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TMI Blog1986 (12) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... he name and style of Annapurna Biscuit Manufacturing Company. Besides the deceased, the other three partners were his sons. Three days prior to his death, the deceased retired from the aforesaid partnership business. It was followed by a dissolution deed executed on the same day and the firm was reconstituted by the remaining partners thereafter. In terms of the dissolution deed, the deceased received a sum of Rs. 50,000 from the continuing partners as the value of his share in the goodwill of the firm. The accountable person included the aforesaid Rs. 50,000 in the estate of the deceased. In computing the principal value of the property left by the deceased, the Assistant Controller of Estate Duty, however, valued the deceased's share in goodwill at much more than what the deceased would be deemed to have disposed of. He computed the value of goodwill of the firm at Rs. 5,20,000 and the deceased's six annas share therein was determined at Rs. 1,95,000. Taking resort to the provision of section 9(1) of the Act, the Assistant Controller held that the difference between Rs. 1,95,000 and Rs. 50,000 (i.e., the amount which had already been included in the estate of the deceased by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Explanation 2 to section 2(15) of the Act did not arise. On these reasonings, the addition of Rs. 1,45,000 was deleted by the Tribunal. The short question that we have to answer is whether any amount over and above the amount of Rs. 50,000 representing the share of goodwill of the deceased is liable to be included in the estate of the deceased for the purpose of levy of estate duty ? The question, though apparently simple, involves some important and complicated questions, which we might have to answer before we render our answer to the questions referred to us. But, fortunately, all these difficult questions are no longer res Integra as they stand concluded by certain decisions of the Supreme Court to which we will refer shortly. The first question one has to face is whether the goodwill of the firm is property over which the deceased had power of disposition at the time of his death and, if so, to what extent. The second question that would arise is what is the provision in the Estate Duty Act under which the property representing the goodwill can be said to have passed on which estate duty can be levied. Both these questions stand concluded by the decision of the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y incorporated in the partnership deeds, the idea being that the business of the firm should not be disturbed and its continuity be, preserved when a partner retires or dies not resulting in the dissolution of the firm but leaving the identity of the firm intact. Can it be said in such a case, that the right or interest of such an outgoing or deceased partner in the goodwill of the firm passes on his death and the accountable person shall be liable to pay tax thereon. It is possible in such a case to argue that the outgoing or deceased partner had no subsisting right in the goodwill of the firm from the very inception because this right to goodwill was confined only to the continuing partners. In such a situation, it cannot be said that any right in goodwill was property of the deceased which passed on his death. Such a partner had been deprived of a share in the goodwill right from its very inception, even before the goodwill came into existence. Therefore, no question would arise as to any property representing his share in the goodwill passing on his death or retirement. But, fortunately for us, the Supreme Court has laid down in CED v. Mrudula Nareshchandra [1986] 160 ITR 342, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve no interest in the goodwill. However, this discussion is also not strictly called for. In the partnership deed, in the case before us, there is no restrictive clause relating to the right of the outgoing or deceased partner in the goodwill of the firm. The partnership deed is completely silent on this aspect and as such the case would be covered by section 55 of the Indian Partnership Act which provides that every partner, including the deceased partner, shall have right in the goodwill of the firm and can claim his share in the goodwill. Consequently, the legal heirs of the deceased partner shall also have a right to claim a share in the goodwill and such right is property passing on the death of the deceased. We have, however, made reference to this aspect of the matter for the reason that even though there is no restrictive clause in the deed of partnership relating to goodwill, there is a clause of a limited restrictive nature in the dissolution deed drawn up on the date of retirement of the deceased partner on December 2, 1967. According to that clause, the deceased partner had agreed to take Rs. 50,000 in lieu of his share in the goodwill relinquishing thereby his claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into another by any method... Explanation 2.-The extinguishment at the expense of the deceased of a debt or other right shall be deemed to have been a disposition made by the deceased in favour of the person for whose benefit the debt or right was extinguished, and in relation to such a disposition the expression 'property ' shall include the benefit conferred by the extinguishment of the debt or right." The next provision is section 9 which provides that any gift of property made by the deceased two years or more prior to his death and not made for any bona fide reason, shall be property passing on his death. In other words, this provision seems to avoid or ignore any gift made by the deceased two years or more prior to his death if not made for bona fide purpose. Another provision in that order is section 27 which places a clear ban on gifts made by the deceased in favour of his near relatives within two years of death irrespective of whether the gift is for bona fide or non-bona fide purpose. It will be easier to appreciate if we reproduce the relevant part of the provisions of section 9 and section 27(1) of the Act: " 9. Gifts within a certain Period before death.-(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to gift and thus would be caught in the net of the Estate Duty Act. In this contention, the Revenue is plainly right. The deceased had voluntarily, three days prior to his death, relinquished a part of his share in the goodwill giving corresponding benefit to the continuing partners who, incidentally, are his near relatives being his sons. Since the transaction amounted to gift to his near relations like sons, the transaction was caught by section 27 read with section 9 and section 5. In the result, the Revenue was right in levying tax on the difference of the actual share of Rs. 1,95,000 and Rs. 50,000 which he received in lieu thereof. Before we conclude, it is necessary to refer to certain arguments advanced on behalf of the accountable person and to certain decisions which were cited at the bar. First contention is that the deceased having accepted Rs. 50,000 with the concurrence of other partners at the time of his retirement, no further amount is liable to be added to the estate of the deceased on account of goodwill particularly when there was no clause in the partnership deed which entitled the retiring partner to share in the goodwill of the firm. This contention has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be covered by section 2(xxiv). A close reading of that provision and the judgment will dissolve the mist of misunderstanding and discloses the danger of reading observations from that case for application in the instant case. The language of section 2(15), Explanation 2, is different and wider and the reasoning of Getti Chettiar's case [1971] 82 ITR 599 (SC) cannot, therefore, control its amplitude. It is perfectly true that in ordinary Hindu law, a partition involves no conveyance and no question of transfer arises when all that happens is a severance in status and the common holding of property by the coparcener is converted into separate title of each coparcener as tenant-in-common. Nor does subsequent partition by metes and bounds amount to a transfer. The controlling distinction consists in the difference in definition between the Gift-tax Act (section 2(xxiv)) and the Estate Duty Act (section 2(15))." In view of the aforesaid decision of the Supreme Court, the second contention raised by learned counsel appearing on behalf of the accountable person is liable to be rejected. We were referred to two more decisions, one of the Gujarat High Court in Smt. Mrudula Nareshchandra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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