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TMI Blog1982 (8) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... neeram Bangur Co. This firm was constituted under a partnership deed dated 22nd April, 1946. According to the deed Narayandas Bangur had 1153 portion of share in the firm. Narayandas Bangur left behind him two sons, Sri Bengu Gopal Bangur and Sri Purushottamdas Bangur. These two persons were the accountable persons in the estate duty proceedings. They submitted a return of estate duty valuing the interest of Narayaildas Bangur in the firm at Rs. 15,86,089. The valuation was made by the accountable persons with reference to cls. 6 and 12 of the partnership deed, that is, by taking into account the immovable and movable assets of the firm. at cost. The value taken of immovable assets was R.-,. 57,87,710. The Assistant Controller considered that the market value of such assets would be Rs. 1,09,62,010. He adopted such value for computing the interest of Narayandas Bangur which passed on his death, and the resultant adjustment about an increase in the assessment of the principal value of the estate by Rs. 10,73,91 1. Before the Asst. Controller the accountable persons relied on the provisions of the partnership deed as containing restrictions regarding the valuation and contended tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest of the deceased was, in his view, in accordance with cls. 6 and 12 of the partnership deed. He directed the Asst. Controller to make the valuation accordingly. It may be necessary at this stage to refer to the partnership deed which is dated 22nd April, 1946, between the contracting parties. After reciting several clauses and distributing the shares to the parties the Partnership deed provides as follows : " That at the end of each accounting year even in the case of death or retirement of a partner in the said accounting year as stipulated in clauses No. 12 and 13, respectively, the stock-in-trade shall, as usual, be valued at the market rate and the properties, investments and other assets shall, as usual, be valued at cost." It further provides at cls. 11, 12 and 13, which are as follows: " 11. That none of the parties hereto shall be entitled to sell, transfer, assign or mortgage his share in the firm to anybody except with the consent of all the other co-partners. 12. That in the event of death of the parties hereto the firm shall not stand dissolved but shall' continue to be carried on by the surviving partners together with the legal representative or repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant. On behalf of the accountable persons it was submitted that the firm was to continue notwithstanding the death of a partner, that no abstract concept of a legal right in the deceased or his representative entered into the issue and that was necessary was to look into only what Narayandas Bangur during his lifetime could have got if he chose to retire from the firm or what his representative would get in accordance with the clauses of the partnership deed. In substance his submission was that the, clauses of the, partnership deed bound not only deceased but his successors also and the Revenue could not put itself in a position higher than that of the deceased or his successors. In support of the Revenue's submission reliance was placed on the decision of the Australian High Court in Perpetual Executors and Trustees Association of Australia Ltd. v. Federal Commissioner of Taxation, 94 CLR 1. It was held that that case fully governed the present controversy. The two Members constituting the Bench were agreed on the conclusion. While the judicial Member considered that cl. 6 of the partnership deed was not relevant for the present purpose, the Accountant Member took a different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her person had an interest ceasing on the death of the deceased, shall be deemed to pass on the deceased's death to the extent to which a benefit accrues or arises by the cesser of such interest, including, in particular, a coparcenary interest in the joint family property of a Hindu family governed by the Mitakshara, Marumakkattayam or Aliyasantana law." Section 36, to which reference may instantly be made while dealing with the section, deals with the problem how the principal value was to be estimated. Sub-section (1) of s. 36 stipulates that the principal value of any property should be estimated to be the price which, in the opinion of the Controller, it would fetch if sold in the open market at the time of the deceased's death. Sub-sec. (2) stipulates that in estimating the principal value under this section the Controller should fix the price of the property according to the market price at the time of the deceased's death and should not make any reduction in the estimate on account of the estimate being made on the assumption that the whole property was to be placed on the market at one and the same time: provided that where it was proved to the satisfaction of the Contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not on his death pass anything higher than what he had possessed at the time of his death. Therefore, it is necessary to determine first the contents of his property or his rights and then to find out how it should be valued. Now in this case we have said that the assessee was a partner in the firm and his share was subject to the conditions under cls. 11, 12 and 13 which we have set out in extenso hereinbefore. It appears to us, in this case, that cls. 12 and 13 are complementary, one applying during the lifetime of t partner and the second on his death. If the deceased partner, Naraindas, during his lifetime could not have got any credit for the difference between the cost and market value under cl. 13 and if his estate could not get more than what was due under cl. 12, then it would be too much to expect a person to offer to purchase the interest of the deceased in the partnership at a higher figure. Section 36 of the Act provides for the principal value of any property and in that view of the matter in the background of the relevant sections, in our opinion, the appropriate approach should be to value the property on the basis of the market price. It may now be appropriate, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubt. What the interest was worth to the deceased immediately before his death or to his ' estate ' or executors immediately after his death, therefore, depended on calculation only. For it was then certain that the options would be exercised. The result is that for the entire share including goodwill there could not reasonably be any greater value in the interest of Thomas in the partnership at his death than the price obtainable from his partners, that is to say, pounds 156.254. That is its value for the purpose of estate duty. This conclusion no doubt expresses a proposition of fact rather than of law. But it seems to me to be so evident a result that in answer to the first question it may safely be said that it is not open to find a larger value. " As we mentioned before, the said decision came up before the Australian High Court as a result of the remand by the Privy Council of the case of Perpetual Executors and Trustees Association of Australia Ltd. v. Commissioner of Taxes of the Commonwealth of Australia [1954] 25 ITR (ED) 47. In that case the principal asset of a testator was his interest in partnership pursuant to a deed of partnership which, inter alia, conferred opti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the effect that where a partnership deed provided that no allowance for goodwill should be made to a partner or his estate on his death his interest ill the goodwill did not pass on his death, was dissented from. In such case as that the deceased partner's interest in the goodwill passed with his interest in the other assets-to his legal personal representative, and the fact that its value was not to be taken into account in calculating the price receivable by the (,state for his interest in the partnership was irrelevant. Lord Cohen, delivering the judgment in the Privy Council, observed about Milne's case, referred to hereinbefore, when the present case came up before their Lordships, as follows (pp. 57-60 of 25 ITR (ED)): " When the case came before their Lordships, Mr. Cross attacked the reasoning of the majority in Milne's case [1944] 69 CLR 270, but he did not seek to defend the reasoning of the minority. He argued that Mr. Thomas's interest in the goodwill was only part of his interest in the partnership assets and that the whole of such interest was part of the personal property forming part of Mr. Thomas's estate and fell within section 8(3)(b). Mr. Pascoe Hayward, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d's share in goodwill as something severable from his interest in the other assets of the partnership and passing or accruing to another person under section 8(4)(e). Their Lordships are unable to accept either of these propositions. In their Lordships' opinion the interest of Milne in ,ill the partnership assets, including goodwill, vested in his administrator on his death, although his executors would be bound, if the option were exercised, to transfer that interest to the purchaser at the price fixed in accordance with the partnership deed. For this reason their Lordships accept the alternative proposition advanced by Mr. Pascoe Hayward, with which Mr. Cross did not quarrel, that the whole of the deceased's interest in the partnership property, including goodwill, was assessable to duty under section 8(3)(b). Being so assessable, it necessarily follows that that interest cannot be assessable under section 8(4), which deals only with property not actually assessable as part of the estate falling within section 8(3) but which is to be deemed to form a part of the estate. This conclusion is sufficient to dispose of the matter so far as the respondent's case rests on section 8(4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for full consideration in money or money's worth paid to the vendor for his own use and benefit. Hamilton J. upheld this submission. His decision on this point would have been sufficient to dispose of the case, but he also dealt with the other point which he described as a minor point [1912] 1 KB 539. On this he came to the conclusion that the case fell within section 2(1)(b) and not within section 1. Their Lordships are unable to agree with this view. In their opinion the deceased partner's interest in goodwill in such a case must pass with his interest in the other assets to his legal personal representative, and the fact that its value is not to be taken into account in calculating the price receivable by the estate for his interest in the partnership is irrelevant. " Then His Lordship discussed the decision in the case of Attorney General v. Boden [1912] 1 KB 539; 1 EDC 566 (KB), referred to hereinbefore and noted the submissions made by the learned counsel appearing on behalf of the respondent by Mr. Pascoe Hayward. In order to appreciate the submissions, it would be relevant to refer to the arguments made by Mr. Pascoe Hayward which are appearing at pp. 60-62 of the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ps hive already referred. If, however, it was not within this notice of objection a question of jurisdiction would arise since section 27(3) of the Estate Duty Assessment Act, 1914-42, limits the objector to grounds stated in his objection. Had the appellant confined his notice of objection to stating as his ground that (see paragraph 25 of the notice of objection), the estate of deceased is not dutiable in respect of any proportion of goodwill of the said firm of Maples pursuant to section 8(4)(e)' there could have been no doubt but that the appellant was entitled to argue that it could not be deemed to be part of the estate under section 8(4)(e) because it was actually part of the estate under section 8(3). Mr. Pascoe Hayward submits that the appellant is deprived of his right to present this argument because, as he says, the preceding paragraphs show that paragraph 25 was not directed to this point. Their Lordships, however, think that the necessary foundation for the argument is to be found in paragraphs 23, 24 and 25 when read together, and must therefore refuse to dismiss the appeal on the ground that the argument falls outside the ground stated in the objection. Mr. Cross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of the late Frederick Charles Henry Thomas in the assets of the firm or partnership carried on under the name or style of ' Maples ', including the goodwill thereof, was part of his estate within sub-section (3) of section 8 of the Estate Duty Assessment Act, 1914-42, and that no part of such share or interest is to be deemed to be part of his said estate under sub-section (4) of the said section, and to refer this matter back to the High Court of Australia to reconsider the objection of the appellant to the assessment made by the respondent in the light of the declaration aforesaid and ill particular, but without prejudice to the generality of the foregoing, to determine (a) whether any binding agreement has been made between the appellant and the respondent which fixed the value of the said share and interest of the said Frederick Charles Henry Thomas in the business and assets of the said firm, including the goodwill thereof, and if not, (b) what value ought to be placed thereon under section 8(1) of the said Act having regard to all relevant circumstances." It is in this background, the decision of the Australian High Court has to be understood. Chief justice Cohen at p. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value is not material to the appeal. For this and other reasons their Lordships' report did not go beyond deciding that the appeal to the Queen in Council ought to be allowed and that a declaration ought to be made that the share and interest of Thomas in the assets of the partnership including the goodwill was part of the estate within subsection (3) of section 8 and that no part of such share or interest is to be deemed to be part of his estate under sub-section (4). For the rest, the matter was referred back to this court to reconsider the objection of the executors to the assessment in the light of this declaration and in particular (If, as is the case, the agreement already mentioned is found not to be binding for present purposes) to consider what value ought to be placed upon the share, and interest of Thomas including goodwill." The conclusion which we have reached, in our opinion, is in consonance with both the principles laid down by the Privy Council as well as by the Australian High Court. The other decisions to which our attention was drawn, in the facts and circumstances of this case, as we have noted, and in the background of the question which we have to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in our opinion, what passed on the death of Naravandas Bangur, deceased herein, was his interest in the partnership hedged in as it was and on condition as it was with the limitation imposed by the terms of the partnership including cls. 11, 12 and 13, as we have set out hereinbefore. But that by itself will not conclude the matter. These are the factors to be taken into consideration but the valuation must be made under s. 36 which provides for the principal value of any property being estimated to be the price which, in the opinion of the Appellate Controller, it would fetch in the open market. It is true that in the open market it may or may not fetch the higher price but the valuation must be made for the principal value after taking into consideration this fact. So, the Tribunal was right to this extent that this factor could not be ignored for the purpose of making the valuation but the Tribunal, in our opinion, was not correct in saving that this actual term of the partnership would be only conclusive and the price would only be known as to what it would fetch in the open market. We would, therefore, answer the question referred to us by saying that on the facts and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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