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TMI Blog1983 (8) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... of the partner is detrimental to the partnership business" (clause 16). Clause 15 of the deed is of substantial significance as far as this case is concerned and it reads: " In the event of death or retirement, such deceased or retiring partner shall not be entitled for any goodwill of the firm ...... .. " Allied to this clause are clauses 13 and 14, which read : " 13. If any partner shall die or voluntarily retire, an account shall be taken of his capital and profits in the firm or his losses and withdrawals up to the date of his death or retirement. 14. If during the continuance of the partnership any one partner shall die or become insolvent, the other partners can continue the partnership and the business shall be continued between the remaining partners unless all of them agree to dissolve the whole partnership". Abdurahimankutty died on January 18, 1969. Proceedings under the E.D. Act (hereinafter referred to as " the Act were duly initiated. The son of the deceased, and an accountable person under the Act, Abdul Sattar, delivered the estate duty account declaring the value of the estate at Rs. 1,88,358. The net value, however, of the estate was computed und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the firm and it continued to be enjoyed by someone. The mere fact that the goodwill did not pass to the legal heirs or to the accountable person did not justify a contention that " the goodwill just vanished into thin air ". According to the Tribunal " it had an existence before his death and that it continued even thereafter ". In that view of the matter, it was held that the goodwill did pass on the death of the deceased, attracting thereby the duty under the Act. At the instance of the assessee, whose application for reference was dismissed by the Tribunal, the following question was directed to be referred to this court by the order passed by this court in O. P. No. 2758 of 1974: " Whether, on the facts and in the circumstances of the case, and particularly in view of clause 15 of the partnership deed, did any property in goodwill pass on the death of Abdurahimankutty under section 5 of the Estate Duty Act ?" It is necessary at the outset to clarify that the Department did not place any reliance on s. 7 of the Act. A discussion on that section and the judicial thinking centering round it, therefore, does not arise for consideration in this case. The Tribunal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on his property " at the moment of death. At one time it was considered that the goodwill in a firm survived to the benefit of the surviving partner. [See Hammond v. Douglas [1800] 5 Ves 539]. That view has been rejected for ever by the turn of that century. Romer, Lord justice, observed in 1899, that it was by then " well-settled ' that " the goodwill will be an asset and might well be the most valuable asset of the partnership " and that " the executors, in the absence of special provisions in the partnership contract, would be entitled to require that the goodwill should be sold together with the other assets for the purposes of division " (Emphasis supplied). See David and Mathews, In re [1899] 1 Ch. 378. The legal position is stated in the following passage in Dymond on Death Duties, fourteenth edition, volume 1, page 79: " The deceased's share of a partnership business is normally an asset of his estate, but as Partnership agreements often contain Provisions relating to the death of a partner, special considerations may arise, especially as regards his share of the goodwill. " (Emphasis supplied) The same idea is also expressed, at page 473, in Green's Death Duties, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alia Ltd. v. Commissioner of Taxes of the Commonwealth of Australia [1954] AC 114 ; [1954] 25 ITR (ED) 47 (PC), were considered at length in that decision. The opinion of the court is expressed in the following passage (p. 307): "... a mere event of passing of property from one hand to the other is sufficient to attract the provisions of section 5. The use of the word 'passes' signifies the movement of the property from one hand to the other by some legally recognised method of devolution. This passage or the movement of the property from one hand to the other should be the result of death of the person concerned. Therefore, in the case of a person, whose right or interest in the property ceases or comes to an end on his death, and somebody acquires fresh interest in that property in his own right, can it be said that the property has 'passed' from the hands of the deceased to the hands of the other person, who acquires it on his death. In our opinion, the answer to this question must necessarily be in the negative, because the interest or the right, which has ceased to exist, would obviously be incapable of 'passing' or of having any 'movement'. It is evident that the simplest c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deceased and exercise of option which resulted in the devolution of interest of the deceased, on his legal representatives ". Similarly, it was noted that in the Boden's case [1912] 1 KB 539, the interest of the deceased directly passed to his legal representatives immediately after his death, because his share was to accrue to his partners, who were his sons, subject only to their paying out to his legal representatives the value of his share, as on the date of his death ascertained by a proper valuation without taking into account any valuation of, or allowance for, goodwill. In the case before them, the judges of the Gujarat High Court felt that, unlike in Boden's case the interest of the deceased was stipulated to come to an end the moment the deceased died (See the observations at page 311). Ultimately, the court came to the conclusion that in view of clause 10 in the partnership deed, " the interest of the deceased in the firm's goodwill ceased without being inherited by his heirs. The right, therefore, lost its continuity, identity and mobility. The Supreme Court had made observations on the word " passes" occurring in s. 5 of the Act, in two cases CED v. Hussainbha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a provision in the partnership deed providing for the extinction of the right to goodwill of the partner, on his death. The decision of the Gujarat High Court had not been considered by the Supreme Court. The Supreme Court has not expressed any disapproval of the views expressed by the Gujarat High Court. Essentially based on the observations of the Supreme Court in the aforesaid cases, the Bombay High Court in CED v. Fakirchand Fatehchand Sachdev [1982] 134 ITR 268, dissented from the Gujarat view. For reasons mentioned above, we are not inclined to hold that the view taken by the Gujarat High Court is erroneous. The decision of the Madras High, Court reported in CED v. Ibrahim Gulam Hussain Currimbhoy [1975] 100 ITR 320, also expressed views disagreeing with the Gujarat High Court. The discussion by the Gujarat High Court is seen at pages 327 and 328. The Gujarat view has been distinguished on the basis of the decision of the Supreme Court in Khushal Khemgar Shah v. Khorshed Banu, Dadiba Boatwalla, AIR 1970 SC II 47. The Supreme Court in that case observed that the partnership Act did not operate to extinguish the right in the assets of the firm of a partner who dies when t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... swer made to the reference by that court in relation to a partner similar to the one in our case. The controversy on this aspect has been adverted to at page 287 of the Bombay decision where reference is made to the conjoint effect of ss. 5, 6, 7, 36 and 40 of the Act. At page 290, it was observed that the computation of the value of property which passes under s. 5 is to be made under s. 40, and that " if such computation cannot be made, then such property was never intended by the Legislature to be made the subject-matter of the charge ". The (9th) and (11th) paragraphs of the conclusion (See pp. 308-309 of 134 ITR) which are relevant for our purpose read: " (9) Where under the provisions of a deed of partnership, a partnership is not dissolved by the retirement or death of a partner but the surviving partners become entitled to carry it on, and the deed of partnership provides for payment to the retiring partner or to the legal representatives of the deceased partner of a certain amount, which usually is the value of his share in the partnership, all that the retiring partner or the legal representatives of the deceased partner become entitled to is to receive from the contin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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