9911796707
TMI Blog2003 (7) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of goodwill a multiplier of one year or three years has to be adopted? (vi) Whether any refund determined after the demise of the deceased could be regarded as property passing on the death of the deceased?" The facts of the case are as follows: One V. G. Saraf passed away on October 18,1984. He was a partner in the firm, M/s. Saraf Trading Corporation, a partnership firm carrying on business as commission agent and exporters of tea. The firm was originally constituted under the deed of partnership dated November 27, 1963, with three partners as follows: (1) V. G. Saraf 50% in profits and loss (2) A. V. Saraf 30% -do.- (3) U. V. Saraf 20% -do.- On September 16, 1981, the partnership was reconstituted with the admission of one more partner and a minor. In valuing the interest of the deceased in the firm, the Assistant Controller of Estate Duty took the view that applying the provisions of section 13(b) of the Partnership Act, the valuation should be on the basis of equal allocation of shares to the partners. He overruled the objection of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill was added as the share of the deceased. The Appellate Controller upheld the finding of the Assistant Controller of Estate Duty that the interest of the deceased in the firm was to be computed at 1/5th of the undistributed profits upto the date of death and the profit earned during the year up to the date of death. He also upheld the view that the assessee was entitled to a share in the goodwill notwithstanding the provisions of the partnership deed. He also held that for determining the value of the goodwill the multiplier of three was in order and that there was no other reason to interfere with the valuation. The Appellate Controller also upheld the inclusion of the refund of income tax and the interest under the section of the Income-tax Act in the assets of the firm in determining the interest of the deceased. The accountable person took up the matter in further appeal before the Appellate Tribunal. The Appellate Tribunal held that section 13(b) of the Partnership Act was not applicable. It held that the determination of share is correct. It also held that the share of the deceased was also at 10 per cent. An argument was raised before the Appellate Tribunal that the shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs do not have any specified or equal share in the accumulated profits and the partners shall decide the amount to be credited or debited as the case may be, to any one or to each partner at any time, giving weightage to the circumstances of the case. An outgoing or retiring partner shall have no share in the accumulated profits and on death, the estate of a deceased partner will get such share, if any, as the continuing partners shall decide.... (d) On the dissolution of the firm, after paying all the liabilities of the firm and the amounts standing to the credit of the partners and minor the net surplus will be divided amongst the partners and the minor in such proportion as the partners may decide by majority." Clause 10 states as follows: "No partners of the firm shall be entitled to any specified share in the goodwill, if any, of the firm at any time and the goodwill shall continue to vest with the firm till all the properties of the firm are sold and realised." Clause 11 states thus: "In the event any partner retires or goes out from this partnership or expires, no part of the goodwill of the firm shall be considered and there shall be neither any claim nor shall anything ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is with regard to the goodwill. So far as the goodwill is concerned, the Tribunal held that the deceased was entitled to share in the goodwill and held that it was property which passed to the legal heirs. The Tribunal has given certain guidelines for calculating the goodwill; they are (1) to take only profit as disclosed in the books; (2) to allow deduction on the average profit at the rate of 20 per cent, instead of 10 per cent; (3) to take the multiplier of one instead of three years. It was held that 10 per cent. of the share should be treated as the share of the deceased in the goodwill. The argument of learned counsel for the assessee was that the partnership deed itself says that on the death of the partner, the partnership will dissolve and that he will not be entitled to any goodwill. On the basis of this, it was held that no goodwill passed on the death of the deceased partner. In S. C. Cambatta and Co. Pvt. Ltd. v. CEPT [1961] 41 ITR 500 (SC), the Supreme Court held as follows: "The goodwill of a business depends upon a variety of circumstances or a combination of them. The location, the service, the standing of the business, the honesty of those who run it, and the lac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is amount is multiplied by a certain number of years, and the resultant figure is taken to be the value of the goodwill. There does not appear to be any hard and fast rule regarding the multiple to be applied for evaluating the goodwill of a firm. It all depends on the nature of the business and the prevailing market circumstances". In M. M. N. D. Muthiah Rajasabai v. CED [1999] 240 ITR 650, a Division Bench of this court held as follows: "that in any business of substantial proportions one of the two methods, i.e., (a) super profits method; and (b) total capitalisation method is used to compute the value of the goodwill. Both the methods are aimed at estimating the probable amount of the future profits. The method of computation involves working out the average profits for the first method. Since the conclusion was essentially on the facts, no question of law arose. What could be the appropriate multiplier to be adopted would depend on the facts and circumstances of each case and no hard and fast rule can be laid down. The Tribunal upheld the application of the three times multiplier taken by the authorities below. While doing so, the Tribunal noticed that the lower authorities ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
