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TMI Blog1985 (2) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... deed of Poormans Depot, Tuticorin, especially the clauses contained therein, viz., clauses 11, 12 and 14, came to the conclusion that in the instant case, because of the restrictions imposed, as mentioned above, the deceased is not entitled to any share in the above items. Accordingly, he deleted the inclusion of the above three items from the estate of the deceased. 3. Aggrieved, the department is in appeal before us. The learned departmental representative submitted that the Appellate Controller erred in deleting the abovesaid three items of assets from the dutiable estate of the deceased without assigning proper reason. He further submitted that the Appellate Controller failed to note that the interest of the deceased in the abovesaid assets passed on his death and, therefore, was dutiable under the Estate Duty Act, 1953 ('the Act'). It was also submitted that under the terms of contract of partnership, whatever be the position regarding the claim by the legal heirs of the deceased, the position under the Act, as regards passing of the property on death was different and, therefore, according to the learned departmental representative, the Appellate Controller ought to have su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to any share of profit for the proportionate period of the accounting year in which the deceased died and are not entitled to any share in the 'reserve fund' created by the firm and he is also not entitled to any share in the goodwill. According to the learned counsel appearing for the accountable person since there is a contract between the partners, as abovesaid, the rights and liabilities of the partners are subject to the contract entered into by the parties. He further pointed out that it is open to a partner to enter into a contract with other partners in the matter of restricting any right in the goodwill or reserve fund or in sharing the profit, as the case may be. He further pointed out that section 14 of the Indian Partnership Act, 1932 says that the firm can own property. He relied upon a decision in Smt. Mrudula Nareshchandra v. CED [1975] 100 ITR 297 (Guj.). In that case, the deceased was a partner in a firm. Clause 10 of the partnership deed provided that the firm shall not stand dissolved on the death of any of the partners and the partner dying shall have no right whatsoever in the goodwill of the firm. On the death of the deceased, the Assistant Controller ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th came to devolve on the surviving partners and their share in the interest of the goodwill is augmented to the extent of the share of the deceased as per clause 14 of the partnership deed. This will straightaway attract section 5 of the Act. We have to, therefore, hold that there was in fact passing of property on the death of the deceased so as to attract section 5. . . ." 5. Our attention was also drawn to another decision of the Calcutta High Court in CED v. Annaraj Mehta and Deoraj Mehta [1979] 119 ITR 544. In that case, the Calcutta High Court held as under : "What passes on the death of a partner is his share in the firm, that is, his interest in the entire unit of the firm. This has to include goodwill. The fact that such interest may devolve not on the legal representatives but on a different group or category of persons or that from the goodwill the legal representatives may be excluded would not make any difference for the purpose of assessment to estate duty. The entirety of the interest of the deceased partner that would pass, which necessarily includes goodwill, would be includible in the estate. The valuation of such entire interest has to be determined as provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, the Kerala High Court held that under clause 15 of the partnership deed, the interest of A in the goodwill of the firm automatically came to an end on his death. Therefore, property in the goodwill did not pass on his death. In that case, the Kerala High Court followed the judgment of the Gujarat High Court in Smt. Mrudula Nareshchandra's case. On the other hand, the Kerala High Court distinguished the following judgments : Ibrahim Gulam Hussain Currimbhoy's case, Khushal Khemgar Shah v. Mrs. Khorshed Banu Dadiba Boatwalla AIR 1970 SC 1147, State v. Prem Nath [1977] 106 ITR 446 (Punj. Har.)(FB) and Smt. Surumbayi Ammal v. CED [1976] 103 ITR 358 (Mad.). While distinguishing the abovesaid decisions, the Kerala High Court observed as under : "Section 5, the charging section of the Act, levies estate duty on property which passes on the death of a person. Soon after the corresponding duty was imposed in England, the scope and amplitude of the term 'property passing on death' had been the subject-matter of judicial thought and discussion. The way to a clear and a correct view was by no means an easy one. Ours, however, is not an unlighted path. Even the very section of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s legal representatives or to his surviving partners, the property actually passes under section 5 and cannot be said to be deemed to pass under section 7(1) . . . (15) . . . in a case where the surviving partners are entitled to continue the partnership business and the property is deemed to pass under section 7(1) it would not be correct to say that its value cannot be computed under clause (b) of section 40 . . ." 9. Thus, on considering the facts appearing in this case in the light of the decisions rendered by various High Courts--Smt. Mrudula Nareshchandra's case, Fakirchand Fatehchand Sachdev's case, Ibrahim Gulam Hussain Currimbhoy's case--Prem Nath's case and Smt. Surumbayi Ammal's case--we are of the view that it cannot be successfully contended that interest of the partner in the assets of the partnership including the goodwill of the firm is extinguished on his death. Therefore, the interest in the goodwill which the deceased possessed along with his entire interest in the firm at the time of death came to devolve on the surviving partners and the share in the interest of the goodwill is augmented to the extent of the share of the deceased as per clauses 11, 12 and 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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