is liable to make over the amount to whomsoever is entitled for the money under law. In Harendra Popatial Gandhi's case wherein it was held that the wife of the deceased was the nominee under a life policy, the question was what interest she had for the moneys paid under those policies as a nominee. The Bombay High Court held as follows in the headnote : ". . . Upon the death of the deceased, all that the wife got under the nomination was a right to receive the moneys from the insurance company and the moneys under the nominated policies continued to be the property of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be any goodwill and that the share of the deceased in the goodwill of any of the firms mentioned above will not pass within the meaning of section 5. Reliance was placed upon the decision of the Punjab and Haryana High Court in CED v. Ved Parkash Jain [1974] 96 ITR 303 and the Madras High Court in A.K.D. Dharmaraja v. CED [1978] 111 ITR 72. The Assistant Controller in his assessment orders held that except in the case of Khandari and Company, Hyderabad, which was running in losses, the two other firms mentioned above had goodwill. Then it was contended that the partnerships were at will, that there were no clauses in those partnership deeds contemplating sharing of goodwill on dissolution and, in fact, the deceased did not get any share in the good will from any of the firms and so the alleged share of the goodwill from any of the above firms should not be deemed to have passed under section 5. This argument was also rejected by the Assistant Controller. He held that though the accountable person practically did not get any share in the goodwill, the fact that the deceased was entitled to a share was sufficient to hold that the share in the goodwill passed on his death for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is a goodwill, the authorities are wrong in valuing it separately. (3) The valuation was high. Elaborating his arguments on the first point, he submitted that inasmuch as the two firms in question are only dealers and not traders according to the decision of the Madras High Court in Seethalakshmi Ammal's case the firms have no goodwill. In that case, the Madras High Court held that where a business involves no indistinguishable features and deals in standard articles manufactured by someone else which one can get from anywhere, not merely from a particular dealer, there is hardly any possibility of there being goodwill attached to such business. It is also contended that the above said two firms are going concerns even after the death of the deceased, the remaining partners have been continuing the business of those firms. Therefore, it is contended that goodwill has no value for going concern of partnership. Reliance was placed upon the decision of the Punjab and Haryana High Court in Ved Parkash Jain's case. In that case, it was held that after the death of Shri Hari Ram, no specific share in the goodwill passed on to the heirs as he did not own any specific share in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share in it individually and what he is entitled to is a share in the net assets of the firm after meeting the liabilities from out of gross receipts and as such valuing the share of the deceased in the goodwill of the firm is not valid, is an argument which is not available to the accountable person, at this stage, as it was never raised in this present form, before either of the two lower authorities and, hence, this argument does not arise from out of the impugned order of the Appellate Controller and it was never processed by him and, hence, the assessee should be precluded to raise this contention at this stage as there was neither material nor claim for such an argument. The learned departmental representative cites in support of his argument, the decision of the Hon'ble Supreme Court in the case of Addl. CIT v. Gurjargravures (P.) Ltd. [1978] 111 ITR 1 where it is held that it is not possible to hold that the ITO examining a portion of the profits from the point of view of its taxability only, should be deemed to have also considered the question of its non-taxability. We consider that this is a preliminary objection for entertaining the argument raised by the accountable pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. Reliance was sought to be placed on the decision in Ved Parkash Jain's case where it is held that goodwill has no value in a going concern of partnership. However, it may be stated that the ratio laid down in Ved Parkash Jain's case is overruled by the Full Bench of Punj. Har. High Court in State v. Prem Nath [1977] 106 ITR 446 where it is held as per the headnote of the decision as follows : "The goodwill of a firm is an asset of the firm, the share of the deceased partner in which, along with his share in the other assets of the firm, devolves, for purposes of estate duty, on his death, upon his legal representatives notwithstanding any clause in the deed of partnership to the effect that the death of a partner shall not dissolve the firm and that the surviving partners are entitled to carry on the business on the death of the partner." Referring to the ratio of the decision in Ved Parkash Jain's case at page 306 where it is held that goodwill has no value in a going concern of partnership, it is held by the learned judges of the Full Bench in Prem Nath's case that the ratio is clearly opposed to section 14 of the Indian Partnership Act and also to the observations of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odwill of the firm. The question is whether capital gains tax can be levied against the said goodwill. In that case, both the Madras High Court's decision in Seethalakshmi Ammal's case and the Hon'ble Supreme Court's decision in S.C. Cambatta Co. (P.) Ltd.'s case were considered. After considering S.C. Cambatta Co. (P.) Ltd.'s case, the Madras High Court held as follows of the decision : "In the sense used by this Court in that case it cannot be said that there was any goodwill which this firm had. It was dealing in ordinary automobiles, spare parts and petroleum products. As mentioned in Attorney-General v. Boden [1912] 1 KB 539, referred to above, one machine is practically as good as another ; and the product is so uniform that anyone can buy the goods in any shop. But by the definition which the Supreme Court gave in S.C. Cambatta Co. (P.) Ltd. v. CEPT [1961] 41 ITR 500, 504 it may be said that this firm had a goodwill . . ." Therefore, it can be seen that a later Madras High Court's decision in Seethalakshmi Ammal's case was not followed and the Supreme Court decision in S.C. Cambatta Co. (P.) Ltd.'s case was not only followed but applied to the facts of the case b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ath of the deceased. The Tribunal following Seethalakshmi Ammal's case held that the business which was carried on by the deceased did not have any goodwill. The Tribunal held that the fact that the business was carried on for a long time and that it derived good profits were not conclusive to hold that there was goodwill attached to the business. The Madras High Court specifically held the Tribunal's view as wrong and also held that the extent of the profits made and its consistency will be an indication as to whether the profit is due to existence of any magnetic quality in the business attracting customers. The High Court held that the Tribunal had not considered the existence of the goodwill in the light of the two relevant circumstances, namely, length of business and its profitability. Hence, the matter was remanded again to the Tribunal to consider the case de novo. Therefore, there are a catena of decisions to establish that goodwill is one of the assets of the firm even though such firm deals in ordinary goods. 21. Now let us come to the point as to what goodwill means. It is already defined in S.C. Cambatta Co. (P.) Ltd.'s case. In Rustom Cavasjee Cooper v. Union of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is to consider the arguments of the accountable person that assuming that goodwill is one of the assets of the two firms mentioned above inasmuch as it is only one of the assets under law, the deceased cannot be taken to have any defined share in the said goodwill and as such taking the share of the deceased in the goodwill and adding it to the estate of the deceased is not correct. It is contended that as per the deeds of partnership governing these two firms, the death of the deceased brought about the dissolution of both the firms as the partnerships were at will. The learned counsel for the accountable person brought to our notice, the Supreme Court ruling in the case of Addanki Narayanappa v. Bhaskara Krishnappa AIR 1966 SC 1300 where the Supreme Court lucidly brought about what rights a partner is entitled to in the assets of the firm during his continuance and after dissolution. In the headnote of the said decision the following is found : "The provisions of sections 14, 15, 29, 32, 37, 38 and 48 make it clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its goodwill and regard that as the subject of gift. The Hon'ble Supreme Court held that this approach was wholly incomprehensible. No gift-tax was payable on the goodwill of the assessee's business. Reliance was also placed on the decision of the Bombay High Court in Fakirchand Fatehchand Sachdev's case. In that case, three types of partnerships were considered for purpose of estate duty, more especially for purpose of ascertaining the value of the goodwill which the deceased had in the partnerships. It is held that goodwill is part of the assets of the firm. A partner does not have a defined share in the assets of the firm, he would have a share in the totality of the properties of the firm less the liabilities thereof, the share of the deceased in the goodwill of the firm cannot be valued as a separate item apart from other assets of the firm and included its value in the estate of a deceased partner under section 5. After elaborately discussing both on first principles as well as with reference to a long series of decisions, the Bombay High Court summarised the conclusions in 18 propositions. Out of the 18 propositions, proposition numbers 8, 10 and 16 are felt relevant for our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he value of the totality of the properties of the firm minus the liabilities of the firm. However, it is contended on behalf of the revenue that there is an authority for the proposition that goodwill is an asset of the firm and that on the death of a partner, his share in the goodwill of the firm passes to his legal representative in the decision of the Allahabad High Court in CED v. Smt. Laxmi Bai [1980] 126 ITR 73. In the headnote of the said decision the following is found : "Goodwill of a firm is an asset and on the death of a partner his share in the goodwill passes to his legal representatives. Goodwill may sometimes exist as an asset in the balance sheet of a business but often it does not so exist and has to be brought into account by proper valuation. For the purpose of estate duty, goodwill of a business has to be valued at the date of the death and included in the valuation of the estate passing. This is, however, subject to an important rider. Goodwill goes with the business and has no existence apart from the business itself. If goodwill is to be included as an asset of the business passing on the death by valuing it, it can be done only by valuing the assets and li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the accountable persons before us." It is contended on behalf of the revenue that it was never the contention of the accountable person that overall assets of the two firms under consideration did not exceed the liabilities of those two firms. Admittedly, the balance sheets for those firms do not include the value of the goodwill of the firms on the assets side. Even then the assets of those firms far exceed the liabilities. Therefore, it is contended on behalf of the revenue that there is nothing wrong if the goodwill is separately valued and the share of the deceased added to his estate. However, we are constrained to observe that neither of the lower authorities viewed the matter in the light of the decisions which we have discussed above. Therefore, we feel that it is a fit case where the matter should be sent back to the Assistant Controller with a direction to ascertain the share of the deceased in the assets of the two firms (Standard Tyres and Motors, Vijayawada, and Khandari Tyres, Hyderabad) taking the goodwill as one of the assets in each of the two firms. 23. Shri A. Satyanarayana, the learned counsel for the accountable person, strongly opposed that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the valuation date was on 31-3-1977. It is argued that since the date of death of the deceased is very near to the above said valuation date, the valuation as per the books does not require any alteration. As regards valuation of fixed assets in various firms, the Assistant Controller in his order held as follows : "Valuation of Fixed Assets in various firms (1) The fixed assets in the various firms consists of sites and buildings. These were got valued either by departmental valuer or approved valuer for arriving at the cost of construction in the relevant years. The constructions were made during 1973-74 in respect of Khandari and Company, 1972/June 1973 in respect of Khandari Tyres and February to August 1974 in respect of Khandari Bros. Thus, almost all the values arrived at by the valuers showing the cost of construction of relevant assets was as on 31-3-1974. In the books (i.e., in the respective balance sheets) the values of these fixed assets were depreciated from year to year and the final figure was shown in the latest balance sheets. While making such depreciation, the accountable person also deducted depreciation on land relating to the buildings. Further, thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then deduct the balance sheet value as on 4-6-1977 and then work out the one-fifth of the deceased. He also directed the Assistant Controller to work out the addition towards appreciation in the valuation of the fixed assets by adding only one-fifth to the figures shown by the accountable person in respect of the firm of Khandari Tyres and then deduct the balance sheet figure on 31-3-1977 for arriving at the value of the one-third share. So also even regarding the valuation of the fixed assets belonging to Khandari Brothers (which is a HUF's concern) wherein the deceased has got one-third share. The Appellate Controller directed the Assistant Controller to add only one-fifth for appreciation in value. To the value shown by the accountable person and after deducting the value as on 31-3-1977, the Assistant Controller may take one-third towards the share of the deceased for purposes of the assessment under the Act. It is contended on behalf of the accountable person that the one-fifth addition is also not sustainable. He requested that the balance sheet amounts returned by the accountable person towards the value of these assets may be ordered to be accepted. The departmental represe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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