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TMI Blog1978 (8) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... ucted in determining the value of the property passing on the death of the deceased ? " Out of these questions, the first question has been referred at the instance of the revenue, while the other two questions are referred at the instance of the accountable person. It may be stated at the outset that so far as question No. 2 is concerned, Mr. Mehta on behalf of the accountable person is not pressing the same and, accordingly, question No. 2 need not be answered. Questions Nos. 1 and 3 arise by reason of the levy of estate duty under the E.D. Act, 1953 (hereinafter referred to as " the Act"),in respect of the estate passing on the death of late Ratilal H. Kotak (hereinafter referred to as " the deceased "), who died on July 12, 1961. There was firm of M/s. Kotak Co. in which the deceased was a partner at the time of his death. The constitution of the firm was governed by the terms and conditions contained in a partnership deed executed on February 19, 1953. Under the partnership deed, the deceased was entitled to share profits and bear losses in respect of the partnership business at 8%. The question of levy of estate duty in respect of the deceased's interest in the goodwill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... belong to the surviving or continuing partners. This would naturally lead to the inference that the goodwill belonged absolutely to the continuing partners at any point of time and that it so belonged at the time of the death of the deceased. The Tribunal also referred to the provisions of cl. 9 of the partnership deed and felt that the cumulative effect of the provisions of cl. 9 read with those of cl. 7(a) of the partnership deed indicated that to all intents and purposes the head partner was the owner of the goodwill of the firm. The deceased had no interest in the goodwill of the firm. The deceased had no interest therein immediately before his death and the surviving partners, apart from the head partner, did not derive any benefit or lose any interest on the death of the deceased. Upon scrutiny of the clauses of the partnership deed the Tribunal took the view that goodwill was completely at the disposal of the head partner and accordingly neither s. 5 nor s. 7 of the Act could be invoked for valuing any portion of the goodwill or including the same under the dutiable estate. So far as the claim in respect of deduction of penalty levied on the firm was concerned, the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on the date of death of the deceased in taking the view that the head partner, in view of the provisions of the partnership deed, was the absolute owner of the goodwill of the firm. So far as the deduction in respect of the appropriate amount representing portion of the penalty levied under the I.T. Act on the firm was concerned, he submitted that the view that has been taken by the Tribunal is correct. He emphasised that there is a clear distinction between the taxation liability and the liability in respect of a penalty which may be imposed for the first time after the death of the deceased. So far as the taxation liability is concerned, he urged that it may, having regard to the settled position in law, be regarded as a debt, but so far as the liability in respect of the penalty is concerned, which was levied for the first time after the death of the deceased, it cannot be regarded as a debt due by the estate at the time of death of the deceased and the taxing authorities and the Tribunal were right in taking the view that the accountable person was not justified in claiming a deduction in respect of the appropriate share representing a portion of the penalty levied under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther under s. 5 or under s. 7 of the Act. The deceased was admittedly a partner in the firm, M/s. Kotak Co., constituted under a deed of partnership dated February 19, 1953. The firm consisted of ten partners and the deceased as one of the partners thereof was entitled to a share of 8 per cent. in the profits and was liable to bear the losses in the same proportion. Some of the special and particular provisions of this partnership deed are cls. 4 and 5. Clause 4 of the partnership deed provided that Tribhovandas Harjivandas Kotak, a partner having 21 per cent. share, was, during his lifetime, to be regarded as a head partner of the firm. All the other partners were under the obligation to act according to his instructions and directions in all matters relating to the partnership business and its conduct and management. That clause further provided that either during the absence of Tribhovandas from Bombay or during any inability through illness or otherwise, another partner, Girdharlal Bhavanbhai Kotak, who had 5 per cent. share, was to be the head partner of the partnership. Under cl. 5 of the partnership deed, the head partner was conferred a power to admit any new partner or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yone or more of the partners as he may think fit in his absolute discretion without any consideration." Having regard to the provisions of cl. 9 it is strongly urged by Mr. Mehta on behalf of the accountable person that throughout the duration of the partnership the head partner had overriding power in respect of the name and style and goodwill of the firm and under this clause either during the subsistence of the partnership or at the time of its dissolution it was open to the head partner to close the name and style of Kotak Co., and to transfer the name, style and goodwill of the firm to anyone or more of the partners as he may think fit in his absolute discretion without any consideration. His submission was that since a blanket power was conferred upon the head partner under clause 9, the deceased, in effect, had no share in the goodwill. It is not possible to accept this contention, if regard be had to the admitted and proved facts of the case. It cannot be gainsaid that under cl. 9 of the partnership qua goodwill somewhat absolute powers are conferred upon the head partner, but it is not disputed that such powers were not exercised by the head partner at any time prior t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the provisions of cl. 7(a) read, with those of cl. 9 of the partnership deed and in coming to the conclusion that the deceased had no interest in the goodwill immediately before his death. In the events that have happened in the present case having regard to the provisions of s. 5 or s. 7 of the Act, the deceased's share in the goodwill upon his death passed to the surviving partners. The value of the deceased's share in the goodwill of the firm is to be included in the dutiable estate having regard to the provisions of s. 5 and s. 7 of the Act. The E.D. authorities, in our opinion, were right in taking the view that the value of the deceased's share in the goodwill was includible in the dutiable estate though we are not concerned with the value to be put thereon. Accordingly, question No. 1 referred to above is answered in the affirmative and against the accountable person. The view that has been taken by us in respect of question No. 1 is in consonance with the view that had been taken earlier by this court in Estate Duty Reference No. 6 of 1968, Smt. Urmila (widow of Champaklal J. Shah) v. CED (since reported in [1980] 122 ITR 958), decided by us on June 22, 1978. The relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 26,312 being the portion of the penalty pertaining to the deceased's share in respect of the aggregate penalty payable by the firm. The claim for deduction in respect of the sum of Rs. 26,312 was rejected by the Asst. Controller on the ground that since the order imposing the penalty was passed after the date of death of the deceased, the liability to pay penalty arose for the first time after the death of the deceased. So far as the Appellate Controller was concerned, he confirmed the order passed by the Asst. Controller. He noted the distinction that existed between a tax liability and a liability arising from an order of penalty. So far as the tax liability was concerned, it was a debt owe as soon as the income was earned, and even though the liability is not ascertained during the lifetime of the deceased still it is a debt which is capable of being determined and can be allowed as a deduction by way of debt. According to him, the penalty for concealment of income cannot be treated on the same footing. The question of levy of penalty depends upon the facts and circumstances of each case and even the question relating to the quantum of penalty can be determined only when t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainable data. There was a perfected debt at any rate on the last day of the accounting year and not a contingent liability. The rate was always easily ascertainable. If the Finance Act was passed, it was the rate fixed by that Act, if the Finance Act was not yet passed, it was the rate proposed in the Finance Bill pending before Parliament or the rate in force in the preceding year, whichever was more favourable to the assessee. All the ingredients of a " debt " were present; it was a present liability of an ascertainable amount. A large number of English as well as Indian authorities have been considered in this judgment and the ultimate decision has been summed up by the Supreme Court at page 780 in the following words : " There is no conflict on the definition of the word 'debt'. All the decisions agree that the meaning of the expression 'debt' may take colour from the provisions of the concerned Act; it may have different shades of meaning. But the following definition is unanimously accepted: 'A debt is a sum of money which is now payable or will become payable in future by reason of a present obligation : debitum in praesenti, solvendum in futuro'. The said decisions al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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